M/s Naresh Kumar & Co. Pvt. Ltd., Kolkata V. DCIT, Circle -8, Kolkata, Kolkata

ITA 1011/KOL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7906 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 29-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reassessment proceedings
• Section: 43B; 142(1); 68; 148

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 1 01 1 /KOL/20 1 2 / ASSESSMENT YEAR : 200 5 - 0 6 M/S. NARESH KUMAR & CO. PVT. LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX, (PAN: AABCN2864P) CIRCLE - 8, KOLKATA ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING: 03 . 11 .201 4 DATE OF PRONOUNCEMENT: 12 . 1 1 .201 4 FOR THE APPELLANT : SHRI RAVI TULSIYAN, FCA FOR THE RESPONDENT : SHRI ANIL KUMAR PANDE, JCIT, SR. DR / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT (A) - VIII , KOLKATA IN APPEAL NO. 439 /CIT(A) - VIII / KOL/09 - 10 DATED 2 1 . 0 3 .20 1 2 . ASSESSMENT W AS FRAMED BY DCIT, CIRCLE - 8, KOLKATA U/S. 147/ 1 4 3 (3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 5 - 0 6 VIDE HIS ORDER DATED 30 . 1 2 .20 0 9 . 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION MADE BY AO ON ACCOUNT OF UNPAID LIABILITY OF SERVICE TAX OF RS.28,44,474/ - AND EDUCATION CESS OF RS.56,872/ - U/S . 43B OF THE ACT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.3: 3 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN MAKING ADDITION OF THE AMOUNT OF RS.29,44,474/ - COMPRISING OF L IABILITIES TOWARDS SERVICE TAX OF RS.28,44,474/ - AND EDUCATION CESS OF RS.56,872/ - U/S. 43B OF THE ACT INSPITE OF THE FACT THAT THE SERVICE TAX & EDUCATION CESS AMOUNTS HAD NOT BEEN RECEIVED FROM THE PARTIES CONCERNED AND THEREFORE, THEY WERE NOT PAYABLE I N ACCORDANCE WITH SECTION 68 OF THE FINANCE ACT, 1994 (INTRODUCING SERVICE TAX) AND HENCE, WERE BEYOND THE PURVIEW OF SECTION 43B OF THE INCOME - TAX ACT, 1961. 3. LD. COUNSEL FOR THE ASSESSEE ALSO RAISED THE ISSUE OF REOPENING BUT MAINLY HE ARGUED ON MERITS. BRIEFLY STATED FACTS ARE THAT ORIGINAL RETURN OF INCOME FOR THE YEAR UNDER APPEAL I.E. AY 2005 - 06 WAS FILED ON 29.10.2005. THE ASSESSMENT WAS FRAMED U/S. 143( 3) DATED 23.11.2007 BY MAKING CERTAIN ADDITIONS AND DISALLOWANCE BY ISSUING NOTICES U/S. 143(2) AND 142(1) OF THE ACT. SECONDLY, A 2 ITA NO.1011/K/2012 NARESH KR. & CO. PVT. LTD. AY 2005 - 06 NOTICE U/S. 148 OF THE ACT DATED 24.03.2010 WAS ISSUED TO THE ASSESSEE PROPOSING REOPENING THE ASSESSMENT COMPLETED U/S. 143 (3) OF THE ACT. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSEE WAS INFORMED THAT THE UNPAID SERVICE TAX OF RS.28,44,473/ - AND EDUCATION CESS OF S.56,872/ - IS LIABLE TO BE ADDED TO THE INCOME OF THE ASSESSEE U/S. 43B OF THE ACT. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE SUM OF RS.29,01,345/ - (RS.28,44,473 + RS.56,872 BEING SERVICE TAX AND EDUCATION CESS RESPECTIVELY) WAS NOT COLLECTED FROM THE CUSTOMERS AND WAS NOT PAYABLE IN TERM OF RULE 6(1) OF SERVICE TAX RULES . ACCORDING TO ASSESSEE, IT DID NOT PASS SERVICE T AX THROUGH P&L ACCOUNT AND IT DID NOT CLAIMED AS DEDUCTION AND HENCE, NO QUESTION ARISES FOR DISALLOWING THE SAME AS UNPAID SERVICE TAX AND EDUCATION CESS BY INVOKING THE PROVISIONS OF SECTION 43B OF THE ACT. BUT THE AO DISALLOWED THE SAME BY INVOKING THE PROVISIONS OF SECTION 43B OF THE ACT AND CIT(A) ALSO CONFIRMED THE SAME. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS ARE THA T THE ASSESSEE RAISED CERTAIN BILLS DURING THE FY 2004 - 05 RELEVANT AY 2005 - 06, WHICH REMAINED UNPAID AND HENCE, THE CONSEQUENTIAL SERVICE TAX AND EDUCATION CESS WAS NOT COLLECTED BY THE ASSESSEE. ACCORDINGLY, THE LIABILITY TO PAY SERVICE TAX AND EDUCATION CESS DID NOT ARISE. THE RELEVANT RULE 6 OF THE SERVICE TAX RULES MAKES IT VERY CLEAR THAT LIABILITY TO MAKE PAYMENT ARISES AFTER SERVICE TAX IS COLLECTED. THE RELEVANT RULES READ AS UNDER: 6. PAYMENT OF SERVICE TAX (1) THE SERVICE TAX SHALL BE PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT BY THE 5 TH OF THE MONTH IMMEDIATELY FOLLOWING THE CALENDAR MONTH IN WHICH PAYMENTS ARE RECEIVED TOWARDS THE VALUE OF TAXABLE SERVICE. PROVIDED THAT WHERE THE ASSESSEE IS AN INDIVIDUAL OR PROPRIETARY FIRM OR PARTNERSHI P FIRM, THE SERVICE TAX SHALL BE PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT BY THE 5 TH OF THE MONTH IMMEDIATELY FOLLOWING THE QUARTER IN WHICH PAYMENTS ARE RECEIVED TOWARDS THE VALUE OF TAXABLE SERVICES. SIMILAR IS THE POSITION FOR EDUCATION CESS ALSO. IN THE PRESENT CASE BEFORE US, THE ASSESSEE HAS RECORDED THE ENTRY IN THE BOOKS OF ACCOUNT OF UNPAID SERVICE TAX AND EDUCATION CESS BUT CONSEQUENTLY ENTRY I.E. THE BALANCING ENTRY WAS ALSO PASSED ON DEBIT S IDE I.E. LIABILITY FOR SERVICE TAX AND LIABILITY FOR EDUCATION CESS FOR AN AMOUNT OF RS.28,44,473/ - AND RS.56,871/ - . AS PER ITEM NO. 21(B) OF THE TAX AUDIT REPORT, IT IS EVIDENT THAT EXCISE DUTY OR IN ANY OTHER INDIRECT TAX DID NOT PASS THROUGH P&L ACCOUN T AND SIMILARLY, ASSESSEE HAS NOT ROUTED SERVICE TAX OR EDUCATION CESS THROUGH P&L ACCOUNT AND NO DEDUCTION HAS BEEN CLAIMED ON THIS ACCOUNT. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, THERE CANNOT ARISE A QUESTION FOR DISALLOWANCE OF THIS DEDUCTION WHICH HAS NOT AT ALL BEEN CLAIMED. FOR THIS PROPOSITION, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HON BLE DELHI 3 ITA NO.1011/K/2012 NARESH KR. & CO. PVT. LTD. AY 2005 - 06 HIGH COURT IN THE CASE OF CIT VS. NOBLE & HEWITT (I) P. LTD. (2008) 305 ITR 324 (DEL), WHEREIN IT HAS BEEN HELD AS UNDER (HEAD NOTES): THE ASSESSEE MAINTAINED ITS ACCOUNTS ON THE MERCANTILE SYSTEM OF ACCOUNTING. IT HAD COLLECTED SERVICE TAX DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1999 - 2000. OUT OF THE SERVICE TAX SO COLLECTED, IT HAD DEPOSITED PART OF THE AMOUNT BUT AN AMOUNT OF RS. 14.40 LAKHS WAS NOT DEPOSITED BY IT WITH THE CONCERNED AUTHORITIES. THE ASSESSEE DID NOT CLAIM ANY DEDUCTION IN THIS REGARD NOR DID IT DEBIT THE AMOUNT AS AN EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER AS WELL AS THE CO MMISSIONER (APPEALS) NEVERTHELESS DISALLOWED THE AMOUNT AND ADDED IT BACK TO THE INCOME OF THE ASSESSEE. THE TRIBUNAL SET ASIDE THE ORDER. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT SINCE THE ASSESSEE DID NOT DEBIT THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT AS AN EXPENDITURE NOR CLAIM ANY DEDUCTION IN RESPECT OF THE AMOUNT AND CONSIDERING THAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE QUESTION OF DISALLOWING THE DEDUCTION NOT CLAIMED WOULD NOT ARISE. 5. FURTHER, THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE CASE LAW OF CHENNAI BENCH OF ITAT IN THE CASE OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGIES P. LTD. 306 ITR (AT) 106, WHERE IN IT HAS BEEN HELD AS UNDER: (A) THE ASSESSEE, IS NEVER ALLOWED DEDUCTION ON ACCOUNT OF SERVICE TAX WHICH IS COLLECTED ON BEHALF OF THE GOVERNMENT AND PAID TO THE GOVERNMENT ACCORDINGLY. THEREFORE, A SERVICE PROVIDER IS MERELY ACTING AS AN AGENT OF THE GOVERNMENT AND IS NOT ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF SERVICE TAX. HENCE ON THIS ACCOUNT ALONE ADDITION UNDER SECTION 43B OF THE ACT COULD NOT BE MADE; AND (B) SECTION 43B(A) USES THE EXPRESSION ANY SUM PAYABLE AND THE WORD PAYABLE WOULD ME AN THAT THERE IS A KIND OF OBLIGATION ON THE PART OF THE PAYEE TO MAKE THE PAYMENT WHICH IS ALREADY DUE. FOR EXAMPLE, WHEN A PERSON PURCHASES GOODS THEN THE OTHER PERSON HAS THE LIABILITY TO PAY THE PRICE OF THE GOODS AND IT CAN BE SAID THAT THE PRICE OF T HE GOODS IS PAYABLE BY THE CUSTOMER. IF THE CUSTOMER SIMPLY LOOKS AT THE COST IT CANNOT BE SAID THAT HE HAS BECOME LIABLE TO MAKE THE PAYMENT. THE RIGOUR OF SECTION 43B OF THE ACT, WOULD BE ATTRACTED ONLY IN A CASE WHERE AN ITEM IS ALLOWABLE AS DEDUCTION W OULD NOT BE ALLOWED FOR FAILURE TO MAKE PAYMENT. SERVICE TAX UNDER SECTION 68 OF THE FINANCE ACT, 1994, HAS TO BE PAID IN THE MANNER PRESCRIBED UNDER RULE 6 OF THE SERVICE TAX RULES, 1994. UNDER RULE 6 OF THE RULES, A SERVICE PROVIDER BECOMES LIABLE TO MAKE THE PAYMENT OF SERVICE TAX BY THE FIFTH OF THE MONTH IMMEDIATELY FOLLOWING THE CALENDAR MONTH IN WHICH THE PAYMENTS ARE RECEIVED TOWARDS THE VALUE OF TAXABLE SERVICE. THE FIRST PROVISO GIVES AN EXCEPTION IN CASE OF INDIVIDUAL OR PROPRIETARY FIRMS OR P ARTNERSHIPS, AND IN SUCH CASES, SERVICE TAX HAS TO BE PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT BY THE FIF T H OF THE MONTH IMMEDIATELY FOLLOWING THE QUARTER IN WHICH THE PAYMENTS BARE RECEIVED. THE ONLY DI F FERENCE IS THAT IN CASE OF INDIVIDUAL OR PROPRIE TARY OR PARTNERSHI P , THE PAYMENT HAS TO BE MADE ON THE FIFTH OF THE FOLLOWING MONTH FOLLOWING THE 4 ITA NO.1011/K/2012 NARESH KR. & CO. PVT. LTD. AY 2005 - 06 QUARTER, WHEREAS IN THE CASE OF OTHER ORGANIZATIONS IT HAS TO BE PAID ON THE FIF T H OF THE MONTH IMMEDIATELY FOLLOWING THE CALENDAR MONTH. BUT IN BOTH THE CASE S, THE LIABILITY ARISES TO MAKE THE PAYMENT ONLY AF T ER THE SERVICE PROVIDER HAS R E CEIVED THE PAYMENTS. IF THERE IS NO LIABILITY TO MAKE THE PAYMENT TO THE CREDIT OF THE CENTRAL G OVERNMENT BECAUSE OF NON - RECEIPT OF PAYMENTS FROM THE RECEIVER OF THE SERVICES , THEN IT CANNOT BE SAID THAT SUCH SERVICE TAX HAS BECOME PAYABLE IN TERMS OF CLAUSE (A) OF SECTION 43B OF THE ACT BECAUSE THAT CLAUSE SPECIFICALLY MENTIONS SUM PAYABLE BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE SERVICE TAX WAS NOT BEING ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT BY THE ASSESSEE - COMPANY, ENGAGED IN THE BUSINESS OF RUNNING A RECORDING AND DUBBING STUDIO, PRODUCTION OF DISTRIBUTION OF FEATURE FILM AND SOF T WARE DEVELOPMENT, AND HAD SHOWN LIABILI TY TOWARDS SERVICE TAX AT RS. 5, 72, 374 AS ON MARCH 31, 2002 IN ITS BALANCE SHEET. THE ASSESSING OFFICER ADDED A SUM OF RS. 5,72,374 TO THE INCOME OF THE ASSESSEE BEING SERVICE TAX NOT PAID BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME. THE COMMISSI ONER (APPEALS) DELETED THE ADDITION MADE. ON APPEAL BY THE DEPARTMENT: HELD, DISMISSING THE APPEAL, THAT A SERVICE PROVIDER WAS MERELY ACTING AS AN AGENT OF THE GOVERNMENT AND WAS NOT ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF SERVICE TAX. SINCE SERVICE TA X WAS NOT PAYABLE BY THE ASSESSEE, THE RIGOUR OF SECTION 43B OF THE ACT COULD NOT BE APPLIED TO THE C ASE OF THE ASSESS EE AND THE COMMISSIONER (APPEALS) HAD RIGHTLY DELETED THE ADDITION MADE. IN VIEW OF THE ABOVE AND THE FACTS OF THE PRESENT CASE THAT THE ASSESSEE HAS NOT DEBITED THE UNPAID SERVICE TAX AND EDUCATION CESS AND NOT PASSED THE ENTRY THROUGH P&L ACCOUNT AND NO DEDUCTION WHATSOEVER HAS BEEN CLAIMED FOR THE SAME IN THE P&L ACCOUNT , THE DISALLOWANCE CANNOT BE MADE. IN TERMS OF THE ABOVE, WE QUASH THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE CLAIM OF ASSESSEE. APPEAL OF ASSESSEE IS ALLOWED. 6 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. 7 . ORDER PRONOUNCED IN OPEN COURT ON 12/11/14 S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12 TH NOVEMBER , 201 4 JD.(SR.P.S.) 5 ITA NO.1011/K/2012 NARESH KR. & CO. PVT. LTD. AY 2005 - 06 - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT M/S. NARESH KUMAR & CO. PVT. LTD., 9B, WOOD STREET, KOLKATA - 700 016 2 / RESPONDENT DCIT, CIRCLE - 8, KOLKATA 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .