P. K. PARIKH, HUF,VADODARA vs. THE ITO, WARD-3(1)(1), VADODARA

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

The ld. A.R. submitted as per section 43B of the Act, certain payments can be claimed as an expense in the year in which they have paid and not in the year in which the liability to pay such sum was incurred. However, if the taxpayer follows the mercantile system of accounting and if all the liability is paid on or before due date of filing the return of income, the same can be claimed as deduction. The ld. A.R. submitted that in the case of the assessee, the outstanding payable of GST on the date of filing the audit report on 11-01-2021 was Rs. 67,47,034/- and hence the auditor disallowed the same in his audit report in clause 26(i)(B)(b) and duties and taxes not paid on or before date of audit report i.e. Rs. 67,47,034/-. However, while/before the filing of return of income on 13-02-2021 u/s. 139(i) i.e. within due date of filing the return of income, out of Rs. 67,47,034/- GST payable, the assessee paid GST of Rs. 53,50,546/- from the date of audit report to date of filing of income tax return. Hence, amount to be disallowed is Rs. 13,96,488/- out of which Rs. 7,53,990/- was already disallowed by the assessee while filing the return of income. The ld. A.R. submitted that the CIT(A) erred in law and merits in not deleting the addition made by the CPC of the amount disallowed u/s. 43B to the extent of Page No. 4 P.K. Parikh HUF vs. ITO Rs. 13,96,488/- out of the total amount disallowed u/s. 43B of Rs. 59,93,05/- . The ld. A.R. submitted that the assessee is engaged in the business of providing civil construction services on the contract basis. The assessee has collected the GST from his client on behalf of the Government and the same is paid to the Government exchequer before filing the due date of the return of income to the extent of Rs. 53,50,546/-. On the collection of such GST amount as shown liability in his books of accounts which was subsequently paid to the Government along with interest on delayed payment. The ld. A.R. submitted that the assessee was neither showing any income on account of GST collected from the assessee nor it was claiming any expenditure on account of such GST. As such, the assessee has showing the amount of GST collected from the customers as liability without creating the same in the profit and loss account and similarly it was making the payment of GST amount without debiting the same to the profit and loss account. Moreover, there is no mandate under the Act to route the amount of GST collected and paid through the profit and loss account. Therefore, the provisions of section 43B is not applicable in assessee’s case and hence there is no question of making addition of GST amount to the total income of the assessee in the event if it is not paid within the due date of filing of income tax return as specified u/s. 139(1) of the Act. The ld. A.R. relied upon the decision of the Tribunal in case of SDCA Projects Pvt. Ltd. vs. DCIT order dated 01-10-2019 and also the decision of Hon’ble Delhi High Court in case of Noble & Hawitt (I)(P) Ltd. where the facts of the assessee’s case are similar to those cases 305 (ITR) 324.

The ld. D.R. submitted that the GST was not paid till date of audit report finalization and therefore the Assessing Officer as well as the CIT(A) has rightly disallowed Rs. 6,42,498/- towards the unpaid GST. The ld. D.R. relied upon the assessment order and the order of the CIT(A). The ld. D.R. relied upon the decision of Hon’ble Apex Court in case of Chowringhee Sales Bureau Pvt. Ltd. Vs. CIT 87 ITR 542.

We have heard both the parties and perused all the relevant materials available on record. The assessee did not debit the amount to the profit and loss account as an expenditure not the assessee claimed any deduction in respect of amount. In fact, the assessee has treated the same as current liabilities and provisions and also given the description under Schedule 7 regarding duties and taxes. Thus, the contention of the ld. A.R. that the provisions of section 43B is not applicable to the assessee as the assessee has paid the GST amount before filing of the return of income appears to be correct. The decision of Hon’ble Apex Court in case of Chowringhi Sales Bureau Pvt. Ltd. (supra) will not be applicable as in the present case, assessee had given the details of the current liabilities and not estimated the same and was not debited the same as an expenditure in profit and loss account and not claimed any deduction to that effect. But since the assessee had paid the said amount prior to filing of the return of income, the decision of Hon’ble Delhi High Court will be applicable in case of assessee as the ratio laid down by the Noble & Hawitt (I)(P) Ltd. (supra) will be squarely applicable in the present case. Thus, the appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed.