AAP & Co., Surat V. Dy. Commissioner of Income Tax, CPC, Banglore

ITA 28/SRT/2022

AI Insights

The case involves AAP & Co., a Chartered Accountant firm, appealing against the order of the National Faceless Appeal Centre (NFAC)/Commissioner of Income Tax (Appeals) which disallowed a service tax liability of Rs. 6,17,424 for the Assessment Year 2017-18. The primary contention was that the service tax, although unpaid at the time of filing the return, was not claimed as an expense in the Profit & Loss Account due to the exclusive method of accounting followed by the assessee. The Tribunal considered the provisions of Section 43B of the Income Tax Act and the implications of the SVLDRS scheme, which allows for a reduced payment of disputed tax liabilities.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301558 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-07-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 09-02-2022
• Other Referred Cases: CIT Vs Noble and Hewitt (I) (P) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 43B; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH (SMC), SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 28/Srt/2022 (Assessment Year 2017-18) (Physical hearing) AAP & Co., L 16-17, Agrasen Point, Opp. Maharaja Arcade, Surat, Gujarat- 395007 PAN No. AARFA 8951 B Vs. D.C.I.T. (CPC), Bangalore. Appellant/ assessee Respondent/ revenue Assessee represented by Ms. Chaitali Shah, C.A. Department represented by Ms. Jayshree Thakur, Sr. DR Date of hearing 20/07/2023 Date of pronouncement 28/08/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A)) dated 13/12/2021 for the Assessment Year (AY) 2017-18. The assessee has raised following grounds of appeal: “1. The learned Commissioner of Income-tax (Appeals) erred in the facts of the case, in law and in circumstances by disallowing Rs. 6,17,424/- being unpaid Service Tax Liability ignoring the fact that the assessee follows exclusive method of accounting. 2. The learned Commissioner of Income-tax (Appeals) erred in the facts of the case, in law and in circumstances by disallowing Rs. 6,17,424/- outstanding Service Tax Liability as the appellant has already discharged the liability on the same. 3. The learned Commissioner of Income-tax (Appeals) erred in the facts of the case, in law and in circumstances by taxing the same amount twice and ignoring the fact that the appellant had paid the 40% of the said amount under ITA No. 28/Srt/2022 AAP & Co. Vs. DCIT 2 the Sabka Vishwas Legacy Dispute Resolution Scheme and has offered the balance amount as an income in A.Y. 2020-21. 4. Demanding tax on Rs. 6,17,424/- being outstanding Service Tax Liability, out which 40% has already been paid and remaining has already been offered as an income, will lead to unjust enrichment. 5. The appellant craves leave to add, alter, amend, delete and/or withdraw any or all the above grounds of appeal.” 2. Brief facts of the case are that the assessee is a Chartered Accountant Firm, filed its return of income for A.Y. 2017-18 on 31/10/2017 declaring NIL income after set off of brought forward losses of Rs. 1,18,521/-. The return was processed by the Central Processing Centre (CPC), Bangalore vide intimation dated 05/12/2018, in computing total income at Rs. 7,35,945/-. The C.P.C. made adjustment/disallowance of service tax payable of Rs. 6,17,424/- thereby raising a demand of tax of Rs. 1,90,783/-. Aggrieved by the disallowance of service tax, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed its detailed written submission. The assessee in its submission, submitted that the assessee is a partnership firm, incorporated on 23/06/2010, is in the profession of consultancy services with regard to Income tax, Goods and Services Tax (GST) and other statutory compliances. The assessee filed its return of income on 31/10/2017 showing returned income at Rs. 1,07,355/-. The assessee got notice of proposed assessment under Section 143(1)(a) of the Income Tax Act, 1961 (in short, the Act) on 10/08/2018. The assessee responded to such notice disputing/disagreeing with the proposed adjustment. The C.P.C. ITA No. 28/Srt/2022 AAP & Co. Vs. DCIT 3 made adjustment disregarding the contention of assessee by making addition on account of disallowance of service tax payable of Rs. 6,17,424/-. Such addition was made on the basis of entry in para 26 of Audit report wherein amount of expenses of Rs. 6,17,424/- is shown. Such addition was made on the basis of entry in para 26 of audit report wherein amount of expenses of Rs. 6,17,424/- was disallowed under Section 43B of the Act, which was not reflected in the income tax return for the year under consideration. The assessee further submitted that their firm is following mercantile system of accounting and exclusive method for the purpose of accounting of service tax. The assessee further explained by giving example that if Mr. X provided his services amounting to Rs. 10.00 lacs on which service tax is applicable @ 12% thereby accounting to taxable value amounting Rs. 10.00 lacs and service tax amounting to Rs. 1.20 lacs and demonstrated inclusive and exclusive method in the following manner: INCLUSIVE METHOD Profit & Loss Account Debit Credit Particulars Amount(Rs.) Particulars Amount(Rs.) Service Tax Expense 1,20,000 Sale of Service 11,20,000 Balance Sheet Liability Asset Particulars Amount(Rs.) Particulars Amount(Rs.) Service Tax Expense 1,20,000 ITA No. 28/Srt/2022 AAP & Co. Vs. DCIT 4 EXCLUSIVE METHOD Profit & Loss Account Debit Credit Particulars Amount(Rs.) Particulars Amount(Rs.) Sale of Service 10,00,000 Balance Sheet Liability Asset Particulars Amount(Rs.) Particulars Amount(Rs.) Service Tax Expense 1,20,000 3. On the basis of aforesaid explanation, the assessee submitted that when exclusive method is being followed by them, amount of service tax will not impact profit and loss account as it cannot have claimed amount of service tax expenses it cannot be disallowed u/s 43B of the Act. The assessee further explained that when exclusive method is followed for the purpose of accounting of service tax, the amount of service tax will not impact the profit and loss account as amount of service tax is not debited to the profit and loss account i.e. it is not claimed as expenses, hence it cannot be disallowed. The assessee also relied on the decision of Hon'ble Delhi High Court in CIT Vs Noble and Hewitt (I) (P) Ltd. in I.T. Appeal No. 839/2007 dated 10/09/2007. The assessee again vide their submission dated 17/11/2021 submitted that they are following exclusive method of accounting for the purpose of accounting of service tax, it has not claimed as expenses. So if the assessee has not claimed as expenses, it cannot be disallowed and added to the income of assessee. ITA No. 28/Srt/2022 AAP & Co. Vs. DCIT 5 4. The ld. CIT(A) after considering the submissions of assessee, upheld the action of CPC by taking a view that the service tax of Rs. 6,17,424/- has not been paid till the date of filing return of income as reflected in the tax audit report. On the decision of Hon'ble Delhi High Court in CIT Vs Noble and Hewitt (I) (P) Ltd. (supra), the ld. CIT(A) held that the Hon'ble High Court was not considering the issue whether service tax collected and remained unpaid till the date of furnishing of return of income, form part of total income of current year. Further aggrieved, the assessee has filed present appeal before the Tribunal. 5. I have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee submits that while processing the return of income, the CPC made prima facie adjustment of Rs. 6,17,424/- under Section 43B of the Act being liability of service tax not discharged before due date of filing return of income. The assessee is a Chartered Accountant Firm, follows exclusive method of accounting with regard to service tax. Accordingly, the unpaid amount of Rs. 6,17,424/- was not debited to the Profit & Loss Account. During the appellate stage before the ld. CIT(A), the assessee relied on the decision of Hon'ble Delhi High Court in CIT Vs Noble and Hewitt (I) (P) Ltd. (supra) wherein it was held that when deduction is not claimed in the Profit and Loss Account, the provisions of Section 43B is not ITA No. 28/Srt/2022 AAP & Co. Vs. DCIT 6 applicable. The ld. CIT(A) disregarded the decision to the facts of the present case and confirmed the disallowance made by way of adjustment. The ld. AR of the assessee submits that the assessee has not claimed deduction of service tax so it cannot be disallowed. 6. In alternative submissions, the ld AR for the assessee submits that even if it is assumed that the adjustment is proper, the assessee was liable to pay only 40% of demand as per “Sabka Vishwas Legacy Dispute Resolution Scheme, 2019” (in short, SVLDRS). Accordingly, the amount of Rs. 2,46,970/- being 40% of addition was payable by the assessee. The disallowance under Section 43B can be made only in respect of any sum payable by the assessee by way of tax as per clause (a) of Section 43B of the Act and remaining 60% of amount i.e. 7,30,454/- is required to be deleted. The ld. AR of the assessee submits that the assessee has already placed on record Form-4 of SVLDRS issued by designated authority wherein it is mentioned that the assessee has paid amount of Rs. 1,45,604/- and Rs. 88,471/- on 10/01/2020 and 07/03/2020 respectively for A.Y. 2017-18. The assessee has already offered 60% of the amount being relief derived by the assessee as per scheme in audited account for A.Y. 2020-21. The amount of Rs. 5,10,287/- reflected in the audited accounts includes this amount. The assessee also applied for the benefit of scheme for other years. So on the grounds of double taxation, the addition cannot be made to the extent of 40% of Rs. 6,17,424/-. So ITA No. 28/Srt/2022 AAP & Co. Vs. DCIT 7 far as 60% of amount of Rs. 6,17,424/- is concerned, the assessee is entitled for deduction in A.Y. 2020-21, so suitable direction may be given to the Assessing Officer to allow deduction in A.Y. 2020-21. 7. On the other hand, the ld. Sr. DR for the revenue submits that the assessee is seeking relief against the statutory provision, the assessee has not deposited service tax despite collecting against various services rendered. The ld. Sr. DR for the revenue submits that he fully supports the orders of lower authorities. 8. I have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. The Assessing Officer/CPC made adjustment of Rs. 6,17,424/- on the basis of column 26 of audit report wherein amount of such expenses was disallowed, not reflected in the return for this year. As recorded above, before the ld. CIT(A), the assessee filed detailed written submission, the ld. CIT(A) concur with the action of Assessing Officer/CPC by taking a view that undisputedly, the assessee has not paid service tax till filing of return of income under Section 139(1) of the Act. Before me, the ld. AR of the assessee in alternative submissions vehemently submitted that the assessee applied for the benefit of SVLDRS and only 40% of Rs. 6,17,424/- was payable, which stand paid. The ld AR for the assessee has also filed copy of relevant challan in respect of 40% of liability on record. The ld. AR of the assessee during her submission also prayed ITA No. 28/Srt/2022 AAP & Co. Vs. DCIT 8 for giving suitable direction that in case remaining addition is sustained, the assessee may be allowed deduction in A.Y. 2020-21. Considering the submission of ld. AR of the assessee and considering the fact that the assessee availed/went for SVLDRS and was liable to pay 40% of service tax, therefore, the Assessing Officer is directed to verify the contention of ld. AR of assessee and allow relief to that extent in accordance with law. So far as remaining 60% of the liability is concerned, assessee claimed that they have already offered 60% of the amount as per scheme of SVLDRS in audited account for A.Y. 2020-21, which is reflected in the audited accounts and allegedly includes this amount. Hence, the assessing officer is also directed to verify facts for AR 2020-21 and grant relief to the assessee in accordance with law. In the result, grounds of appeal raised by the assessee are allowed for statistical purposes. 9. In the result, this appeal of assessee is allowed for statistical purposes only. Order announced in open court on 28 th August, 2023. Sd/- (PAWAN SINGH) JUDICIAL MEMBER Surat, Dated: 28/08/2023 *Ranjan Copy to: 1. Assessee 2. Revenue 3. CIT 4. DR By order 5. Guard File Sr. Private Secretary, ITAT, Surat