The DCIT, Circle-9, Ahmedabad V. M/s. AKP Infrastructure, Ahmedabad

ITA 2552/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9142 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 28-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 13-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Depreciation
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 43B; 271(1)(b); 139; 143(3); 92; 201

Judgement Text

ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM] ITA NO. 2552 /AHD/201 1 ASSESSMENT Y EAR : 200 7 - 08 DY. COMMISSIONER OF INCOME TAX, CIRCLE - 9, AHMEDABAD. .. .APPELLANT VS. A.K.P. IN FRASTRUCTURE .. .. . RESPONDENT 303, SARTHAK II, SWASTIK CHAR RASTA, NAVRANGPURA, AHMEDABAD 380 009. [PAN: A A EFA 7501 Q ] C.O. NO. 254 /AHD/201 1 (IN ITA NO. 2552 /AHD/2013) ASSESSMENT YEAR: 200 7 - 08 A.K.P. INFRASTRUCTURE .. . . . APPELLANT 303, SARTHAK II, SWASTIK CHAR RASTA, NAVRANGPURA, AHMEDABAD 380 009. [PAN: A AEFA 7501 Q ] VS. DY. COMMISSIONER OF INCOME TAX, ..... .. . RESPONDENT CIRCLE - 9, AHMEDABAD. APPEARANCES BY: KAILASH DAN RATNOO , FOR THE R EVENUE SAKAR SHARMA, FOR THE ASSESSEE D ATE OF CONCLUDING THE HEARING : 28 .02. 201 7 DATE OF PRONOUNCING THE ORDER : 28 . 0 2 .2017 O R D E R 1. THIS APPEAL, FI LED BY THE ASSESSING OFFICER, SEEKS TO CHALLENGE CORRECTNESS OF THE ORDER DATED 2 6 TH AUGUST 201 1 , PASSED BY THE LEARNED CIT(A), IN THE MATTER OF ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 2 OF 11 ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 200 7 - 08 . 2. IN THE FIRST GROUND O F APPEAL, THE APPELLANT HAS RAISED THE FOLLOWING G RIEVANCE : - 1. THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) - XV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.45,57,221/ - MADE BY THE ASSESSING OFFICER U/S.43B OF THE ACT ON ACCOUNT OF SERVICE TAX. 3. THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING TH E COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER NOTICED THAT AN AMOUNT OF RS.45,57,221/ - RECEIVED BY THE ASSESSEE REMAINS OUTSTANDING FOR PAYMENT AS AT THE END OF THE YEAR. IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AND HAS NOT CLAIMED ANY DEDUCTION FOR THE SERVICE TAX PAYMENT. SINCE THERE WAS NO CLAIM FOR DEDUCTION, AS SUBMITTED BY THE ASSESSEE, DISALLOWANCE UNDER SECTION 43B DID NOT COME INTO PLAY. THIS EXPLANATION, HOWEVER, DID NOT SATISFY THE ASSESSING OFFICER. HE NOTED THAT IN A SUBSEQUENT YEAR, THIS AMOUNT HAS WRITTEN BACK AS INCOME ON THE GROUND THAT THE SAID SERVICE TAX IS NO LONGER PAYABLE . HE WAS OF THE VIEW THAT AN AMO UNT RECEIVED AS TAX BUT NOT PAID TO THE GOVERNMENT PART AKES THE CHARACTER OF INCOME, AS, ACCORDING TO HIM, WAS HELD BY HON BLE KERALA H IGH COURT IN THE CASE OF CIT VS. CARDAMOM AUCTIONEERS (295 ITR 574) . IN EFFECT THUS A SERVICE TAX RECEIPT IS OF INCOME NATURE AND DEDUCTION UNDER SECTION 43B IS ALLOWED ON PAY MENT OF THE SAME. ON THE BASIS OF THIS LOGIC, THE ASSESSING O FFICER ADDED BACK RS.45,57,221/ - AS INCOME OF THE ASSESSEE BEING DISALLOWANCE UNDER SECTION 43B. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED C I T ( A ) WHO, FOLLOWING DECISI ON OF THIS TRIBUNAL, IN THE CASE OF ACIT VS . REAL I MAGE M EDIA TECHNOLOGIES PVT . LTD . [(2008) 114 ITD 573 (CHENNAI)] , REVERSED THE ACTION OF THE ASSESSING OFFICER. IT WAS HELD THAT DISALLOWANCE UN D ER SECTION 43B DOES NOT COME INTO PLAY ON THE FACTS OF THIS CASE. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE ME. ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 3 OF 11 4. I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. I FIND THAT AN IDENTICAL IS SUE CAME UP BEFORE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS . NOBLE AND HEWITT (INDIA) PVT . LTD . [(2008) 305 ITR 324 (DELHI)]. THEIR LORDSHIPS NEGATIVE D T HE STAND OF THE R EVENUE, AND OBSERVED AS FOLLOWS : - 2. THE ASSESSEE MAINTAINS A MERCANTILE SYS TEM OF ACCOUNTING. IT HAD COLLECTED SERVICE TAX DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION. OUT OF THE SERVICE TAX SO COLLECTED THE ASSESSEE HAD DEPOSITED PART OF THE AMOUNT BUT AN AMOUNT OF RS. 14.40 LAKHS WAS NOT DEPOSITED BY TH E ASSESSEE 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 & LOSS ACCOUNT. THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF INCOME - TAX (APPEALS) ['CIT(A )'] NEVERTHELESS DISALLOWED THE AMOUNT AND ADDED IT BACK TO THE INCOME OF THE ASSESSEE. 3. THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HAD NOT FOLLOWED THE CORRECT ACCOUNTING PROCEDURE. IF IT HAD DONE SO, THE AMOUNT WOULD HAVE HAD TO BE DEBITED TO PROFIT & LOSS ACCOUNT AND THEREAFTER THE ASSESSEE COULD CLAIM A DEDUCTION THEREON. THE COMMISSIONER RELIED UPON DECISION OF THE CALCUTTA HIGH COURT IN CHOWRINGHEE SALES BUREAU (P.) LTD. V. CIT [1977] 110 ITR 385 . 4. IN APPEAL, THE TRIBUNAL WAS OF THE OPINION TH AT IN VIEW OF THE PROVISIONS OF SECTION 43B OF THE INCOME - TAX ACT, 1961 ('ACT'), SINCE THE ASSESSEE HAD NOT CLAIMED A DEDUCTION THERE WAS NO QUESTION OF DISALLOWING THE DEDUCTION WHICH WAS NOT EVEN CLAIMED. THE RELEVANT EXTRACT OF SECTION 43B OF THE ACT RE ADS AS FOLLOWS : 'CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUT Y, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE, (B) TO (F) ** ** ** SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE M ETHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM.' 5. LEARNED COUNSEL FOR THE REVENUE URGES THAT THE DECISION OF THE CALCUTTA HIGH COURT I N CHOWRINGHEE SALES BUREAU (P.) LTD.'S CASE (SUPRA) COVERS THE POINT IN ITS FAVOUR. WE ARE UNABLE TO AGREE. IN THAT CASE IT WAS HELD THAT THE LIABILITY TO PAY SALES TAX AROSE THE MOMENT A SALE OR PURCHASE WAS EFFECTED AND IF AN ASSESSEE WAS MAINTAINING ACC OUNTS ON THE ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 4 OF 11 MERCANTILE SYSTEM IT WOULD BE ENTITLED TO DEDUCTION OF THE ESTIMATED LIABILITY OF SALES TAX, EVEN THOUGH SUCH SALES TAX HAD NOT BEEN PAID TO THE SALES TAX AUTHORITIES. THE QUESTION THERE CONCERNED WAS THE ENTITLEMENT OF THE ASSESSEE TO DEDUCTI ON UNDER SECTIONS 10(1) AND 10(2)(XV) OF THE INDIAN INCOME - TAX ACT, 1922. THE DECISION IS CLEARLY DISTINGUISHABLE IN ITS APPLICATION TO THE PRESENT CASE. HERE WE ARE CONCERNED WITH AN ASSESSEE WHO HAS NOT EVEN CLAIMED ANY DEDUCTION ON THE GROUND OF SERVICE TAX AND HAS NOT DEBITED THE AMOUNT TO ITS PROFIT & LOSS ACCOUNT. MOREOVER THE PROVISIONS OF SECTION 43B OF THE ACT ARE QUITE CLEAR IN THIS REGARD. THE DECISION OF THE CALCUTTA HIGH COURT IN CHOWRINGHEE SALES BUREAU (P.) LTD.'SCASE (SUPRA) WAS NOT IN THE C ONTEXT OF THE APPLICABILITY OF SECTION 43B OF THE ACT. 6. IN OUR OPINION SINCE THE ASSESSEE DID NOT DEBIT THE AMOUNT TO THE PROFIT & LOSS ACCOUNT AS AN EXPENDITURE NOR DID THE ASSESSEE CLAIM ANY DEDUCTION IN RESPECT OF THE AMOUNT AND CONSIDERING THAT THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE QUESTION OF DISALLOWING THE DEDUCTION NOT CLAIMED WOULD NOT ARISE. 7. LEARNED COUNSEL FOR THE REVENUE SUBMITS THAT THE ASSESSEE HAS SOUGHT TO EVADE TAX UNDER THE MERCANTILE SYSTEM OF ACCOUNTIN G. WE ARE OF THE VIEW THAT IT IS NOT FOR THE REVENUE AUTHORITIES TO TELL THE ASSESSEE HOW TO MAINTAIN ITS ACCOUNTS. 8. WE CANNOT FIND ANY FAULT IN THE VIEW TAKEN BY THE TRIBUNAL AND FIND NO MERIT IN THIS APPEAL. 6. SIMILAR WERE THE VIEWS OF A CO - ORDINAT E BENCH OF THIS TRIBUNAL IN THE CASE OF REAL IMAGE MEDIA TECHNOLOGIES (SUPRA), WHERE THE CO - ORDINATE BENCH, HAS INTER ALIA, OBSERVED A S FOLLOWS : - 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE INCOM E - TAX ACT AS WELL AS SERVICE TAX ACT. WE FIND THAT RELEVANT PORTION OF SECTION 43B READS AS UNDER : '43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) ANY SUM PAYA BLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE, OR FROM A PLAIN READING OF THE ABOVE PROVISION IT BECOMES CLEAR THAT THE RIGOUR OF THIS PROVISION WOULD BE ATTRACTED ONLY IN A CASE WHERE AN ITEM IS ALLOWABLE AS DEDUCTION BUT BECAUSE OF THE FAILURE TO MAKE PAYMENT SUCH DEDUCTION WILL NOT BE ALLOWED. IT CAN BE ARGUED THAT IN THE CASE OF ST ALSO THE ASSESSEE DOES NOT CLAIM DEDUCTION SINCE IT HAS BEEN HELD THAT NON - PAYMENT OF SALES - TAX WOULD ATTRACT PROVISIONS OF SECTION 43B, BUT THAT IS BEING DONE ON THE BASIS OF THE PRINCIPLES LAID DOWN BY THE CALCUTTA HIGH COURT IN THE CASE OF CHOWRANGHEE SALES BUREAU LTD. V. CIT [1977] 110 ITR ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 5 OF 11 385 THAT SALES - TAX IS PART OF THE TRADING RECEIPT. FURTHER, SECTION 145A CLEARLY PROVIDES THAT FOR THE PURPOSE OF DETERMINING INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', THE AMOUNT OF PURC HASE AND SALES I.E., TURNOVER WOULD INCLUDE ANY TAX, DUTY, CESS OR FEE. THEREFORE, THE RIGOUR OF SECTION 43B MAY BE APPLICABLE IN THE CASE OF SALES - TAX OR EXCISE DUTY BUT THE SAME CANNOT BE SAID TO BE THE POSITION IN CASE OF SERVICE TAX BECAUSE OF TWO REAS ONS. FIRSTLY, 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 COULD NOT BE MADE AND THE SAME HAS BEEN CORRECTLY DELETED BY THE CIT (APPEALS). 14. THE SECOND ASPECT OF THIS ISSUE IS ALSO IMPORTANT. SECTION 43B(C) USES THE EXPRESSION 'ANY SUM PAYABLE'. FOR MAKING ANY DISALLOWANCE, FIRST OF ALL IT HAS TO BE ESTABLISHED THAT SUCH SUM IS PAYABLE. THE DICTIONARY MEANING OF THE WORD 'PAYABLE' IN CONCISE OXFORD ENGLISH DICTIONARY IS : (1) REQUIRED TO BE PAID; (2) ABLE TO BE PAID; AND (3) DEBTS OWNED BY A BUSINESS THE CHAMBERS DICTIONARY (NEW EDITION) DEFINES THE WORD 'PAYABLE' AS 'THAT MAY OR SHOULD BE PAID; DUE OR PROFITABLE'. BLACK'S LAW DICTIONARY, SIXTH EDITION DEFINES THE TERM 'PAYABLE' AS UNDER : 'CAPABLE OF BEING PAID; SUITABLE TO BE PAID; ADMITTING OR DEMANDING PAYMENT; JUSTLY DUE; LEGALLY ENFORCEABLE. A SUM OF MONEY IS SAID TO BE PAYABLE WHEN A PERSON IS UNDER OBLIGATION TO PAY IT. PAYABLE SIGNIFIES AN OBLIGATION TO PAY AT A FUTURE TIME, BUT WHEN USED WI THOUT QUALIFICATION, TERM NORMALLY MEANS THAT THE DEBT IS PAYABLE AT ONCE, AS OPPOSED TO 'OWING'.' THE ABOVE DEFINITION WOULD SHOW THAT THE WORD 'PAYABLE' IS USED IN SECTION 43B, TO OUR UNDERSTANDING, WOULD MEAN THAT THERE IS A KIND OF OBLIGATION ON THE PA RT OF PAYEE TO MAKE THE PAYMENT WHICH IS ALRE ADY DUE. FOR EXAMPLE, WHEN SOME BODY PURCHASES GOODS THEN THE OTHER PERSON HAS GOT THE LIABILITY TO PAY THE PRICE OF THE GOODS AND IT CAN BE SAID THAT PRICE OF THE GOODS IS PAYABLE BY THE CUSTOMER. IF THE CUSTOME R SIMPLY LOOKS AT THE COST IT CANNOT BE SAID THAT HE HAS BECOME LIABLE TO MAKE THE PAYMENT. THIS CAN BE FURTHER UNDERSTOOD BY WAY OF AN EXAMPLE. FOR INSTANCE, WHENEVER A CHARTERED ACCOUNTANT RAISES A BILL FOR PROFESSIONAL SERVICES WHICH ARE SUBJECTED TO SE RVICE TAX, IT IS NOT NECESSARY THAT THE CLIENT WILL ACCEPT THE BILL AS SUCH AND MAKE PAYMENT ACCORDINGLY. IN THAT SITUATION, THE CHARTERED ACCOUNTANT CANNOT BE FASTENED WITH THE LIABILITY TO PAY THE SERVICE TAX. BUT, IN ANY CASE THE SALES - TAX SITUATION IS DIFFERENT. FOR EXAMPLE, SECTION 6(1) OF CENTRAL SALES TAX ACT, 1956 PROVIDES THAT : ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 6 OF 11 '6. LIABILITY TO TAX ON INTER - STATE SALES. [(1)] SUBJECT TO THE OTHER PROVISIONS CONTAINED IN THIS ACT, EVERY DEALER SHALL, WITH EFFECT FROM SUCH DATE AS THE CENTRAL GOVER NMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, APPOINT, NOT BEING EARLIER THAN THIRTY DAYS FROM THE DATE OF SUCH NOTIFICATION, BE LIABLE TO PAY TAX UNDER THIS ACT ON ALL SALES OF GOODS OTHER THAN ELECTRICAL ENERGY, EFFECTED BY HIM IN THE COURSE OF INT ER - STATE TRADE OR COMMERCE DURING ANY YEAR ON AND FROM THE DATE SO NOTIFIED : [PROVIDED THAT A DEALER SHALL NOT BE LIABLE TO PAY TAX UNDER THIS ACT ON ANY SALE OF GOODS WHICH, IN ACCORDANCE WITH THE PROVISIONS OF SUB - SECTION (3) OF SECTION 5, IS A SALE IN THE COURSE OF EXPORT OF THOSE GOODS OUT OF THE TERRITORY OF INDIA.]' THE ABOVE PROVISION CLEARLY SHOWS THAT THE DEALER WOULD BECOME LIABLE TO MAKE SALES - TAX PAYMENT THE MOMENT HE EFFECTS THE SALES IN THE COURSE OF AN INTER - STATE TRADE OR COMMERCE. THIS SHO WS THAT THE LIABILITY TO MAKE PAYMENT OF SALES - TAX IS NOT DEPENDING ON THE FACT WHETHER SUCH DEALER HAS RECEIVED THE PAYMENT FROM THE CUSTOMER OF THE GOODS OR NOT. THE LIABILITY IS FASTENED TO THE TRANSACTION IN SALES AND ONCE SUCH SALE IS EFFECTED, THE DE ALER BECOMES LIABLE TO PAY. 15. NOW, IN THE CASE OF SERVICE TAX, WHEN AND HOW THE AMOUNT BECOMES PAYABLE HAS BEEN PROVIDED IN SECTION 68 OF FINANCE ACT, 1994 AS WELL AS RULE 6 OF SERVICE TAX RULES WHICH READ AS UNDER: '68. PAYMENT OF SERVICE TAX. (1) EVE RY PERSON PROVIDING TAXABLE SERVICE TO ANY PERSON SHALL PAY SERVICE TAX AT THE RATE SPECIFIED IN SECTION 66 IN SUCH MANNER AND WITHIN SUCH PERIOD AS MAY BE PRESCRIBED. (2) NOTWITHSTANDING ANYTHING CONT AINED IN SUB - SECTION (1), IN RE SPECT OF ANY TAXABLE SER VICE NOTIFIED BY THE CENTRAL GOVERNMENT IN THE OFFICIAL GAZETTE, THE SERVICE TAX THEREON SHALL BE PAID BY SUCH PERSON AND IN SUCH MANNER AS MAY BE PRESCRIBED AT THE RATE SPECIFIED IN SECTION 66 AND ALL THE PROVISIONS OF THIS CHAPTER SHALL APPLY TO SUCH PER SON AS IF HE IS THE PERSON LIABLE FOR PAYING THE SERVICE TAX IN RELATION TO SUCH SERVICE.' RULE 6 OF SERVICE TAX RULES '6. PAYMENT OF SERVICE TAX. (1) THE SERVICE TAX SHALL BE PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT BY THE 5TH OF THE MONTH IMMEDIATELY FOLLOWING THE CALENDAR MONTH IN WHICH THE PAYMENTS ARE RECEIVED, TOWARDS THE VALUE OF TAXABLE SERVICE: PROVIDED THAT WHERE THE ASSESSEE IS AN INDIVIDUAL OR PROPRIETARY FIRM OR PARTNERSHIP FIRM, THE SERVICE TAX SHALL BE PAID TO THE CREDIT OF THE CENTRAL GO VERNMENT BY THE 5TH OF THE MONTH IMMEDIATELY FOLLOWING THE QUARTER IN WHICH THE PAYMENTS ARE RECEIVED, TOWARDS THE VALUE OF TAXABLE SERVICES : PROVIDED FURTHER THAT NOTWITHSTANDING THE TIME OF RECEIPT OF PAYMENT TOWARDS THE VALUE OF SERVICES, NO SERVICE TA X SHALL BE PAYABLE FOR THE PART OR WHOLE OF THE VALUE OF SERVICES, WHICH IS ATTRIBUTABLE TO SERVICES PROVIDED DURING THE PERIOD WHEN SUCH SERVICES WERE NOT TAXABLE : ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 7 OF 11 PROVIDED ALSO THAT THE SERVICE TAX ON THE VALUE OF TAXABLE SERVICES RECEIVED DURING THE MO NTH OF MARCH, OR THE QUARTER ENDING IN MARCH, AS THE CASE MAY BE, SHALL BE PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT BY THE 31ST DAY OF MARCH OF THE CALENDAR YEAR.' FROM THE ABOVE SECTION 68 IT BECOMES CLEAR THAT SERVICE TAX HAS TO BE PAID IN THE MANNER WHICH MAY BE PRESCRIBED AND THIS HAS BEEN PRESCRIBED IN RULE 6 OF SERVICE TAX RULES. A PLAIN READING OF RULE 6 WOULD SHOW THAT SERVICE PROVIDER BECOMES LIABLE TO MAKE THE PAYMENT OF SERVICE TAX BY THE 5TH OF THE MONTH IMMEDIATELY FOLLOWING THE CALENDAR MO NTH 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 PARTNERSHIP FIRMS, AND IN SUCH CASES, SERVICE TAX HAS TO BE PAID TO THE CREDIT OF CENTRAL GOVERN MENT BY THE 5TH OF THE MONTH IMMEDIATELY FOLLOWING THE QUARTER IN WHICH THE PAYMENTS ARE RECEIVED. THE ONLY DIFFERENCE IS THAT IN CASE OF INDIVIDUAL OR PROPRIETARY OR PARTNERSHIP FIRM, PAYMENT HAS TO BE MADE ON 5TH OF THE FOLLOWING MONTH AFTER THE FOLLOWIN G THE QUARTER WHEREAS IN THE CASE OF OTHER ORGANISATIONS IT HAS TO BE PAID ON THE 5TH OF THE MONTH IMMEDIATELY FOLLOWING THE CALENDAR MONTH. BUT IN BOTH THE CASES, THE LIABILITY ARISES TO MAKE THE PAYMENT ONLY AFTER THE SERVICE PROVIDER HAS RECEIVED THE PA YMENTS. 16. IF THERE IS NO LIABILITY TO MAKE THE PAYMENT TO THE CREDIT OF CENTRAL GOVERNMENT 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 SE CTION 43B BECAUSE THAT CLAUSE SPECIFICALLY MENTIONS 'SUM PAYABLE BY THE ASSESSEE'. IN THIS REGARD, THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SRIKAOLLU SUBBA RAO & CO. (SUPRA) HAS MADE THE FOLLOWING OBSERVATIONS : '17. ONE OTHER CONTENTION ADDRE SSED TO US IS THAT THE LIABILITY TO PAY SALES - TAX FOR THE MONTH OF 18 - 3 - 1984, WAS DISALLOWED IN TERMS OF SECTION 43B IN ALL THE CASES BEFORE US. SHRI SWAMY, LEARNED COUNSEL, POINTED OUT THAT THE PETITIONERS FILED A2 MONTHLY RETURNS ACCORDING TO WHICH THEY PAY THE TAXES. OUR ATTENTION HAS BEEN INVITED TO RULE 17 OF THE AP SALES - TAX RULES, 1957, WHICH IN TERMS, PROVIDES THAT THE TAX IN RELATION TO THE RETURN SHALL BE PAID BEFORE THE 25TH DAY OF THE SUCCEEDING MONTH. IT IS ARGUED THAT WHERE THE STATUTE ITSELF PRESCRIBES THE DATE OF PAYMENT NO EXCEPTION COULD BE TAKEN ACTING UNDER SECTION 43B, THAT THE AMOUNT WAS NOT PAID RENDERING JUSTIFICATION FOR ITS DISALLOWANCE. IT IS URGED THAT SECTION 43B CAN HAVE NO APPLICATION TO CASES WHERE THE STATUTORY LIABILITY WHIC H WAS INCURRED IN THE ACCOUNTING YEAR IS ALSO NOT PAYABLE ACCORDING TO THE STATUTE IN THE SAME ACCOUNTING YEAR. WE FIND CONSIDERABLE FORCE IN THE CONTENTION OF SHRI SWAMY. IN ORDER TO APPLY THE PROVISIONS OF SECTION 43B, IT SEEMS TO US THAT NOT ONLY SHOULD THE LIABILITY TO PAY THE TAX OR DUTY BE INCURRED IN THE ACCOUNTING YEAR BUT THE AMOUNT ALSO SHOULD BE STATUTORILY 'PAYABLE' IN THE ACCOUNTING YEAR. SECTION 43B ITSELF IS CLEAR TO THIS EXTENT. IT REFERS TO THE 'SUM PAYABLE' IN CLAUSE (A) AS WELL AS IN CLAU SE (B). IF THE LEGISLATURE INTENDED, IT SHOULD HAVE SO PROVIDED THAT ANY SUM FOR THE PAYMENT OF WHICH LIABILITY WAS INCURRED BUT THE ASSESSEE WOULD NOT BE ALLOWED UNLESS SUCH SUM IS ACTUALLY PAID. KEEPING IN MIND THE OBJECT FOR WHICH SECTION 43B WAS ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 8 OF 11 ENACTE D, IT IS DIFFICULT TO SUBSCRIBE TO THE VIEW THAT A ROUTINE APPLICATION OF THAT PROVISION IS CALLED FOR IN CASES WHERE THE 'TAXES AND DUTIES' FOR THE PAYMENT OF WHICH LIABILITY WAS INCURRED IN THE ACCOUNTING YEAR, WERE NOT STATUTORILY PAYABLE IN THAT ACCOUN TING YEAR. IF, UNDER THE PROVISIONS OF ANY STATUTE, A TAX OR DUTY IS PAYABLE AFTER THE CLOSE OF THE ACCOUNTING YEAR, DIFFERENT CONSIDERATION WOULD PREVAIL AND IT MAY NOT BE OPEN TO THE ITO TO DISALLOW TAX OR DUTY WHICH IS STATUTORILY PAYABLE AFTER THE ACCO UNTING YEAR. IN FACT, THE AMENDMENT BROUGHT ABOUT, WHICH IS COMING INTO FORCE ON 1 - 4 - 1988, PERMITTING THE DEDUCTION OF TAXES AND DUTIES PAID BEFORE THE FILING OF THE IT RETURNS CLEARLY SUPPORTS THE VIEW THAT 'TAXES AND DUTIES' NOT STATUTORILY PAYABLE DURIN G THE ACCOUNTING YEAR DO NOT FALL TO BE DISALLOWED UNDER SECTION 43B.' 17. IN VIEW OF THE ABOVE OBSERVATIONS, WE ARE OF THE VIEW THAT SINCE SERVICE TAX WAS NOT PAYABLE BY THE ASSESSEE, THE RIGOUR OF SECTION 43B COULD NOT HAVE BEEN APPLIED TO THE CASE OF T HE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE FIND NOTHING WRONG WITH THE ORDER OF THE CIT (APPEALS) ON THIS ISSUE AND THE SAME IS CONFIRMED. 7. IN VIEW OF THE ABOVE DISCUSSIONS, IN MY CONSIDERED VIEW, SECTION 43B DOES NOT COME INTO PLAY IN THIS CASE, AND T HAT IS THE BASIS ON WHICH IMPUGNED DISALLOWANCE I S MADE. LEARNED CIT ( A ) WAS THUS QUITE JUSTIFIED IN DELETING THE IMPUGNED DISALLOWANCE. I CONFIRM HIS ACTION AND DECLINE TO INTERFERE IN THE MA T TER. 8. GROUND NO.1 IS THUS DISMISSED . 9. I N THE SECOND GROUN D OF APPEAL, GRIEVANCE RAISED IS AS FOLLOWS : - 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.53,316/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PURCHASE OF TABLE, CUPBOARD AND TABLE CHAIR ETC.. 10. SO FAR AS THIS GRIEVANCE IS CONCERNED, THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.53,316/ - ON THE FOLLOWING BASIS : - 7. ON VERIFICATION OF VARIOUS EXPENSES A/C (CAMPING A/C / SITE EXP. A/C), IT IS NOTICED THAT THE FOLLOWING EXPENSES WERE DEBITED AND CLAIMED AS REVENUE EXPENSES. (A) PURCHASE OF TABLE RS.7,800 / - (B) CUPBOARD RS.3,165/ - ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 9 OF 11 (C) TABLE CHAIR RS.2,600/ - (D) WATER COOLER RS.8,800 / - (E) FANS RS.4,750/ - (F) COTS/BEDS RS.35.458 / - TOTAL... RS.62,5737 - ON BEING ASKED TO THE ASSESSEE WHY THESE EXPENSES SHOULD NOT BE DISALLOWED AS CAPITAL EXPENSES, THE ASSESSEE HAS STATED THAT LIFE - SPAN OF SUCH ITEMS IS NOT EVEN ONE YEAR AND HENCE THE VALUE OF THESE ITEMS HAVE BEEN WRITTEN OFF IN THE YEAR IN WHICH THESE AR E PURCHASED. THE ARGUMENT OF THE ASSESSEE IS GENERAL IN NATURE. THESE ITEMS ARE IN THE NATURE OF CAPITAL EXPENSES AND THESE CANNOT BE WRITTEN OFF AS REVENUE EXPENSES. EVEN IF IT IS USED AND SOLD, THE DIFFERENCE CAN BE CLAIMED AS TERMINAL LOSS. BUT ONE HAS TO TREAT SUCH EXPENSES AS CAPITAL EXPENSES. ACCORDINGLY, THESE EXPENSES ARE DISALLOWED AS CAPITAL EXPENSES. HOWEVER, DEPRECIATION THEREON IS ALLOWED AT THE RATE OF 10%. THE DISALLOWANCE IS ACCORDINGLY WORKED OUT @ 90% THEREOF AT RS.56,316/ - . [ADDITION : RS .53,316/ - ] 11. IN APPEAL, LEARNED C I T ( A ) DELETED THIS DISALLOWANCE BY OBSERVING THAT THE S E EXPENSES WERE INCURRED AT SITE AND COULD NOT BE THUS TREATED AS CAPITAL EXPENSES. THE ASSESSING O FFICER IS AGGRIEVED AND IS IN APPEAL BEFORE ME. 12. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, I SEE NO REASONS TO INTERFERE IN THE MATTER. THESE EXPENSES ARE INCURRED AT SITE AND THE USEFUL LIFE SPAN OF ASSETS, THEREFORE, IS SO LIMITED THAT THERE IS NO POINT IN TREATING THESE EXPENS ES AS CAPITAL EXPENSES PARTICULARLY LOOKING TO THE SMALLNESS OF AMOUNT. I, THEREFORE, CO NFIRM ACTION OF THE LEARNED CI T(A) O N THIS POINT AS WELL. 13. GROUND NO.2 IS ALSO DISMISSED. 14. THE APPEAL FILED BY THE ASSESSEE IS THUS DISMISSED. 15. IN THE CR OSS OBJECTION FILED BY THE ASSESSEE, FOLLOWING GRIEVANCE IS RAISED. ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 10 OF 11 THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING LUMP SUM ADDITION OF RS.12,59,503/ - ON ACCOUNT OF LOW GROSS PROFIT WITHOUT FINDING ANY DEFECT IN THE BOOKS OF ACCOUNTS. 1 6 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER INCREASED THE NET PROFIT RATE BY .5% TO COVER UP THE DISALLOWABLE OUT OF THE EXPENSES AND TO COVER UP ANY LEAKAGE IN PROFIT AND IRREGULARITIES IN MAINTENANCE OF RECORDS BUT HE DID NOT POINT OUT ANY SERIOUS FLAWS OR DEFICIENCIES IN THE ACCOUNTS. THE ONLY REASON OF DISALLOWANCE APPARENTLY WAS FALL IN G . P . RATE AND SOME EXPENSES NOT BEING VERIFIABLE. AGGRIEVED BY THE ADDITION OF RS.12,59,503/ - , ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE LEA RNED CIT (A) BUT WITH O UT ANY SUCCESS. WHILE UPHOLDING THE IMPUGNED ADDITION, LEARNED CIT ( A ) OBSERVED AS FOLLOWS : - 4. AFTER GOING THROUGH RIVAL SUBMISSIONS IT IS SEEN THAT FORM 3CD REPORT FILED WITH THE RETURN MENTIONS THAT EXPENSES ARE NOT SUPPORTED BY B ILLS , THEREFORE ADDITION OF RS.12,59,503/ - IN MY VIEW IS NOT UNREASONABLE LOOKING TO THE AMOUNT OF EXPENSE DEBITED OF RS.5,04,13,924/ - , FURTHER NOTHING NEW HAS BEEN BROUGHT ON RECORD BY THE APPELLANT DURING APPELLATE PROCEEDINGS THEREFORE THE ADDITION IS UPHELD. 1 7 . I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 1 8 . I FIND THAT NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE BOOKS OF ACCOUNTS A ND YE T THE BOOK RESULTS ARE TINKERED WITH. THERE IS NO REASON TO TINKER WITH THE FINANCIAL RESULTS SHOWN BY THE BOOKS O F ACCOUNTS, UNLESS ANY SPECIFIC DEFECTS ARE NOTICED IN THE BOOKS OF ACCOUNTS. AS FOR THE EXPENSES HAVING BEEN MADE FOR SOME OF THE EXPENSES ON THE BASIS OF SELF MADE VOUCHERS, THAT PER SE CANNOT BE A REASON FOR MAKING ADDITION TO NET PROFIT; AT BEST IT COULD HAVE JUSTIFIED PARTIAL DISALLOWANCE OF EXPENSES CONCERNED, BUT THAT S NOT THE CASE HERE. IN VIEW OF THESE DISCUSSIONS AND BEARING IN MIN D ENTIRETY OF THE CASE, I UPHOLD GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING O FFICER TO DELETE IMPUGNED ADDITION OF RS. 12,59,503/ - . ITA N O. 2552 AHD 201 1 & CO NO. 254 AHD 201 1 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 11 OF 11 19 . GROUND NO.1 OF THE CROSS OBJECTION IS THUS ALLOWED. 2 0 . GROUND NO.2 OF THE CROSS OBJECTION IS NOT PRESSED AND DIS MISSED AS SUCH. 2 1 . IN THE RESULT, CROSS OBJECTION IS PARTLY ALLOWED. 2 2 . TO SUM UP WHILE APPEAL IS DISMISSED, CROSS OBJECTION IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2017 . SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: THE 28 TH DAY OF FEBRUARY , 2017 . PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORD ER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD