M/s.Geo FOundations & Structures P.Ltd, Cochin V. The ACIT, Ernakulam

ITA 196/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81365 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2014
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: K SANKARANARAYANAN
• Section: 43B; 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 196/COCH/2014 ASSESSMENT YEAR : 2007-08 M/S. GEO FOUNDATIONS & STRUCTURES (P) LTD., K.P. VALLON ROAD, KADAVANTHARA, KOCHI-682 020 [PAN: AABCG 1899F] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI K. SANKARANARAYANAN, CA REVENUE BY SHRI K.K.JOHN, SR. DR DATE OF HEARING 20/10/2014 DATE OF PRONOUNCEMENT 14/11/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 02-12-2013 PASSED BY THE CIT(A)-II, KOCHI FOR THE ASSESSMENT YEAR 2007-08. 2. THE FIRST GROUND IS WITH REGARD TO DISALLOWANCE OF RS.23,99,082/- AS SERVICE TAX PAID ON MOBILIZATION ADVANCE RECEIVED B Y THE ASSESSEE ON THE REASON THAT THERE WAS NO MATCHING INCOME FOR CLAIMI NG THE DEDUCTION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE COMPANY ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION CONTR ACTS, DEEP FOUNDATIONS, I.T.A. NO.196/COCH/2014 2 CONSTRUCTION OF INDUSTRIAL BUILDING, BRIDGES AND JE TTIES. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS. 23,99,082/- AS THE SE RVICE TAX PAID ON MOBILIZATION ADVANCE THAT IS NOT PART OF INCOME FOR THIS ASSESSMENT YEAR, WAS NOT AN ALLOWABLE EXPENDITURE U/S. 43B OF THE I.T. A CT FOR THIS ASSESSMENT YEAR. FOR THIS, HE RELIED ON THE JUDGMENT OF THE K ERALA HIGH COURT IN THE CASE OF CIT VS. KERALA SOLVENT EXTRACTIONS LTD. (2008) ( 306 ITR 54) AND ALSO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CHOWRI NGHEE SALES BUREAU PVT. LTD. VS. CIT (1973) (87 ITR 542)WHEREIN IT WAS HELD THAT THE PAYMENT OF SERVICE TAX ON MOBILIZATION ADVANCE AS AN EXPENDITU RE CANNOT BE ALLOWED. 4. ON APPEAL, THE CIT(A) PLACED RELIANCE ON THE JUD GMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA SOLVENT EXT RACTIONS LTD. (306 ITR 54) WHEREIN IT WAS HELD AS UNDER: THE KERALA HIGH COURT OBSERVED THAT IT WAS NOT IN DISPUTE THAT THE SALES TAX LIABILITY OF THE ASSESSEE WAS AN ALLOWABLE DEDU CTION IN THE COMPUTATION OF INCOME FROM BUSINESS BY VIRTUE OF SEC. 29 R.W.S. 37(1), THAT INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION WAS TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH O R MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, T HAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND L IKE ANY OTHER LIABILITY, SALES TAX LIABILITY SHOULD BE CLAIMED AND ALLOWED O N MERCANTILE BASIS. IT WAS ALSO UNDISPUTED THAT THE SALES TAX LIABILITY OF RS.23 LAKH PERTAINED TO APRIL 1994, WHICH FELL IN THE NEXT FINANCIAL YEAR, AND THAT U/S. 145, THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION OF THIS AMOU NT IN THE EARLIER YEAR OF PAYMENT. ACCORDING TO THE KERALA HIGH COURT, THE ISSUE WAS W HETHER SECTION 43B ENTITLED THE ASSESSEE TO DEDUCTION OF LIABILITY OF THE NEXT FINANCIAL YEAR MERELY BECAUSE THE AMOUNT WAS PAID BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. THE KERALA H IGH COURT OBSERVED I.T.A. NO.196/COCH/2014 3 THAT WORDS OF SECTION 43B SHOWED THAT THE SECTION D EALT WITH DEDUCTIONS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF THE ACT , AND THAT THE SECTION ONLY LAID DOWN THE CONDITIONS FOR ELIGIBILITY FOR D EDUCTION OF CERTAIN ALLOWANCES WHICH WERE OTHERWISE ADMISSIBLE UNDER TH E ACT. ACCORDING TO THE KERALA HIGH COURT, THE SCHEME OF SECTION 43B WA S TO ALLOW THE DEDUCTION REFERRED TO IN CLAUSES (A) TO (F) ONLY ON PAYMENT BASIS, EVEN THOUGH THE ASSESSEE WAS FOLLOWING THE MERCANTILE ME THOD OF ACCOUNTING. IN OTHER WORDS, SECTION 43B WAS AN EXCEPTION TO SEC TION 145, INASMUCH AS EVEN IF THE CLAIM WAS ALLOWABLE DEDUCTION BASED ON THE SYSTEM OF ACCOUNTING, IT WOULD STILL BE INADMISSIBLE U/S. 43B IF IT WAS NOT PAID ON OR BEFORE THE END OF THE RELEVANT PREVIOUS YEAR, OR AT LEAST BEFORE THE DATE OF FILING OF THE RETURN. THE KERALA HIGH COURT THEREF ORE HELD THAT SECTION 43B WAS ONLY SUPPLEMENTARY TO SECTION 145 AND WAS ONLY AN ADDITIONAL CONDITION FOR ALLOWANCE OF DEDUCTIONS OTHERWISE ALL OWABLE UNDER THE OTHER PROVISIONS OF THE ACT THE KERALA HIGH COURT, ON EXAMINATION OF THE SCHEME OF THE SALES TAX, NOTED THAT UNDER THE SCHEME, THE LIABILITY FOR PAYM ENT OF SALES TAX AROSE ON THE DUE DATE OF FILING OF THE MONTHLY RETURNS AN D THE FINAL RETURN AND THE LIABILITY THEREFORE AROSE ONLY ON DUE DATE OF F ILING OF THE RETURN. UNDER THIS SCHEME, IF THE ASSESSEE REMITTED ANY AMOUNT IN THE FINANCIAL YEAR TOWARDS TAX PAYABLE FOR ANY MONTH OF THE NEXT FINAN CIAL YEAR, THIS AMOUNT DID NOT CONSTITUTE TAX LIABILITY OF THE ASSESSEE FO R THAT PREVIOUS YEAR, BUT WOULD BE CARRIED AS AN AMOUNT OF TAX PAID IN ADVANC E FOR THE NEXT YEAR, AND WOULD BE ADJUSTED TOWARDS TAX LIABILITY FOR THA T YEAR. IF THE ASSESSEE DISCONTINUED BUSINESS, IT WAS ENTITLED TO GET REFUN D OF THE TAX PAID IN THE EARLIER YEAR. ACCORDING TO THE KERALA HIGH COURT, EXPLANATION 2 T O SECTION 43 B DID NOT JUSTIFY THE CLAIM OF THE ASSESSEE FOR DED UCTION BECAUSE EVEN UNDER THAT PROVISION, ONLY LIABILITY INCURRED BY TH E ASSESSEE DURING THE PREVIOUS YEAR WAS ALLOWABLE ON PAYMENT BASIS. WHAT THE EXPLANATION CONTEMPLATED WAS INCURRING OF LIABILITY BY THE ASSE SSEE IN THE PREVIOUS YEAR, THOUGH THE AMOUNT WAS NOT PAYABLE DURING THE PREVIOUS YEAR UNDER THE RELEVANT LAW. THE KERALA HIGH COURT NOTED THAT SO FAR AS SALES TAX WAS CONCERNED, IT WAS A TAX ON SALE OR PURCHASE OF A CO MMODITY. SINCE THE LIABILITY AROSE UNDER THE STATUTE AND THE PAYMENT W AS NOT TOWARDS TAX DUE FOR THE PREVIOUS YEAR OR PAYABLE IN THAT YEAR, THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION U/S. 29 R.W.S. 37(1) AN D 145. I.T.A. NO.196/COCH/2014 4 THE KERALA HIGH COURT HELD THAT THE ASSESSEE WAS NO T ENTITLED TO THE DEDUCTION IN THE YEAR OF PAYMENT, AND FURTHER CONFI RMED THAT THE PAYMENT OF SALES TAX WAS PRIMA FACIE DISALLOWABLE, AND HENC E UPHELD THE DISALLOWANCE. 5. IN VIEW OF THE SPECIFIC FINDINGS OF THE KERA LA HIGH COURT, CITED SUPRA, THE CIT(A), CONFIRMED THE ADDITION OF RS.23,99,082/ - MADE BY THE ASSESSING OFFICER. AGAINST THIS THE ASSESSEE IS IN APPEAL BEF ORE US. 6. THE LD. AR SUBMITTED THAT AS PER THE PROVISIONS OF SERVICE TAX THE POINT OF TAXATION RULES EXPLANATION FOR THE PURPO SE OF THIS RULE, WHEREVER ANY ADVANCE, BY WHATEVER NAME KNOWN, IS RECEIVED BY THE SERVICE PROVIDER TOWARDS THE PROVISION OF TAXABLE SERVICE, THE POINT OF TAXATION SHALL BE THE DATE OF EACH SUCH ADVANCE. THEREFORE, ACCORDING TO THE LD. AR, IT IS OBLIGATORY ON THE PART OF THE ASSESSEE TO REMIT THE SERVICE TAX ON THAT PORTION OF THE ADVANCE RECEIVED BY THEM EVEN THOUGH IT IS N OT RECOGNIZED AS INCOME IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THEREF ORE, THE LIABILITY TO PAY SERVICE TAX IS DUE AND THE ASSESSEE HAS COMPLIED WI TH THE STATUTORY PROVISIONS UNDER SERVICE TAX AND HENCE THE CLAIM WA S MADE AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. THE LD. AR FURTHER SU BMITTED THAT THE ASSESSEE WAS PENALIZED FOR COMPLYING WITH THE PROVISIONS OF ANOTHER CENTRAL LEGISLATURE. HENCE, THE LD. AR SUBMITTED THAT THE RATIO OF THE D ECISION OF THE KERALA HIGH I.T.A. NO.196/COCH/2014 5 COURT IN THE CASE OF KERALA SOLVENT EXTRACTIONS LTD. , CITED SUPRA WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 7. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE REC ORD. IN VIEW OF THE ABOVE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF KERALA SOLVENT EXTRACTIONS LTD., CITED SUPRA, WE ARE INCLINED TO CO NFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. MOREOVER, THIS IS NOTHING BUT ADVANCE PAYMENT OF SERVICE TAX WHICH IS NOT RELATABLE TO THE ASSESSMEN T YEAR UNDER CONSIDERATION. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISS ED. 9. THE NEXT GROUND IS WITH REGARD TO DISALLOWANC E OF PROVISIONS OF SERVICE TAX MADE IN THE BOOK OF ACCOUNTS OF RS.54,13,443/-. 10. THE BRIEF FACTS OF THE CASE ARE THAT THE AS SESSING OFFICER HAS MADE THIS DISALLOWANCE AS EVEN FOR PROVISIONS MADE FOR SERVIC E TAX, THE RATIO OF KERALA HIGH COURT IN THE CASE OF KERALA SOLVENT EXTRACTIONS LTD., CITED SUPRA WOULD I.T.A. NO.196/COCH/2014 6 BE APPLICABLE. THE ASSESSING OFFICER HAS GIVEN DETA ILED REASONING AND FINDINGS FOR MAKING SUCH DISALLOWANCE AND IT WAS HELD THAT T HE SERVICE TAX PAID ON ACCOUNT OF DEMAND RAISED ON 10-09-2007 CORRESPONDIN G TO THE PERIOD SPANNING FROM F.Y. 2002-03 TO F.Y. 2006-07 IS NOT A N ALLOWABLE EXPENDITURE. 11. ON APPEAL, THE CIT(A) BY PLACING RELIANCE ON TH E JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF KERALA SOLVENT EXTR ACTIONS LTD., CITED SUPRA HELD THAT SUCH EXPENDITURE RELATING TO OTHER ASSES SMENT YEARS CANNOT BE ALLOWED. ACCORDINGLY, THE CIT(A) CONFIRMED THE ADDI TION OF RS.54,13,443/- MADE BY THE ASSESSING OFFICER. AGAINST THIS, THE A SSESSEE IS IN APPEAL BEFORE US. 12. THE LD. AR SUBMITTED THAT THE ASSESSING AUTHORI TY DISALLOWED THE SERVICE TAX PROVISION MADE IN THE ACCOUNTS ON THE B ASIS OF A FINDING OF THE SERVICE TAX AUDIT PARTY. ACCORDING TO THE LD. AR, THE ASSESSEE PAID A PORTION OF THIS LIABILITY BEFORE FILING THE RETURN OF INCOM