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TMI Blog2021 (12) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... it with the expenses booked under the head "Rates and Taxes". On examination of the details, it transpired that the sum of Rs. 12,25,998/- was towards payment of service tax under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES). After going through the break-up of the amount, the AO observed that the said sum was paid for the financial years 2007-08 to 2012-13. Holding such an amount as a Prior period expenditure and the further fact that the assessee itself opted the VCES for paying liability of earlier years, the AO made disallowance of the same. The ld. CIT(A) countenanced the disallowance after noticing that the amount did not pertain to the year under consideration and further that there was no documentary evidence to prove that it was a simple service tax and not a penal payment. The assessee has come up in appeal before the Tribunal. 4. I have heard both the sides and scanned through the relevant material on record. It is seen that the assessee was regularly paying Service tax, filing respective returns for the same. The instant amount of Rs. 12.25 lakh pertains to service tax on Incentives received by the assessee from its principals, namely, Bajaj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s consequent to rendering the service during such earlier years. In such circumstances, it is held that the amount of Rs. 12.25 lakh paid by the assessee is not an expenditure for which the liability got crystallized in the year under consideration. 6. The ld. AR raised an alternative argument that the amount of service tax should be allowed in terms of section 43B of the Income-tax Act, 1961 (hereinafter also called `the Act'). Section 43B of the Act, with the caption ` Certain deductions to be only on actual payment', insofar as it is material for the extant appeal, reads as under:- `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 assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or ........... shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :' 7. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsofar as the timing aspect of service tax deduction is concerned, it would be apposite to take note of rule 6 of the Service Tax Rules, which deals with the `Payment of service-tax'. Sub-rule (1) provides that: `The service-tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the calendar month in which the payments are received, towards the value of taxable service'. Then there are certain provisos, which are not relevant for the purpose. The point worth highlighting is that section 43B triggers to make deduction of `any sum payable by the assessee by way of tax'. If the tax is not payable, then the section ceases to apply and deduction comes to be governed by the normal method of accounting consistently followed by an assessee. It has been noted above that the liability to pay service-tax arises after its receipt and not before that. This is reason that when the assessee in CIT Vs. Ovira Logistics (P.) Ltd. (2015) 377 ITR 129 (Bom) had shown the amount of service tax payable at the end of the year which was not paid, the AO disallowed the same u/s 43B on the ground that it was not paid. However, the Hon'ble jurisdictional High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it is recovered in the same financial year but not deposited. Au contraire, if service tax is recovered in a later financial year it will not suffer any disallowance, even if not deposited. 11. The position which ergo emerges is that an assessee is otherwise eligible for claiming deduction, in law, in the financial year of raising the invoice, even if the service tax is neither received nor deposited in such a year. If however, the assessee suo motu does not claim deduction of service tax in the financial year of raising invoice for not having received and deposited the amount of service tax, he can validly claim deduction u/s 43B of the Act in the later year on realizing the amount and paying the service tax. Reverting to the facts of the case, it is seen that the amount of service tax has actually been paid in the year under consideration but no deduction was claimed by the assessee in the earlier financial years when Incentives, impliedly including the amount of service tax, were received. As such, the same has to be allowed as deduction in the year in question in terms of the main provision of section 43B granting deduction at the time of actual payment. 12. Another signi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earlier Circular No.04/2008 dated 28-04-2008 providing for non deduction of tax at source on the component of service tax along with rent payment, has clarified that tax should be deducted at source on payments covered u/s.194J inclusive of service tax. Service tax is includible in the total income can be better comprehended from the language of section 145A(ii) of the Act, which provides, for the purposes of determining the income chargeable under the head "Profits and gains from the business or profession" that: `the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation'. On going through the prescription of section 145A(ii), it gets overt that the value of sale of services is to be adjusted to include the amount of tax etc. actually paid or incurred by the assessee. Once section 145A(ii) of the Act provides for the inclusion of any tax, which naturally covers service tax also, in the value of sale of services, the sequitur is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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