The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ), in a significant ruling has held that service tax is not payable until consideration was received.
The appeal was against the disallowance of Service Tax payable by the assessee u/s. 43B of the Act for Rs. 89.18 Lacs. The assessee had paid an amount of Rs.4,99,795/- before the due date of filing of return of income where a sum of Rs.94,17,953/- representing Service Tax was shown to be payable and the balance amount of Rs.89,18,158/- was disallowed u/s 43B. They stated that the Service Tax amount was not routed through the Profit & Loss Account.
The Tribunal comprises Shri Mahavir Singh, vice president, and Shri Manoj Kumar Aggarwal, AM observed that the assessee was following an exclusive method to account for Service Tax liability in the Books of Accounts and the argument that the Service Tax was not routed through profit & Loss Account would not stand.
Further observed that as per extant Service Tax Rules, the Service Tax liabilities arise in the hands of the assessee on a receipt basis. As the liability to pay Service Tax, at year-end, may not have actually arisen, the disallowance has to be made only to the extent the liability to pay Service Tax Liability had arisen.
The Coram directed the AO to verify and restrict the disallowance to that extent. The appeal filed by the assessee was allowed for statistical purposes. Shri. ARV Sreenivasan appeared on behalf of the respondent while none appeared for the assessee.
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