The Surat Bench of Income Tax Appellate Tribunal ( ITAT ) overturned the disallowance of Rs. 14,43,922/- under Section 43B of Income Tax Act,1961 concerning unpaid service tax, citing the lack of a deduction in the assessee’s Profit and Loss(P&L) Account .The Tribunal directed the Assessing Officer(AO) to verify the mercantile system of accounting and allow relief if the assessee’s claims were confirmed.
Mohmed Hasib Tejamul Shaikh, the appellant-assessee, contested the disallowance of Rs. 14,43,922/- under Section 43B of the Income Tax Act concerning unpaid service tax in his appeal against the order of the Commissioner of Income Tax (Appeals)[CIT(A)].
The assessee argued that he had neither claimed a deduction for the unpaid service tax nor debited it in his P&L Account. Therefore, he asserted that there should have been no question of disallowance for an expense that was not claimed.
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The AO disallowed the deduction based on a reference in the audit report, concluding that the service tax liability should have been added back to income since it was not accounted for in the P&L Account. The CIT(A) upheld this view, failing to appreciate the critical fact that if an expense was not claimed, there was no basis for disallowance.
To support his position, the appellant cited the decision in Ramesh Kumar Lalan Tiwari vs. ITO, where the tribunal ruled that no disallowance could be made for an unpaid service tax liability if the deduction was not claimed by the assessee in the Profit and Loss Account.
Upon reviewing the submissions and the applicable legal framework, the tribunal concurred with the appellant’s contention. It emphasized that since no deduction had been claimed for the unpaid service tax, the AO should not have made a disallowance.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
A single member bench of Pawan Singh(Judicial Member) directed the AO to verify whether the appellant followed the mercantile system of accounting and ensured that no deduction was claimed in the Profit and Loss Account. If this verification confirmed the assessee’s claim, the AO was instructed to allow relief accordingly.
In conclusion, the appeal was allowed thereby overturning the disallowance under Section 43B of this Act.
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