TMI Blog2023 (11) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... order of NFAC passed u/s 250 of the Income-tax Act, 1961 ['the Act' for short] for the assessment year 2013-14 dated 23.6.2023. The assessee has raised following grounds of appeal: 1. Erred in facts and in law by disallowing of service tax payable under section 43B of the Income-tax and adding the same to the returned income. 2. Disallowance under section 40(a)(ia) being non deduction of TDS while towards audit fees. 3. Erred in facts and in law by making an ad hoc addition toward personal use of commercial vehicle, without providing any basis for the same. Total tax effect: Rs.33,53,747/- 2. The first ground for our consideration is with regard to disallowance of Service tax payable u/s 43B of the Act and adding the same to the returned income. 3. Facts of the issue are that in this assessment year under consideration, assessee has shown in the balance sheet under the head current liabilities and provisions towards service tax payable at Rs.33,47,887/-. It was noted by the ld. AO that assessee has collected service tax from its customers, has not paid the same within the due date of filing return of income u/s 139(1) of the Act. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee under non-revenue head and such treatment by the assessee is not decisive . 4.3 Further, in case of M/s. Jain Christopher v. DCIT in ITA No.855/Bang/2012 order dated 12.4.2013, it was held as under: 7.2 During the course of assessment proceedings, the Assessing Officer observed that a sum of Rs.29 lakhs representing service tax collected by the assessee had not been paid, but, was shown as outstanding liability . Being queried, it was explained that it had not preferred any claim for deduction and, thus, it was argued, the question of disallowance u/s 43B of the Act does not arise. The AO took a view that even though the assessee had not claimed the same in its P L account as an expenditure and, therefore, section 43B has no application. However, he was of the view that the fact remains that service tax collected by the assessee but not paid to the Government account up-to the end of the financial year or even up-to the date of filing of the return of income and, thus, by not including this amount in its service, it had clearly made a claim indirectly. As rightly highlighted by the CIT(A), the assessee s plea that sales-tax was different from service tax cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the position in case of Service-tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Govt. and paid to the Govt. accordingly. Therefore, a service provider is merely acting as an agent of the Govt. and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition u/s 43B could not be made and the same has been correctly deleted by the CIT(Appeals) . However, in the instant case, as admitted by the assessee, service tax has been collected but not paid to the Government account either up-to the end of the financial year or even up-to the date of filing of the return of income. Thus, the case law relied on by the assessee is distinguishable and cannot come to the rescue of the assessee. (ii) CIT v. Noble and Hewitt India (P) Ltd (Del) 7.2.2 The Hon ble Delhi High Court was predominantly concerned with the disallowance of deduction by invoking the provisions of section 43B of the Act. The Hon ble Delhi High Court was not considering the issue whether the service tax collected and the remaining unpaid till the due date of furnishing of the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely. In section 145, of the Act for determining the income chargeable under the head profits and gains of business or profession or income from other sources, the same is to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The said provisions were substituted by the Finance Act, 1995 w.e.f. 01.04.1997. Under section 145A of the Act, it is provided that notwithstanding anything to the contrary contained in clause(a) to section 145, the valuation of purchase and sale of goods and inventory, for the purpose of determining the income chargeable under the head profits and gains of business or profession, shall be (i) in accordance with method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duties, cess or fees, by whatever name called, actually paid or incurred by the assessee, to bring the goods to the place of its location and condition, as on the date of valuation. As per the explanation under the said clause, it is pointed out that for the purpose of this section, any tax, duties, cess or fees, by whatever name called, under any law for the time being in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced any evidence regarding whether the TDS has been remitted on payment after excluding the service tax. After going through the paper book filed by the assessee, we observe that the assessee has utilized service tax credit towards payment of duty on capital goods and as per Reverse Charge Mechanism. Therefore, it is necessary to discuss the relevant provisions of the Cenvat Credit Rules, 2004 as well as section 43B of the IT Act. 7. Section 43B(a) is as under : 43B. 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 8. Rule 4 of the CENVAT Credit Rules, 2004 reads as under : Rule 4. Conditions for allowing CENVAT credit.- (1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service: Provided that in respect of final products, namely, articles of jewellery falling under heading 7113 of the First Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of output service in such subsequent years. Illustration. - A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2002-2003, and the balance in subsequent years. (3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company. (4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961). (5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for provisional payment of service tax in case he is not able to correctly estimate the tax liability. In such a situation, he may request in writing to the jurisdictional Assistant/Dy. Commissioner for the same. 10. As per section 73A of the Finance Act, 1994, any person who has collected any sum on account of Service Tax, is under obligation to pay the same to the Government. He cannot retain the sum so collected with him by contending that the service tax is not payable. 11. As per section 173A of the Service Tax Act, in case, the service tax is collected, the provision is as under: 173A. Service Tax collected from any person to be deposited with Central Government: - (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made there under from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any person who has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1994, the point of taxation shall be the date of completion of provision of the service. (b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment: Provided that for the purposes of clauses (a) and (b), - (i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; (ii) wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a). Explanation - For the purpose of this rule, wherever any advance by whatever name known, is received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled the service tax returns belatedly, i.e., for April to June on 16.04.2015, for July to September and half yearly from October to March, 2013 on 08.07.2015. In view of all these facts, the ld. CIT(A) has rightly dealt with the issue in question by giving elaborate findings in the impugned order regarding confirmation of addition u/s. 43B of the Act, which we do not find fit to be interfered with. Accordingly, the appeal of the assessee deserves to be dismissed. 4.5 Further, Hon ble Bombay High Court in the case of CIT Vs. Ovira Logistics P. Ltd. (377 ITR 129) (Mum.) held as under: The Assessing Officer, for the assessment year 2007-08, disallowed service tax amounting to Rs.90,08,661 under section 43B of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) deleted the entire disallowance of service tax under section 43B holding that a sum of Rs.41,97,663 had already been paid before the due date of filing return and, therefore, could not be disallowed under section 43B. As far as the remaining amount of Rs.48,10,998 was concerned, he held that the amount could not disallowed under section 43B since it was not payable as on March 31, 2007. It was found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax collected by the assessee is revenue receipt even if it is shown by the assessee under non-revenue head and such treatment by the assessee is not decisive. Further, in the case of M/s. Jain Christopher v. DCIT in ITA No.855/Bang/2012 order dated 12.04.2013, it was held as under:- 7.2 During the course of assessment proceedings, the AO observed that a sum of Rs.29 lakhs representing service tax collected by the assessee had not been paid, but, was shown as outstanding liability . Being queried, it was explained that it had not preferred any claim for deduction and, thus, it was argued, the question of disallowance u/s 43B of the Act does not arise. The AO took a view that even though the assessee had not claimed the same in its P L account as an expenditure and, therefore, section 43B has no application. However, he was of the view that the fact remains that service tax collected by the assessee but not paid to the Government account up-to the end of the financial year or even up-to the date of filing of the return of income and, thus, by not including this amount in its service, it had clearly made a claim indirectly. As rightly highlighted by the CIT(A), the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Sales-tax or Excise Duty but the same cannot be said to be the position in case of Service-tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Govt. and paid to the Govt. accordingly. Therefore, a service provider is merely acting as an agent of the Govt. and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition u/s 43B could not be made and the same has been correctly deleted by the CIT(Appeals) . However, in the instant case, as admitted by the assessee, service tax has been collected but not paid to the Government account either up-to the end of the financial year or even up-to the date of filing of the return of income. Thus, the case law relied on by the assessee is distinguishable and cannot come to the rescue of the assessee. (ii) CIT v. Noble and Hewitt India (P) Ltd (Del) 7.2.2 The Hon ble Delhi High Court was predominantly concerned with the disallowance of deduction by invoking the provisions of section 43B of the Act. The Hon ble Delhi High Court was not considering the issue whether the service tax collected and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce tax received and the service tax has been credited separately. In section 145, of the Act for determining the income chargeable under the head profits and gains of business or profession or income from other sources, the same is to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The said provisions were substituted by the Finance Act, 1995 w.e.f. 01.04.1997. Under section 145A of the Act, it is provided that notwithstanding anything to the contrary contained in clause(a) to section 145, the valuation of purchase and sale of goods and inventory, for the purpose of determining the income chargeable under the head profits and gains of business or profession, shall be (i) in accordance with method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duties, cess or fees, by whatever name called, actually paid or incurred by the assessee, to bring the goods to the place of its location and condition, as on the date of valuation. As per the explanation under the said clause, it is pointed out that for the purpose of this section, any tax, duties, cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have paid - separately or inclusive of service Tax. He has also not produced any evidence regarding whether the TDS has been remitted on payment after excluding the service tax. After going through the paper book filed by the assessee, we observe that the assessee has utilized service tax credit towards payment of duty on capital goods and as per Reverse Charge Mechanism. Therefore, it is necessary to discuss the relevant provisions of the Cenvat Credit Rules, 2004 as well as section 43B of the IT Act. 7. Section 43B(a) is as under : 43B. 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 8. Rule 4 of the CENVAT Credit Rules, 2004 reads as under : Rule 4. Conditions for allowing CENVAT credit.- (1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service: Provided that in respect of final products, namely, articles of jew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturer of final products, or provider of output service in such subsequent years. Illustration.- A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2002-2003, and the balance in subsequent years. The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company. (4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961). (5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of service tax in case he is not able to correctly estimate the tax liability. In such a situation, he may request in writing to the jurisdictional Assistant/Dy. Commissioner for the same. 10. As per section 73A of the Finance Act, 1994, any person who has collected any sum on account of Service Tax, is under obligation to pay the same to the Government. He cannot retain the sum so collected with him by contending that the service tax is not payable. 11. As per section 173A of the Service Tax Act, in case, the service tax is collected, the provision is as under : 173A. Service Tax collected from any person to be deposited with Central Government:- (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made there under from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any person who has collected any amount, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be the date of completion of provision of the service. (b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment : Provided that for the purposes of clauses (a) and (b), - (i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; (ii) wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a). Explanation - For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or April to June on 16.04.2015, for July to September and half yearly from October to March, 2013 on 08.07.2015. In view of all these facts, the ld. CIT(A) has rightly dealt with the issue in question by giving elaborate findings in the impugned order regarding confirmation of addition u/s. 43B of the Act, which we do not find fit to be interfered with. Accordingly, the appeal of the assessee deserves to be dismissed. 6.2 In view of the above binding precedents, I am of the opinion that the service tax collected by the assessee and not paid to the Government exchequer before the due date of filing of return, is to be disallowed, though it was not charged to the profit and loss account and it attracts the provisions of section 43B of the Act and the present provisions of section 145A of the Act cannot be applied in view of non obstante clause in section 43B of the Act . 4.7 Contrary to this, the Tribunal in the case of ITO Vs. Speed Trans Cargo Pvt. Ltd. in ITA No.1969/Bang/2019, dt.31-03-2021, held as under: 7. We have heard rival submissions and perused the material on record. The learned DR contended that the amount of unpaid service tax amounting to Rs.4,35,91,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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