Lack of Verification: ITAT sets aside Service Tax Disallowance Order u/s 43B and directs Fresh Adjudication [Read Order]
The tribunal noted that the CIT(A) had not verified whether the service tax was actually received or routed through accounts and had not obtained a remand report from the AO
Service Tax
Service Tax
The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) set aside the Commissioner of Income Tax (Appeals)[CIT(A)] order and remanded the matter for fresh adjudication in a case concerning service tax disallowance under section 43B of Income Tax Act,1961,for lack of verification.
The Revenue-appellant appealed against the CIT(A) order dated 05.07.2023, for the Assessment Year 2015-16. In this case, Seven Hills Project Private Limited ,respondent-assessee, was engaged in mining, transport contracting, and trading. Its accounts were audited, and a tax audit was carried out.
The assessee declared an income of ₹1,92,95,845, with advance tax and TDS duly paid. The Assessing Officer(AO), however, assessed the income at ₹5,57,19,180 by adding ₹3,62,47,086 towards unpaid service tax under section 43B, along with other additions.
Before the CIT(A), the assessee argued that the service tax had been paid through CENVAT/cash before the due date of filing the return under section 139(1). It also submitted that due to accounting errors, the actual liability was ₹2,00,03,409 instead of ₹3,62,47,086.
The CIT(A) rejected the alternate computation but noted that the unpaid service tax had not been debited to the profit and loss account, and therefore section 43B was not applicable. Relying on the principle affirmed by the Supreme Court in Tops Security Ltd., the CIT(A) held that disallowance could not be made when no income had been received from clients.
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The CIT(A) accordingly deleted the addition of ₹3,62,47,086 made by the AO. The department, aggrieved by this decision, carried the matter to the Tribunal.
The two member bench comprising Pradip Kumar Choubey (Judicial Member) and Rakesh Mishra (Accountant Member) considered the rival submissions and noted that the AO had added the difference between the service tax outstanding and the amount already added in the earlier year.
The assessee had claimed before the CIT(A) that the liability was only ₹2,00,03,409 instead of ₹3,62,47,086 and that the tax had been paid through CENVAT/cash before the due date of filing the return.
The tribunal observed that the CIT(A) had neither verified whether the service tax was routed through the profit and loss account nor examined the details of receipts and receivables. No remand report had been obtained from the AO either.
Relying on the Supreme Court’s ruling in Tops Security Ltd., which held that liability to pay service tax arises only upon actual receipt of funds, the bench found that the CIT(A) had failed to address this aspect and that his order lacked proper reasoning.
The appellate tribunal therefore set aside the order of the CIT(A) and remanded the matter for fresh adjudication after giving due opportunity to both the AO and the assessee. The appeal of the Revenue was treated as partly allowed for statistical purposes.
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