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2007 (9) TMI 238 - HC - Income TaxService tax collected assessee neither claimed any deduction nor debited the amount in the P/L A/c AO & CIT disallowed the amount and added it back to the income of assessee held that since the assessee did not debit the amount to the Profit and Loss A/c as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting the question of disallowing the deduction not claimed would not arise
Issues:
1. Disallowance of service tax not deposited by the assessee. 2. Interpretation of Section 43B of the Income Tax Act. 3. Applicability of accounting procedures in claiming deductions. Issue 1: Disallowance of service tax not deposited by the assessee The assessee, following a mercantile system of accounting, had collected service tax but failed to deposit a portion of it with the authorities. Despite not claiming any deduction or debiting the amount in the Profit and Loss Account, the Assessing Officer and the Commissioner of Income Tax disallowed the amount, adding it back to the assessee's income. The Commissioner cited a decision by the Calcutta High Court to support the disallowance. Issue 2: Interpretation of Section 43B of the Income Tax Act The Tribunal, considering Section 43B of the Income Tax Act, held that since the assessee did not claim a deduction, there was no basis for disallowing a deduction that was not even claimed. Section 43B specifies that deductions for certain payments are allowed only when the sum is actually paid, regardless of when the liability was incurred. The Tribunal disagreed with the Commissioner's reliance on the Calcutta High Court decision, emphasizing the distinction in the present case. Issue 3: Applicability of accounting procedures in claiming deductions The High Court, in its judgment, noted that the assessee, by not debiting the amount in the Profit and Loss Account or claiming any deduction, did not warrant the disallowance of an unclaimed deduction. The Court emphasized that the assessee's adherence to the mercantile system of accounting did not necessitate disallowing a deduction that was not even sought. It was also highlighted that it is not within the Revenue authorities' purview to dictate how an assessee maintains its accounts. In conclusion, the High Court dismissed the appeal, finding no fault in the Tribunal's decision and stating that no substantial question of law arose in the case.
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