The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench has deleted the addition of profits from suppressed of sales, on account of unpaid service tax liability.
The assessee, Super Hospitality Services Pvt. is engaged in the business of catering and hospitality/house keeping service etc. For the impugned assessment year return of income was filed by the assessee declaring Nil income. Thereafter reassessment proceedings, under Section 147 of the Act , were initiated on the assessee on the basis of information received from the Office of the Commissioner, Central Excise, Customs and Service Tax, Baroda-1 that the assessee had provided services and received an amount of Rs.5,10,61,886/- during the year.
The assessee denied having received any such amount and asserted that no business had been carried out in the impugned year, since it was the first year of coming into existence.
The Assessing Officer, however, was not convinced with the explanation of the assessee and accordingly he held that the sum reflected undisclosed sales of the assessee. Applying an N.P. rate of 25% thereon, he calculated the income earned from the same at Rs.1,38,07,344/- and added the same to the income of the assessee.
The Assessing Officer also made an addition of Rs.30,29,240/- on account of unpaid Service Tax liability. Accordingly the total income of the assessee was assessed at Rs.1,68,36,584/- as against Nil returned by the assessee.
The assessee had stated that the liability had been fixed on the assessee by the Service tax department holding that it was not entitled to 50% abatement on tea and snacks, which the assessee was contesting in appeal. The assessee clearly had a bonafide explanation for not adding the unpaid tax liabilities to its income since it was contesting the very levy of the same before the concerned department. It may be a fit case of making addition of the unpaid liabilities to the income of the assessee. But as far as the levy of penalty is concerned the explanation for not adding back the unpaid liabilities to its income cannot be outrightly rejected as not being bonafide.
The coram of Judicial Member, Madhumita Roy and Accountant Member, Annapurna Gupta has held that all particulars relating to income were disclosed by the assessee, as is evident, in the tax audit report itself reflecting the impugned unpaid tax liabilities. Further Explanation 1 to section 271(1)(c) of the Act deems concealment of income when ,with respect to a fact material to the computation of income, the explanation of the assessee is either false or not bonafide and unsubstantiated.
“In the present case, we find the explanation of the assessee for not adding back the unpaid liabilities to its income as bonafide, since they were stated to be contested with the concerned departments,” the ITAT noted.
On the basis of the aforestated facts, the Ld. CIT(A) concluded that there was no suppression of sale on the part of the assessee Company and that it actually related to the proprietorship concern and accordingly directed that the issue of addition on account of suppressed sales along with that of unpaid service tax liability be examined in the case of the proprietorship concern.
The ITAT held, “None of the findings of fact by the CIT(A) have been controverted by the Ld. Departmental Representative before us. In view of the same, we see no reason to interfere in the order of the CIT(A) deleting the addition made of profits from suppressed of sales ,amounting to Rs.1,38,07,344/- and that on account of unpaid service tax liability u/s 43B of the Act of Rs.30,29,240/-.”
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