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Assessee represented by Ms. Chaitali Shah, C.A. Department represented by Ms. Jayshree Thakur, Sr. DR Date of hearing 20/07/2023 Date of pronouncement 28/08/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A)) dated 13/12/2021 for the Assessment Year (AY) 2017-18. The assessee has raised following grounds of appeal: “1. The learned Commissioner of Income-tax (Appeals) erred in the facts of the case, in law and in circumstances by disallowing Rs. 6,17,424/- being unpaid Service Tax Liability ignoring the fact that the assessee follows exclusive method of accounting.
2. The learned Commissioner of Income-tax (Appeals) erred in the facts of the case, in law and in circumstances by disallowing Rs. 6,17,424/- outstanding Service Tax Liability as the appellant has already discharged the liability on the same.
3. The learned Commissioner of Income-tax (Appeals) erred in the facts of the case, in law and in circumstances by taxing the same amount twice and ignoring the fact that the appellant had paid the 40% of the said amount under AAP & Co. Vs. DCIT the Sabka Vishwas Legacy Dispute Resolution Scheme and has offered the balance amount as an income in A.Y. 2020-21.
4. Demanding tax on Rs. 6,17,424/- being outstanding Service Tax Liability, out which 40% has already been paid and remaining has already been offered as an income, will lead to unjust enrichment.
5. The appellant craves leave to add, alter, amend, delete and/or withdraw any or all the above grounds of appeal.”
2. Brief facts of the case are that the assessee is a Chartered Accountant Firm, filed its return of income for A.Y. 2017-18 on 31/10/2017 declaring NIL income after set off of brought forward losses of Rs. 1,18,521/-. The return was processed by the Central Processing Centre (CPC), Bangalore vide intimation dated 05/12/2018, in computing total income at Rs. 7,35,945/-. The C.P.C. made adjustment/disallowance of service tax payable of Rs. 6,17,424/- thereby raising a demand of tax of Rs. 1,90,783/-. Aggrieved by the disallowance of service tax, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed its detailed written submission. The assessee in its submission, submitted that the assessee is a partnership firm, incorporated on 23/06/2010, is in the profession of consultancy services with regard to Income tax, Goods and Services Tax (GST) and other statutory compliances. The assessee filed its return of income on 31/10/2017 showing returned income at Rs. 1,07,355/-. The assessee got notice of proposed assessment under Section 143(1)(a) of the Income Tax Act, 1961 (in short, the Act) on 10/08/2018. The assessee responded to such notice disputing/disagreeing with the proposed adjustment. The C.P.C.
AAP & Co. Vs. DCIT made adjustment disregarding the contention of assessee by making addition on account of disallowance of service tax payable of Rs. 6,17,424/-. Such addition was made on the basis of entry in para 26 of Audit report wherein amount of expenses of Rs. 6,17,424/- is shown. Such addition was made on the basis of entry in para 26 of audit report wherein amount of expenses of Rs. 6,17,424/- was disallowed under Section 43B of the Act, which was not reflected in the income tax return for the year under consideration. The assessee further submitted that their firm is following mercantile system of accounting and exclusive method for the purpose of accounting of service tax. The assessee further explained by giving example that if Mr. X provided his services amounting to Rs. 10.00 lacs on which service tax is applicable @ 12% thereby accounting to taxable value amounting Rs. 10.00 lacs and service tax amounting to Rs. 1.20 lacs and demonstrated inclusive and exclusive method in the following manner: INCLUSIVE METHOD Profit & Loss Account Debit Credit Particulars Amount(Rs.) Particulars Amount(Rs.) 1,20,000 Sale of Service 11,20,000 Service Tax Expense Balance Sheet Liability Asset Particulars Amount(Rs.) Particulars Amount(Rs.) Service Tax 1,20,000 Expense AAP & Co. Vs. DCIT EXCLUSIVE METHOD Profit & Loss Account Debit Credit Particulars Amount(Rs.) Particulars Amount(Rs.) Sale of Service 10,00,000 Balance Sheet Liability Asset Particulars Amount(Rs.) Particulars Amount(Rs.) 1,20,000 Service Tax Expense 3. On the basis of aforesaid explanation, the assessee submitted that when exclusive method is being followed by them, amount of service tax will not impact profit and loss account as it cannot have claimed amount of service tax expenses it cannot be disallowed u/s 43B of the Act. The assessee further explained that when exclusive method is followed for the purpose of accounting of service tax, the amount of service tax will not impact the profit and loss account as amount of service tax is not debited to the profit and loss account i.e. it is not claimed as expenses, hence it cannot be disallowed. The assessee also relied on the decision of Hon'ble Delhi High Court in CIT Vs Noble and Hewitt (I) (P) Ltd. in I.T. Appeal No. 839/2007 dated 10/09/2007. The assessee again vide their submission dated 17/11/2021 submitted that they are following exclusive method of accounting for the purpose of accounting of service tax, it has not claimed as expenses. So if the assessee has not claimed as expenses, it cannot be disallowed and added to the income of assessee.
AAP & Co. Vs. DCIT 4. The ld. CIT(A) after considering the submissions of assessee, upheld the action of CPC by taking a view that the service tax of Rs. 6,17,424/- has not been paid till the date of filing return of income as reflected in the tax audit report. On the decision of Hon'ble Delhi High Court in CIT Vs Noble and Hewitt (I) (P) Ltd. (supra), the ld. CIT(A) held that the Hon'ble High Court was not considering the issue whether service tax collected and remained unpaid till the date of furnishing of return of income, form part of total income of current year. Further aggrieved, the assessee has filed present appeal before the Tribunal.
I have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee submits that while processing the return of income, the CPC made prima facie adjustment of Rs. 6,17,424/- under Section 43B of the Act being liability of service tax not discharged before due date of filing return of income. The assessee is a Chartered Accountant Firm, follows exclusive method of accounting with regard to service tax. Accordingly, the unpaid amount of Rs. 6,17,424/- was not debited to the Profit & Loss Account. During the appellate stage before the ld. CIT(A), the assessee relied on the decision of Hon'ble Delhi High Court in CIT Vs Noble and Hewitt (I) (P) Ltd. (supra) wherein it was held that when deduction is not claimed in the Profit and Loss Account, the provisions of Section 43B is not AAP & Co. Vs. DCIT applicable. The ld. CIT(A) disregarded the decision to the facts of the present case and confirmed the disallowance made by way of adjustment. The ld. AR of the assessee submits that the assessee has not claimed deduction of service tax so it cannot be disallowed.
In alternative submissions, the ld AR for the assessee submits that even if it is assumed that the adjustment is proper, the assessee was liable to pay only 40% of demand as per “Sabka Vishwas Legacy Dispute Resolution Scheme, 2019” (in short, SVLDRS). Accordingly, the amount of Rs. 2,46,970/- being 40% of addition was payable by the assessee. The disallowance under Section 43B can be made only in respect of any sum payable by the assessee by way of tax as per clause (a) of Section 43B of the Act and remaining 60% of amount i.e. 7,30,454/- is required to be deleted. The ld. AR of the assessee submits that the assessee has already placed on record Form-4 of SVLDRS issued by designated authority wherein it is mentioned that the assessee has paid amount of Rs. 1,45,604/- and Rs. 88,471/- on 10/01/2020 and 07/03/2020 respectively for A.Y. 2017-18. The assessee has already offered 60% of the amount being relief derived by the assessee as per scheme in audited account for A.Y. 2020-21. The amount of Rs. 5,10,287/- reflected in the audited accounts includes this amount. The assessee also applied for the benefit of scheme for other years. So on the grounds of double taxation, the addition cannot be made to the extent of 40% of Rs. 6,17,424/-. So