Vansun Erectors Private Limited, Secunderabad V. Income Tax Officer, Ward-17(3), Hyderabad

ITA 732/Hyd/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4560 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2014-2015
• Appeal Filed On: 23-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PHANI RAJU
• Section: 43B; 143(3)

Judgement Text

ITA NO 732 OF 2018 VANSUN ERECTORS P LTD SECUNDERAB AD. PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.732/HYD/2018 (ASSESSMENT YEAR: 2014-15) M/S. VANSUN ERECTORS PRIVATE LIMITED, SECUNDERABAD PAN: AABCV0428R VS INCOME TAX OFFICER WARD 17(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS FOR REVENUE : SHRI PHANI RAJU, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2014-15 AGAIN ST THE ORDER OF THE CIT (A)-5, HYDERABAD, DATED 12.03. 2018. 2. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE A.Y 2014-15 ON 30.11.2014 DECLARING INCOME OF RS.21 ,76,780/-. DURING THE SCRUTINY PROCEEDINGS U/S 143(3) OF THE A CT, FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY THE AO OBSERV ED THAT THE SERVICE TAX PAYABLE IS SHOWN AT RS.72,73,422/- AND THAT IT WAS NOT ROUTED THROUGH THE P&L A/C BUT IT IS SHOWN AS A LIABILITY IN THE BALANCE SHEET. THE AO WAS OF THE OPINION THAT S INCE THE SERVICE TAX HAS NOT BEEN PAID, IT IS TO BE DISALLOW ED U/S 43B OF THE DATE OF HEARING : 07.02.2019 DATE OF PRONOUNCEMENT: 15.02.2019 ITA NO 732 OF 2018 VANSUN ERECTORS P LTD SECUNDERAB AD. PAGE 2 OF 5 ACT. WHEN THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE, THE ASSESSEE SUBMI TTED THAT THE SERVICE TAX HAS NOT BEEN ROUTED THROUGH THE P&L A/C AND NOT DEBITED AS EXPENDITURE HENCE IT SHOULD NOT BE DISAL LOWED U/S 43B OF THE ACT. THE AO HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS AND TAKING INTO CONSIDERATION OF THE JU DGMENT OF THE HON'BLE KOLKATA HIGH COURT IN THE CASE OF CIT VS. A SSOCIATED PIGMENTS LTD (71 TAXMANN 244) HELD THAT THE SAID AM OUNT IS TO BE DISALLOWED. ACCORDINGLY, HE DISALLOWED THE SAID AMOUNT AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE A O AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE SERVICE TAX HAS BEEN COLLECTED BY THE ASSESSEE AS AN AGENT ON BEHALF OF THE GOVT. AND THEREFORE, IT WAS EXCLUDED FROM THE METHOD OF ACCOUNTING AND WAS TREATED AS A LIABILITY IN THE BALANCE SHEET. HE SUBMITTED THAT THIS IS A WIDELY ACCEPTED ACCOUNT ING STANDARD AND THE METHOD IS BEING CONSISTENTLY FOLLOWED BY TH E ASSESSEE COMPANY AND THAT IT IS ALSO AN ACCEPTED THE METHOD OF ACCOUNTING UNDER THE I.T. ACT. HE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS I) HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NOB LE AND HEWITT (I) PVT. LTD REPORTED IN (2008) 305 ITR 0324 II) HON'BLE BOMBAY HIGH COURT IN THE CASE OF PR.CIT -II MUMBAI VS. TOPS SECURITY LTD, REPORTED IN (2018) 258 TAXMA NN 161/97 TAXMANN.COM 525 (BOMBAY). III) ITAT HYDERABAD BENCH IN THE CASE OF ENVISON EN TERPRISE SOLUTIONS (P) LTD VS. ITO IN ITA NO.315/HYD/2016, D ATED 12 TH AUGUST, 2016. ITA NO 732 OF 2018 VANSUN ERECTORS P LTD SECUNDERAB AD. PAGE 3 OF 5 4. THUS, ACCORDING TO HIM, SINCE THE ASSESSEE HAS N OT CLAIMED SERVICE TAX AS AN EXPENDITURE, THE SAME CAN NOT BE DISALLOWED U/S 43B OF THE ACT. 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PLACED RELIANCE UPON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AT BANGALORE IN THE CASE OF M/S. JAIN CHRISTOPHER, SRIKANTH & SRIKA NTH, C.AS VS. DCIT, CIRCLE 5(1) BANGALORE IN ITA NO.855/BANG/2012 DATED 12.04.2013. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ISSUE AS TO WHETHER THE SERVICE TAX COULD BE DISALLOWED U/S 43B OF THE ACT WHEN THE ASS ESSEE HAS NOT RECEIVED THE SAME, CAME UP FOR CONSIDERATION BEFORE THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PR.CIT-II MUMBAI V S. TOPS SECURITY LTD (CITED SUPRA) AND THE HON'BLE HIGH COU RT AT PARA 10 OF ITS ORDER HAS HELD AS UNDER: 10. WITH THE ASSISTANCE OF BOTH SIDES, WE HAVE PER USED THIS JUDGMENT AND WE FIND THAT IT DEALT WITH AN IDE NTICAL ISSUE. THIS COURT HELD THAT SECTION 43B DOES NOT CONTEMPLATE LIABILITY TO PAY SERVICE TAX BEFORE ACT UAL RECEIPT OF THE FUNDS IN THE ACCOUNT OF THE ASSESSEE . HENCE THE LIABILITY TO PAY SERVICE TAX INTO THE TREASURY WILL ARISE ONLY UPON THE ASSESSEE RECEIVING THE FUNDS AND NOT OTHERWISE. THUS THE CONSIDERATION HAS TO BE ACTUALL Y RECEIVED AND THEREUPON THE LIABILITY WILL ARISE. 7. FURTHER, IN THE CASE OF VIT VS. NOBLE AND HEWITT (I) P LTD (SUPRA), THE HON'BLE DELHI HIGH COURT, AFTER CO NSIDERING THE ITA NO 732 OF 2018 VANSUN ERECTORS P LTD SECUNDERAB AD. PAGE 4 OF 5 DECISION OF THE KOLKATA HIGH COURT IN THE CASE OF C HOWRINGHEE SALES BUREAU VS. CIT (87 ITR 542 (S.C) HELD AS UNDE R: 5. LEARNED COUNSEL FOR THE REVENUE URGES THAT THE D ECISION OF THE CALCUTTA HIGH COURT IN CHOWRINGHEE SALES BUREAU (P. ) LTD. 'S CASE (SUPRA) COVERS THE POINT IN ITS FAVOR. WE ARE UNABL E TO AGREE. IN THAT CASE IT WAS HELD THAT THE LIABILITY TO PAY SALES TA X AROSE THE MOMENT A SALE OR PURCHASE WAS EFFECTED AND IF AN ASSESSEE WA S MAINTAINING ACCOUNTS ON THE MERCANTILE SYSTEM IT WOULD BE ENTIT LED TO DEDUCTION OF THE ESTIMATED LIABILITY OF SALES TAX, EVEN THOUGH S UCH SALES TAX HAD NOT BEEN PAID TO THE SALES TAX AUTHORITIES. THE QUESTIO N THERE CONCERNED WAS THE ENTITLEMENT OF THE ASSESSEE TO DEDUCTION UN DER SECTIONS 10(1)AND 10(2)(XV) OF THE INDIAN INCOME TAX ACT, 19 22.THE DECISION IS CLEARLY DISTINGUISHABLE IN ITS APPLICATION TO TH E 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 PROVISIO NS 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. S CASE (SUPRA) WAS NOT IN THE CONTEXT 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 CONSIDER ING THAT THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCO UNTING, THE QUESTION OF DISALLOWING THE DEDUCTION NOT CLAIMED W OULD NOT ARISE . 8. WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNA L IN THE CASE OF M/S. JAIN CHRISTOPHER, SRIKANTH & SRIKA NTH, C.AS (SUPRA) OBSERVED THAT THOUGH THE SERVICE TAX WAS CO LLECTED, IT WAS NOT PAID AND WAS SHOWN AS OUTSTANDING LIABILITY AND IN THESE CIRCUMSTANCES, THE COORDINATE BENCH HELD THAT IT HA S TO BE DISALLOWED U/S 43B OF THE ACT. IN THE CASE BEFORE U S, THE ASSESSEE HAS NOT ROUTED THE SERVICE TAX THROUGH THE P&L A/C AND HAS NOT CLAIMED IT AS A DEDUCTION. THEREFORE, THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF NOBLE & HEWITT (CIT ED SUPRA) WOULD APPLY. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE BOMBAY AND DELHI HIGH COURTS, WE HOLD THAT THE DISALLOWANCE U/S 43B IS NOT SUSTAINABLE. ITA NO 732 OF 2018 VANSUN ERECTORS P LTD SECUNDERAB AD. PAGE 5 OF 5 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY, 2019. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 15 TH FEBRUARY, 2019. VINODAN/SPS COPY TO: 1 VANSUN ERECTORS P LTD, C/O SEKHAR & CO. C.AS, 133 /4, R.P. ROAD, SECUNDERABAD 500003 2 ITO WARD 17(3) HYDERABAD 3 CIT (A)-5 HYDERABAD 4 PR. CIT 5 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER