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Madhya Gujarat Viz. Co. Ltd. Versus Income-tax Officer And ACIT, Circle-4, Baroda Versus Madhya Gujarat Viz. Co. Ltd.

2016 (12) TMI 946 - ITAT AHMEDABAD

Addition made on account of Bad and Doubtful Debts and miscellaneous losses written off - Held that:- We observe that assessee has not provided necessary information and explanation along with relevant copies of accounts or documentary evidences before the lower authorities in order to exhibit the opening balance of bad debts provisions transferred to the books of account of assessee, details of bad debts of consumer dues as well as provisions made for consumers for dues of doubtful debts. We ar .....

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oviso to Explanation-10 to section 43(1) of the Act we find it justified to restore the issue back to the file of Assessing Officer to adjudicate afresh after verifying the apportioned amount of grant relating to different assets and calculate the depreciation at the rates applicable to such assets. Needless to mention that all necessary details will be provided by the assessee to the Assessing Officer in order to calculate the correct amount of depreciation, Ld. Assessing Officer to provide pro .....

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ow value items. - Disallowance of prior period expenses - Held that:- Apart from the bifurcation of prior period expenses as referred and general submission of assessee that the amount has been received pursuant to transfer of running business undertaking and no other documentary evidence has been placed on record in order to prove that the liability for the expenditure crystallized during the year. It is true that the books of account of assessee are audited and no major defect has been poi .....

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he assessee has been miserably failed to substantiate its claim with necessary evidences and documents. We have no reason to allow this ground of the assessee. - MAT computation - Treatment of deferred tax in the computation of income - Held that:- When we move to see the effect of tax expenditure in the computation of income we find that assessee has rightly added provisions for wealth tax, provisions for income-tax and fringe benefit tax to the net profit as per profit and loss account of .....

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firming the disallowance of deduction of deferred tax asset at ₹ 6,40,52,414/- while computing business income/loss for the year. - Claim of revising its book profit by reducing it by deferred tax asset - Held that:- It is not the case that Revenue authorities have to accept whatever stated in the return of income computing the income mechanically. As per provisions of section 143(1) of the Act is concerned the Revenue has to examine whether any claim as made by the assessee is correct .....

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ofit as per audited profit and loss account for the purpose of calculating business income as well as book profit u/s. 115JB of the Act. Further we direct the Assessing Officer to allow the assessee to claim deduction of deferred tax from book profit so as to arrive at the correct tax u/s. 115JB of the Act. - Suo motu added service tax payable to the profits as profit and loss account u/s. 43B - Held that:- Assessee has been unable to place on record any detail to prove that service tax pay .....

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ssary details and in the given facts and circumstances of the case, we are of the view that service tax payable at ₹ 13.56 lacs is covered under the provisions of section 43B sub-sec. (a) of the Act and if assessee has not deposited the service tax payable before the due date of filing of return of income then the amount needs to be added to the net profit of assessee which in this case has been rightly done so by the assessee at the time of filing return of income. Accordingly, we allow t .....

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order u/s. 143(3) of the IT Act, 1961 (in short the Act) framed on 18.12.2008 by ITO, Ward 4(1), Baroda. 2. Briefly stated facts of the case are that assessee is a limited company which came into existence in pursuance of the enactment of the Electricity Act, 2003 and Gujarat Electricity Industry Reorganization and Regulation) Act 2003. On the basis of various resolutions and transfer scheme for vesting of assets, liabilities, proceedings and personnel from erstwhile Gujarat Electricity Board ( .....

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lectronically filed on 29.12.2006 declaring income at Rs. NIL and paid taxes u/s. 115JB of the Act on the book profit of ₹ 18,34,88,182/-. The case was selected for scrutiny assessment and notice u/s. 143(2) of the Act dated 24.10.2007 followed by notice u/s. 142(1) of the Act was duly served upon the assessee. Necessary details were called for and supplied by assessee. Various additions were made. However, due to set off of brought forward business loss income was assessed at NIL and book .....

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s written off ₹ 34,03,318/- and (ii) Miscellaneous losses) and write off ₹ 7,38,118/- without giving any cogent reasons whatsoever. 5. Brief facts relating to this ground are that ld. Assessing Officer on the basis of report of Comptroller and Auditor General of India dated 15.2.2007 observed that bad debts of ₹ 41.41 lacs (bad and doubtful debts written of ₹ 34.3 lacs and miscellaneous loss written off of ₹ 7.38 lacs) due to non-adjustment of the same from provisio .....

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ns. Reply of the assessee was not convincing to the ld. Assessing Officer, as it was not supported by relevant copy of accounts or documentary evidences which could have proved that accounting entries have been passed in the subsequent year to rectify the mistake. 6. When the issue came up before the CIT(A) the ground of assessee was dismissed by CIT(A) by observing as below:- 5.2 I have given my careful consideration to the submission and also examined the facts of the case. There is no error i .....

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losses incurred during the year were adjusted against these provisions. Further out of 24 accounting locations of the company a few locations could not pass the accounting entries during the F.Y. 2005-06 and the same have been passed in the subsequent years. Similarly, as regards miscellaneous loss of write off the total expenses under this head amounted to ₹ 25,01,509/- but after adjusting this amount against the opening provisions of bad debts assigned to the company, the balance amount .....

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pursuant to which 7 different companies came into operation for carrying out various activities generation, distribution, transmission etc. Assessee company is engaged in power transmission got its assets and liabilities as opening balance w.e.f. 1.4.2005. As submitted by ld. AR that there existed opening balance of bad debt provisions assigned to the company against which bad debts and balance written off have been adjusted. As against bad debts of ₹ 34,03,118/- they relate to bad debts w .....

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to exhibit the opening balance of bad debts provisions transferred to the books of account of assessee, details of bad debts of consumer dues as well as provisions made for consumers for dues of doubtful debts. We are of the view that in the given facts and circumstances the issue needs to be restored back to the Assessing Officer for verification of assessee's claim. Both the assessee and the Revenue have no objection if the issue is restored back to the Assessing Officer. We accordingly do .....

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depreciation and has thereby confirmed the restriction of the appellant's claim of depreciation to ₹ 19,68,36,274/- as against ₹ 30,53,18,250/- claimed by the appellant. 13. During the course of assessment proceedings it was observed by Assessing Officer that 10% of the capital grant has been routed through profit and loss account and the remaining amount has been shown under the head reserve. Ld. Assessing Officer was of the view that as the subsidy/grant received are towards ca .....

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owance of depreciation amounting to ₹ 10,84,81,976/-. The facts in this regard as, noted by the AO are that in the balance sheet the appellant company has shown reserves and surplus as on 31.03.2006 amounting to ₹ 115.04 crores. It was noted by the AO that these reserves and surplus were govt. subsidy towards cost of capital assets and therefore he asked as to how the accounting treatment has been given to these reserves. It was stated before the AO that out of 115.04 crores ₹ .....

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m the cost of capital assets. These are treated as deferred credits and 10% of the yearend balance is transferred to profit and loss account. The AO after considering the appellant's reply came to the conclusion that since the capital grant and consumer contribution were received towards cost of capital assets, the cost of the assets should be reduced to that extent for the purpose of depreciation. He accordingly worked disallowable depreciation at ₹ 10.84 crores 6.1 Before me, it has .....

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lf. Since these grants are towards cost of capital assets, the issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Sawhney Steel (P) Ltd. This fact is undisputed. Therefore there is no error in the findings of the AO. In fact, if appellant's submission is accepted, the whole amount would be liable to tax during the year as the appellant's practice of offering 10% of the year end balance as income is not sustainable under the provisions of I.T. Act/1961. .....

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n and capital grant received is shown separately under the account reserve and surplus as per accounting policy as disclosed in the Annual Report and 10% is transferred to the profit and loss account and, therefore, the receipt being capital in nature cannot be considered as income. Ld. AR referred and relied on the decision of Co-ordinate Bench in the case of Gujarat Energy Transmission Corpn. Ltd. (GETC L) vs. ACIT in ITA No. 704/Ahd/2012 for Asst. Year 2008-09 and other vide order dated 12.06 .....

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ing company and then it is allocated to the assessee which is one of the subsidiary company and further such subsidy are not granted to actually to meet the cost but are granted as an inclusive of rural economically backward unviable areas. Assessee received subsidies on different schemes viz. Rural Electrification and Tribal area Electrification and the assets cannot be bifurcated into Rural/Tribal area etc. 17.1 There is no dispute to the fact that the grants received from the Government are c .....

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any, as has been met directly or indirectly by any other person or authority:- [Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, [but before the 1st day of March, 1975,] and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five th .....

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re such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.] 17.2 Proviso to Explanation-10 to section 43(1) contemplates that subsidy .....

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sferred to P and L account every year is not in accordance with the provisions of the Act. As envisaged in explanation 10 to section 43(1), where a portion of the cost an asset acquired by the assessee has been met directly or indirectly by the Central Government or State Govt. or any Authority established under any law, or by any other person, in the form of subsidy or grant or reimbursement then in a case where the subsidy is directly relatable to the asset, such subsidy shall not be included .....

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clear provisions of the Act as stated supra and the assessee himself have admitted that the subsidy and grant received are towards Capital assets, the assessee should have reduced the same from the Capital asset to arrive at the actual cost. However the assessee has failed to do so and also not furnished the details of fixed assets in respect of which the subsidy and grants have been received. Hence and inference is drawn that the Govt. grants/subsidy and consumers' contribution are relatab .....

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08/- minus ₹ 17,20,37,655/-, which amounts to ₹ 9,28,93,053/-, and 15% of ₹ 6427.94 lakhs amounting to ₹ 964.191 lakh. The submissions of the assessee before us is that the uniform rate of 15% adopted by the CIT(A) is not justified. As per provisions of section 43(1) of the Act, the capital grant should be reduced from the cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. Thus, the capital grant receipt in respect of asset, on which depr .....

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ch relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose. 17.4 In the light of the decision of the Co-ordinate Bench discussed above and in the light of proviso to Explanation-10 to section 43(1) of the Act we find it justified to restore the issue back to the file of Assessing Officer to adjudicate afresh after verifying the apportioned amount of grant relating to different assets and calculate the depreciation at the rates applicable to such ass .....

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8,030/- under the head small and low value items written off. 19. Addition of ₹ 1,08,030/- was made by Assessing Officer towards the claim of assessee of write off of small and low value items of ₹ 1,08,030/- as the actual cost of machinery and plant individually was not exceeding ₹ 5,000/-. However, ld. Assessing Officer was of the view that w.e.f. 1.4.1996 no such provision exists for debiting the cost of assets as expenditure value of which is less than ₹ 5,000/-. Even .....

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he lost item. 21. Ld. DR supported the orders of lower authorities. 22. We have heard the rival contentions and perused the material on record. Through this ground assessee is aggrieved that ld. CIT(A)s decision for sustaining the addition of ₹ 1,08,030/- being balance of small and low value items. As submitted by ld. AR that the amount of ₹ 1,08,030/- mainly includes small and low value items including calculators, mobile phones etc. which is practically difficult for keeping contro .....

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d Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the disallowance of prior period expenses amounting to ₹ 20,69,096/- without appreciating the fact that such expenditure crystallized during the year as a result of de-merger of erstwhile GEB. 24. In the profit and loss account assessee has claimed ₹ 20,69,096/- towards prior period cost of expenses. Details when being asked by ld. Assessing Officer assessee has simply submitted that expenditures are in t .....

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nditure had already been accrued in earlier years and the assessee company has only taken over the existing liability. 26. In appeal before the Tribunal, ld. AR submitted that after restructuring in the year under appeal it is the first year of operation of the assessee hence assessee could not bring prior period expenses were allocated to the company as a result of split transfer of the running business and therefore, these expenditure crystallized during the year under consideration. 27. Ld. D .....

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.11,19,550/- Rs.20,69,096/- 29. We further observe that apart from the bifurcation of prior period expenses as referred and general submission of assessee that the amount has been received pursuant to transfer of running business undertaking and no other documentary evidence has been placed on record in order to prove that the liability for the expenditure crystallized during the year. It is true that the books of account of assessee are audited and no major defect has been pointed out by the As .....

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en miserably failed to substantiate its claim with necessary evidences and documents. We have no reason to allow this ground of the assessee. Accordingly this ground of assessee is dismissed. 30. Ground No. 5 reads as under:- 5.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of Gratuity amounting to ₹ 48,823/- by invoking the provisions of section 40A(9) of the IT Act. This ground has not been pressed, hence the same is dismis .....

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et amounting to ₹ 6,40,52,414/- while computing the book profits under section 115JB of the Income Tax Act, 1961. 32. Ground No. 6 is arising out of the observation of ld. Assessing Officer with regard to treatment of deferred tax in the computation of income. In the computation of income assessee has reduced deferred tax assets from the net profit but has not done so while calculating book profit u/s. 115JB of the Act. During the course of assessment proceedings no further reason was give .....

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decided favourably. 33. Aggrieved assessee then went in appeal before ld. CIT(A) raising two grounds. Firstly against non-allowability of deduction of deferred tax asset while computing business income and secondly for not allowing deduction of deferred tax on assets u/s. 115JB of the Act without giving any finding in the assessment order. Ld. CIT(A) dismissed the ground of assessee claiming deduction of deferred tax asset for calculation of business income by observing as under:- 13.2 I have g .....

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ecific provisions of LT. Act only. The appellant has not brought any provision of law as to how an amount', much is included in the taxable profit is to be reduced, If it is a part of taxable profit. If any amount is reduced from declared profit, then it has to be established that the amount is not taxable as per I.T. Act. In the absence of such exercise the claim cannot be allowed. This ground is accordingly dismissed. Ld. CIT(A) also denied the adjustment of deferred tax u/s. 115JB of the .....

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n of deferred tax asset from book profit is concerned ld. AR submitted that provisions of section 115JBExplanation-1 clause (viii) of the Act clearly specifies that if the amount of deferred tax is credited to the profit and loss account then it needs to be reduced from the net profit for the purpose of calculating book profit u/s. 115JB of the Act. Ld. AR further referred and relied on the decision of Coordinate Bench, Ahmedabad in the case of Zen tobacco Co. [2016] 65 taxmann.com 320 (Ahmedaba .....

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ssessee before ld. CIT(A) for allowing claim of deduction of deferred tax asset while computing the book profit u/s. 115JB of the Act claim of which was not made while furnishing return of income. As far as ground No. 6 is concerned, we observe that in the audited profit and loss account for F.Y. 2005-06 exhibiting at page 27, showing profit and loss before tax at ₹ 127180617/-. As the deferred tax asset of ₹ 6,40,52,414/- was more than other tax liabilities, the resultant figure was .....

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enefit tax to the net profit as per profit and loss account of ₹ 174131929 (net profit after tax at ₹ 171794810 + net prior period credit at ₹ 2337119). Further assessee has rightly deducted deferred tax asset from the net profit for the purpose of calculating business income. To this extent assessee has made no mistake in calculating the business income and has rightly deducted deferred tax asset. Had it been deferred tax liability, it would have been added to the net profit. .....

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has paid the tax of ₹ 14780769/- as per the provisions of section 115JVof the Act. Assessee has computed MAT liability on profit after tax by ₹ 171794810/- as shown in its profits and loss account and has made positive adjustment only on account of provisions of ₹ 11693372/- made for income-tax without making any adjustment on account of deferred tax asset amounting to ₹ 6,40,52,414/-. Assessee is of the opinion that as per the provisions of section 115JBof the Act, the p .....

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order to appreciate the claim of assessee we need to refer the provisions of section 115JB of the Act for calculation of book profit provided in Explanation-1 to section 115JB of the Act which allows the assessee to reduce its profits by the amount of deferred tax if any such amount is credited to the profit and loss account. Examining the facts before us, we find that in the audited profit and loss account assessee has increased it profits before taxes by adding the deferred tax assets at ͅ .....

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was not claimed in the computation of income. If the assessee has rightly moved an application u/s. 154 of the Act to rectify the intimation sent by Assessing Officer then Assessing Officer should rectify such intimation and allow the claim of assessee. We find that the decision of the Co-ordinate Bench, Ahmedabad in the case of Zen Tobacco Co. P. Ltd. comes to rescue to the plea of the assessee wherein the Co-ordinate Bench has observed that in the provisions of section 139(1), 139(5) and 143(1 .....

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ld necessarily mean mistake apparent from the record. Respectfully following the decision of the Co-ordinate Bench referred above and in the given facts and circumstances of the case, we are of the view that assessee was eligible for deduction of deferred tax asset of ₹ 6,40,52,414/- from the net profit as per audited profit and loss account for the purpose of calculating business income as well as book profit u/s. 115JB of the Act. Further we direct the Assessing Officer to allow the asse .....

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relying upon the decision of CIT vs. Noble and Hewitt (I)(P) Ltd. thereby overlooking the fact that unpaid service tax is very much covered u/s. 43B (a) of the I.T. Act, 1961 and even in the case of CIT vs. Noble and Hewitt (I)(P) Ltd. (supra), the Hon'ble High Court, Delhi has nowhere held that Section 43B of the I.T. Act does not apply to service tax. 2. The appellant craves leave to add, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal: The order of t .....

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e computation of income filed by the assessee. Later on at the time of filing appeal before ld. CIT(A) assessee took the ground against the order of Assessing Officer for not allowing deduction of unpaid service tax amounting to ₹ 13.56 lacs without considering the fact that provisions of section 43B of the Act are applicable on the service tax payable. Ld. CIT(A) allowed the claim of assessee by following the judgment of Hon. Delhi High Court in the case of CIT vs. Noble and Hewitt (I)(P) .....

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service tax payable as expenditure in the profit and loss account because it is the tax collected by assessee on behalf of the government and it needs to be paid to the government on the due date. Ld. DR further submitted that liability of service tax is same to that of other tax or duty which assessee has charged from its customers and if the tax so payable is not deposited before the due date of filing of return then it needs to be added to the net profit of the assessee u/s. 43B of the Act. .....

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of the service tax collected assessee had deposited part of the amount but an amount of ₹ 14.40 lacs was not deposited by the assessee with concerned authorities. The assessee did not claim any deduction in this regard nor debited the amount as expenditure in the profit and loss account. Assessing Officer as well as CIT(A) disallowed the amount and added it back to the income of assessee. Ld. DR submitted that from the above it can be seen that Hon. Delhi High Court though observed that s .....

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ich is debited to Profit and Loss Account. Under section 43B, the items like taxes etc, which are debited to Profit and Loss Account, are only to be disallowed, if not paid and the fact of the matter in the present case of the assesssee is that the above amount has not been debited to the Profit and Loss Account, and therefore, is not disallowable under section 43B. 2. The concept of service tax has been stated as under:- (i) Bombay High Court in CIT vs. Ovira Logistics (P) Ltd. - (2015) 377 ITR .....

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se." Copy of above decision is enclosed herewith. (ii) Further, under Rule 6 of Service Tax Rules, 1994, as applicable in Asst. Year 2006-07, service tax was to be paid only after the receipt of service tax by the assessee from the persons to whom he has rendered the services. In other words, the assessee under Service Tax Act is only a collecting agent, who has liability to pay service tax to the Government on or after the receipt thereof. In view of the peculiarity of this provision, it i .....

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mere collecting agents, as it has been followed in the case of the assessee. 46. We have heard the rival contentions and perused the record. The crux of the issue raised in this Cross Objection is whether provisions of section 43B of the Act apply to the service ta payable at the end of the year. In the case of assessee amount of ₹ 13.56 lacs was added to the net profit as profit and loss account towards inadmissible items at the time of filing return of income. Post assessment ,assessee p .....

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x payable is covered under the provisions of section 43B sub-section(a) of the Act, we find that section 43B sub-sec. (a) of the Act refers to any sum payable by the assessee by way of tax, duty, cess or fees. Now taking example of service tax there can be two possibility firstly an assessee has taken some services and has paid service tax on such services taken from other persons. In this case service tax is a mere expenditure which the assessee has booked in the profit and loss account and the .....

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e books. Interpreting the provisions of section 43B sub-sec. (a) of the Act, which in our view contemplates that this clause has been enacted with regard to taxes charged by the assessee from its customers and if the taxes so charged are payable at the end of the year and are not paid to the credit of the government even before due date of filing return then such amount needs to be added back to the income of assessee and can be claimed as expenditure in the following year in which such tax or d .....

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