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Income Tax Appellate Tribunal, ‘B‘ BENCH
Before: SHRI C.M GARG & SHRI M.BALAGANESH
O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y. 2015-16 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-31, Delhi in appeal No.240/18-19/10182/17-18 dated 12.06.2019 (hereinafter referred to as ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 29.12.2017 by the ld. Income Tax Officer, Ward-6(4), Delhi (hereinafter referred to as ld. AO).
M/s Coronation Infrastructure Pvt. Ltd.,
The only issue to be decided in this appeal is has to whether the ld. CIT(A) was justified in confirming the addition made by the ld. AO in the sum of Rs. 3,24,69,989/- pertaining to service tax payable u/s. 43B of the Act, in the facts of circumstances of the instant case
We have heard rival submissions and perused the materials available on record. The assessee company is engaged in contract mining and transformation of ores/coal to the designated site within the mining area. During the year under consideration, the assessee company showed its income under the head ‘income from business or profession’. The ld. AO on perusal of tax audit report observed that assessee company has not paid service tax of Rs. 8,36,80,264/- on or before the due date of filing the Income Tax Return u/s. 139(1) of the Act. When the assessee was confronted by the ld. AO in this regard, the assessee company submitted service tax remittance challan of Rs. 40 lakhs to prove that Rs. 40 lakhs was remitted before the due date of filing the return of income u/s. 139(1) of the Act i.e. 30.11.2015 and that the remaining service tax payable of Rs. 7,96,80,264/- was not paid before the due date. However, the assessee also stated that this service tax payable is shown only as liability in the balance sheet and the transaction is not at all routed through Profit and Loss Account. Hence in response to the show cause notice issued by the ld. AO as to why the disallowance u/s. 43B of the Act, should not be made for the service tax payable, the assessee company submitted that provisions of section 43B of the Act would come into operation only when an item of expenditure is debited in the P & L account and claimed as deduction thereon. It was pleaded that in the instant case, the service tax portion of the transaction was not routed through P & L account at all and was kept in the balance sheet as a M/s Coronation Infrastructure Pvt. Ltd., liability. However, as and when the service tax is duly remitted to the account of the Central Govt., the assessee debits the said liability account and that it will not have any impact in the P & L account of the assessee. The assessee also placed reliance on the decision of Hon’ble Delhi High Court (Jurisdictional High Court) in the case of CIT vs Noble & Hewitt (I) Pvt. Ltd. in Appeal No. 839 of 2007 dated 10.09.2007, wherein it was held that assessee, even while following mercantile system of accounting, cannot be invited with the disallowance of the deduction not claimed by it in the return. The assessee also placed reliance on several Tribunal decisions in support of his contentions. However the ld. AO ignored the aforesaid contentions of the assessee and placed reliance on the decision of Hon’ble Calcutta Court in the case of Chowringhee Sales Bureau Pvt. Ltd. vs. CIT reported in 110 ITR 385, wherein it was held that the liability to pay sales tax arose the moment a sale or purchase was effected. In the opinion of the ld. AO, the service tax liability of Rs. 7,96,80,264/- which was not deposited within the due date of filing the return of income u/s. 139(1) of the Act becomes a trading receipt taxable as income and accordingly applied the provisions of section 43B of the Act and added the same to the total income of the assessee. This action of the ld. AO was upheld by the ld. CIT(A).
We find that the issue in dispute is no longer res integra in view of the co-ordinate bench decision of this Tribunal in assessee’s own case for assessment year 2015-16 in revenue appeal in dated 11.07.2022 wherein this Tribunal had remanded this issue to the file of ld. AO to examine the factual position and also by considering the decision of Hon’ble Jurisdictional High Court in the case of Noble & Hewitt (I) Pvt. Ltd. referred (supra). The relevant observations of this Tribunal for assessment year 2015-16 are as under:-
M/s Coronation Infrastructure Pvt. Ltd.,
7. We have heard both the parties and perused the records. We find that grievance raised by the Revenue is whether the Ld. CIT(A) is right in not disallowing the service tax liability of Rs.4,72,10,275/- which was received from the debtors before the due date of filing of return but not paid to the Government account as per the provisions of section 43B of the Act. We find the ground raised
by the Revenue is not clearly emanating from the orders of authorities below. Be as it may, it is also not clear from the orders of the authorities below as to whether they have correctly followed the decision of the jurisdictional High Court in the case of CIT vs Noble And Hewitt (I) P. Ltd. in appeal No. 839 of 2007 date 10.09.2007 . The Assessing Officer is claiming that the facts are different while the Ld. CIT(A) in his finding is stating the same decision is considered by Hon’ble Bombay High Court in the case of Ovira Logistics (P) Ltd. and he has referred to the decision of the Hon’ble Bombay High Court. We find that in the case of CIT vs Noble And Hewitt (I) P. Ltd. (supra), Hon’ble Delhi High Court has held as under:- “The revenue is aggrieved by an order dated 17-11-2006 passed by the Income Tax Appellate Tribunal ('Tribunal'), Delhi Bench "D", New Delhi in relevant for the assessment year 1999-2000.
2. The assessed maintains a mercantile system of accounting. It had collected service tax during the previous year relevant to the assessment year in question. Out of the service tax so collected the assessed had deposited part of the amount but an amount of Rs. 14.40 lakhs was not deposited by the assessed with the concerned authorities. The assessed did not claim any deduction in this regard nor did it debit the amount as an expenditure in the Profit & Loss Account. The assessing officer as well as the Commissioner (Appeals) ('Commissioner (Appeals)') nevertheless disallowed the amount and added it back to the income of the assessed.
3. The Commissioner (Appeals) was of the view that the assessed had not followed the correct accounting procedure. If it had done so, the amount would have had to be debited to Profit & Loss Account and thereafter the assessed could claim a deduction thereon. The Commissioner relied upon decision of the Calcutta High Court in Chowringhee Sales Bureau (P) Ltd. v. CIT .
4. In appeal, the Tribunal was of the opinion that in view of the provisions of Section 43B of the Income Tax Act, 1961 ('Act'), since the assessed had not claimed a deduction there was no question of disallowing the deduction which was not even claimed. The relevant extract of Section 43B of the Act reads as follows: Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessed by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, (b) to (f) ** ** ** shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessed according to the method of accounting regularly employed by him) only in computing the income
M/s Coronation Infrastructure Pvt. Ltd., referred to in Section 28 of that previous year in which such sum is actually paid by him.
5. Learned Counsel for the revenue urges that the decision of the Calcutta High court in Chowringhee Sales Bureau (P.) Ltd. 's case (supra) covers the point in its favor. We are unable to agree. In that case it was held that the liability to pay sales tax arose the moment a sale or purchase was effected and if an assessed was maintaining accounts on the mercantile system it would be entitled to deduction of the estimated liability of sales tax, even though such sales tax had not been paid to the sales tax authorities. The question there concerned was the entitlement of the assessed to deduction under Sections 10(1)and 10(2)(xv) of the Indian Income Tax Act, 1922.The decision is clearly distinguishable in its application to the present case. Here we are concerned with an assessed who has not even claimed any deduction on the ground of service tax and has not debited the amount to its Profit & Loss Account. Moreover the provisions of Section 43B of the Act are quite clear in this regard. The decision of the Calcutta High Court in Chowringhee Sales Bureau (P) Ltd. s case (supra) was not in the context of the applicability of Section 43B of the Act.
6. In our opinion since the assessed did not debit the amount to the Profit& Loss Account as an expenditure nor did the assessed claim any deduction in respect of the amount and considering that the assessed is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise.
7. Learned Counsel for the revenue submits that the assessed has sought to evade tax under the mercantile system of accounting. We are of the view that it is not for the revenue authorities to tell the assessed how to maintain its accounts.
We cannot find any fault in the view taken by the Tribunal and find no merit in this appeal 9. No substantial question of law arises. 10.The appeal is dismissed.”
We find, it is a settled law that the issue on which there is a decision of the jurisdictional High Court, the same has to be followed. In the interest of justice, we direct the Assessing Officer to examine the issue in this appeal and on the touchstone of the aforesaid jurisdictional High Court decision accordingly. Needless to add, assessee should be granted adequate opportunity of being heard.
Similar direction was issued by this Tribunal in assessee’s own case for A.Y. 2016-17 also in & 757/Del/2020 order dated 13.07.2022. The ld. DR vehemently relied on the orders of the lower authorities. However, he fairly stated that in case a view has been taken by this Tribunal to examine the factual position, the same direction may
M/s Coronation Infrastructure Pvt. Ltd., be given for this year also. Accordingly, we deem it fit, in the interest of justice and fair play, to restore this issue in the light of Tribunal directions given in assessee’s own case as reproduced supra. Accordingly, the ground raised by the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 19/04/2023.