E FOR THE ASSESSMENT YEAR 2007-08 AND THE PROVISION WAS CLAIMED AS EXPENDITUR E U/S. 43B OF THE I.T. ACT. THE LD. AR SUBMITTED THAT THE REASON FOR DISA LLOWANCE BY THE ASSESSING AUTHORITY IS CONTRARY TO THE PROVISIONS OF SEC. 43B AND NOT AT ALL RELEVANT FOR THE PURPOSE OF DISALLOWING THE CLAIM. THEREFORE, T HE LD. AR SUBMITTED THAT I.T.A. NO.196/COCH/2014 7 THE EXPENDITURE TO THE EXTENT OF PAYMENT OF THE SER VICE TAX IS TO BE ALLOWED U/S. 43B OF THE I.T. ACT. 12.1 THE LD. AR ALSO RELIED ON THE FOLLOWING CASE L AW: 1) ALLIED MOTORS (P) LTD. ETC. VS. CIT (1997) (224 ITR 677) (SC). 2) ITC LTD. VS. CIT (2014) (267 CTR (CAL) 405). 13. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF THE LOWER AUTHORITIES. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. ADMITTEDLY, IN THIS CASE, THE ASSESSEE INCURRED LIABILITY OF SE RVICE TAX ON ACCOUNT OF SERVICE TAX AUDIT CONDUCTED BY THE COMMISSIONER OF SERVICE TAX, CHENNAI AND AS PER THEIR REPORT, THE ASSESSEE IS REQUIRED TO PAY THE S AME. THIS LIABILITY WAS PROVIDED IN THE ACCOUNTS FOR THE YEAR ENDED 31-03-2 007 AND THE AMOUNT WHICH WAS PAID BEFORE THE DUE DATE OF FILING OF THE RETURN FOR THE ASSESSMENT YEAR 2007-08 WAS CLAIMED U/S. 43B. IN THE PRESENT CASE, THE ASSESSEE QUANTIFIED THE LIABILITY AT THE END OF THE RELEVANT ASSESSMENT YEAR. IN OUR OPINION, IF IT IS PAID WITHIN THE DUE DATE, THE PAY MENT OF THE SAME IS TO BE ALLOWED IN TERMS OF SEC. 43B OF THE I.T. ACT. THE ASSESSEE WHO FOLLOWS THE I.T.A. NO.196/COCH/2014 8 MERCANTILE SYSTEM OF ACCOUNTING IS ENTITLED TO DEDU CT SALES TAX FROM THE PROFIT AND GAINS OF THE BUSINESS WHICH HAD ACCRUED DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR SUBJECT TO THE PROV ISIONS OF SECTION 43B OF THE I.T. ACT. WHILE COMPUTING THE PROFIT AND GAINS OF THE BUSINESS, WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISIONS OF LAW RELATING THERETO AND NOT ON THE V IEW WHICH THE ASSESSEE MIGHT TAKE OF ITS RIGHTS NOR CAN THE EXISTENCE OR A BSENCE OF ENTRIES IN ITS BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE M ATTER. THE ASSESSEE WHO IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, I S ENTITLED TO CLAIM DEDUCTION IN TERMS OF SEC. 43B TOWARDS SERVICE TAX PAYABLE ONLY IN THE FINANCIAL YEAR CORRESPONDING TO THE RELEVANT ASSESS MENT YEAR. IN OTHER WORDS, THE LIABILITY OF THE RELEVANT PREVIOUS YEAR ONLY SHOULD BE ALLOWED AS A DEDUCTION. ACCORDINGLY, WE REMIT THIS ISSUE BACK T O THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING REASONABLE OPPORTUNITY OF HEARING . THE ASSESSEE IS FURTHER DIRECTED TO FURNISH DETAILS OF PAYMENT, WHETHER THE PAYMENT WAS MADE BEFORE THE FILING OF RETURN OF INCOME FOR THIS ASSE SSMENT YEAR. I.T.A. NO.196/COCH/2014 9 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 14-11-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 14 TH NOVEMBER, 2014 GJ COPY TO: 1. M/S. GEO FOUNDATIONS & STRUCTURES (P) LTD., K.P. VALLON ROAD, KADAVANTHARA, KOCHI-682 020. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(2), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN