M/S.KUNNEL ENGINEERS AND CONTRACTORS (P) LTD V. THE ASSISTANT COMMISSIONER OF INCOME TAX

ITA/62/2020

AI Insights

The case involves M/s. Kunnel Engineers and Contractors (P) Ltd, the appellant, contesting the disallowance of service tax payable under Section 43B of the Income Tax Act, 1961, for the assessment years 2011-12 and 2012-13. The primary contention was whether the service tax, which was not collected and thus not accounted for in the Profit and Loss account, should be disallowed under Section 43B. The Assessing Officer initially disallowed the outstanding liability, which was later contested and partially overturned by the Commissioner of Income Tax (Appeals). However, the Tribunal reinstated the disallowance, leading to the current appeals. The High Court's decision to remit the case back to the Tribunal was based on the finding that the Tribunal had not correctly applied the legal principles regarding the timing and recognition of tax liabilities under the Income Tax Act.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 680507 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 14-12-2022
• Assessment Year: misc
• Other Referred Cases: Kerala State Electricity Board vs. DCIT, ACIT vs. Kerala State Electricity Board
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P K MENON; JOSE JOSEPH
• Assessee Lawyers: JOSEPH MARKOSE; ABRAHAM MARKOS; ALEXANDER MARKOS; SHARAD KODANTHARA
• Keywords: Assessment Year; Income Tax; Outstanding liability; Section 43B; Service tax
• Section: 143(2); 43B; 145A

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 14TH DAY OF DECEMBER 2022 / 23RD AGRAHAYANA, 1944 ITA NO. 62 OF 2020 AGAINST THE ORDER IN ITA NO. 04/COCH/2020 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT: M/S.KUNNEL ENGINEERS AND CONTRACTORS (P) LTD 3RD FLOOR, PUTHURAN PLAZA, M.G. ROAD,KPCC JUNCTION, KOCHI-682011. (PAN-AABCK6154B) REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR, MR.M.V.ANTONY. BY ADVS. JOSEPH MARKOSE (SR.) SRI.ABRAHAM JOSEPH MARKOS SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA RESPONDENT: THE ASSISTANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE-1(2), KOCHI-682018. BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 14.12.2022, ALONG WITH ITA.66/2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.62/2020, 66/2020 -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 14TH DAY OF DECEMBER 2022 / 23RD AGRAHAYANA, 1944 ITA NO. 66 OF 2020 AGAINST THE ORDER IN ITA NO.653/COCH/2019 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT: M/S. KUNNEL ENGINEERS AND CONTRACTORS (P) LTD KOCHI-682011.(PAN.AABCK6154B) REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR, MR M V ANTONY. BY ADVS. JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA RESPONDENT: THE ASSISTANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE-1(2), KOCHI-682018. BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 14.12.2022, ALONG WITH ITA.62/2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.62/2020, 66/2020 -3- JUDGMENT [ITA Nos.62/2020, 66/2020] S.V. Bhatti, J. We have heard learned Senior counsel Mr Joseph Markose and Mr P.K.R. Menon for parties. 2. M/s. Kunnel Engineers & Contractors (P) Ltd, Kochi/assessee, is the appellant in both appeals. The Assistant Commissioner of Income Tax, Kochi/Revenue, is the respondent. The appeals arise from the common order dated 19.05.2020 of the Income Tax Appellate Tribunal, Cochin, in I.T. Appeal Nos. 653/Coch/2019 and 04/Coch/2020. Since the issue of fact and law are identical in both appeals, the appeals are disposed of by this common judgment. The details referring to and leading up to the filing of appeals in this Court are stated in the following table: Sl. No. Assessment year and date of assessment Order of the Commissioner of Income-Tax (Appeals) Order of the Tribunal ITA 1 2012-13; dtd 30.03.2015; ITA 103/R- I/CIT(A)/2015-16 ITA No.653/Coch /2019 66/2020 ITA Nos.62/2020, 66/2020 -4- 2 2014-15; dtd 30.09.2016; ITA 33& 34/CIT(A)/208-19 ITA No.04/Coch/ 2020 62/2020 ITA No.66/2020 has been treated as the leading case for disposing of both appeals. 3. On 29.09.2012, the assessee filed the return of income for the assessment year 2012-13. The return was taken up for consideration, and notice under Section 143(2) dated 23.09.2013 under the Income Tax Act, 1961 (for short, ‘the Act’) was issued by the Assessing Officer. In the appeals, the Court is concerned with an issue arising under Section 43B of the Act, which reads thus: “Certain deductions to be only actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payables 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 (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in clause (ii) of sub-section (1) of section 36, or ITA Nos.62/2020, 66/2020 -5- (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (da) any sum payable by the assessee as interest on any loan or borrowing from a deposit taking non-banking financial company or systemically important non-deposit taking non- banking financial company, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan or advances, or (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, or (g) any sum payable by the assessee to the Indian Railways for the use of railway assets, Shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method 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:” Stated more specifically, the issue arises under any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, shall be allowed only in computing income referred to in Section 28 of that previous year in which the assessee actually pays such sum. Now ITA Nos.62/2020, 66/2020 -6- coming to the controversy, the assessee for the subject assessment years has shown an outstanding liability amounting to Rs.6,83,90,211/-. The break-up of the said amount is (A.Y-2011- 12)—Rs.3,31,20,748/- and (A.Y.-2012-13)—Rs.3,52,69, 463/-. 4. The case of the assessee is that the service tax component shown as an outstanding liability to the Government is on account of - a) the assessee has raised the bills for the works undertaken for and on behalf of several agencies, and the assessee has not received the amount covered by the respective bills; b) the assessee has not booked anything in the P&L account so far as the disputed service tax component is concerned. Section 43B arises only when an issue on fact is stated as to the year in which the amount has to be accounted for but not when the amount is not firstly collected and, secondly, accounted for in the respective accounting years. The Assessing Officer, through Annexure-A order, disallowed the outstanding liability and has added back to the income of the Assessee for the respective assessment year. ITA Nos.62/2020, 66/2020 -7- The Assessee filed an appeal before the Commissioner of Income Tax (Appeals) (for short, ‘CIT (Appeals)), and the Appellate Authority examined the legality of the application of Section 43B of the Act to the circumstances on hand in para 8 as ground no.7, and in the concluding para as held as follows; “The appellant also placed reliance on a decision of Hon'ble Kerala High Court in the case of Kerala State Electricity Board vs. DCIT 329 ITR 91, wherein Hon'ble High Court stated, we are of the opinion that, when section 43(B)(a) speaks of the sum payable by way of tax etc., the said provision is dealing with the amounts payable to the sovereign, but not amounts payable to the sovereign qua principal. We are therefore of the opinion that Section 438 cannot be invoked in making the assessment of the liability of the appellant under the Income Tax Act with regards to the amounts collected by the appellant pursuant to the obligation cast on the appellant under section 5 of the Electricity Duty Act, 1963.\" Applying the same logic, in the instant case, the liability of Service Tax payable cannot be disallowed as the same has not been claimed by the appellant as an expense. Thus, relying on the decision of Hon'ble Kerala High Court and the order passed by the Hon'ble ITAT, Cochin in ACIT vs. Kerala State Electricity Board [2018] 100 taxmann.com 132 (Cochin Trib.), wherein the Tribunal followed the order of the Hon'ble Kerala High Court, the disallowance of Service Tax payable amounting to Rs.3,52,69,463/- is hereby deleted and this ground of appeal of the appellant is allowed.” The Revenue filed a second appeal before the Tribunal. Through the order in Annexure-C dated 19.05.2020, the ground raised by ITA Nos.62/2020, 66/2020 -8- the Revenue on the application and entitlement of Section 43B has been accepted, and the appeal has been allowed. Hence the appeals under Section 260A of the Act. 5. The following substantial questions of law are raised for consideration: 1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming the disallowance of service tax payable under Section 43B, particularly when the same was not charged to the Profit and Loss Account or claimed as a deduction in the computation of income? 2) Whether on the facts and in the circumstances of the case there is any evidence or material on record for the Tribunal to substantiate its finding that the service tax payable represents service tax collected by the Appellant? 3) Whether on the facts and in the circumstances of the case, if Section 43B is found to be applicable with respect to the service tax liability remaining unpaid as on the due date of filing return, then should not the Appellant be allowed a deduction of the same in the appropriate year of payment? 4) Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that depreciation is not allowable on the value of the undivided share right and interest in the land held as inseparable from the apartments? 6. Mr Joseph Markose contends that the Tribunal fell in a serious error of fact and law, which are very substantial in nature ITA Nos.62/2020, 66/2020 -9- in assuming that the assessee has collected the service tax amounting to Rs. 6,83,90,211/- and on the said analogy by applying the ratio or principle laid down by either the Tribunal or this Court recorded the conclusion. The argument is that it is one thing in law to assume that the service tax is collected and not paid to the Government. The consideration is entirely different if the liability shown for the respective assessment years forms part of bills raised by the assessee for the works carried out for different agencies and not received by the assessee. The assessee’s case is also that as the amount is not collected, it is shown as a liability in that assessment year of the assessee. In other words, the liability becomes payable when it is received and accounted for by the assessee. Therefore, applying Section 43B to the case on hand is illegal. It is also argued that without properly considering the scope and object of Section 145A of the Act, denying the consideration of the assessee’s claim under Section 145A is equally erroneous and illegal. Firstly, he prays for setting ITA Nos.62/2020, 66/2020 -10- aside the findings of the Tribunal as the findings are seriously flawed, and on assumptions, conclusions have been recorded and restored the findings recorded by the CIT (Appeals). It is alternatively argued that having regard to the jurisdictional limitations of this Court in an appeal under Section 260A of the Act, when a patent error is pointed out in the circumstances considered by the Tribunal, the assessee should be afforded an opportunity before the Tribunal to canvass what the claim was and why the disallowance made by the Assessing Officer is illegal and unsustainable. 7. Mr P.K.R Menon appearing for the Revenue, prefaces his argument that going by what has been recorded in the order of the Tribunal, he contends that no exception to the finding recorded by the Tribunal could be stated. Secondly, in juxtaposing the findings of the Tribunal with either of the Authorities, any error in consideration of the case stated by the assessee is noted by this Court. It would also be a case for the ITA Nos.62/2020, 66/2020 -11- Revenue to place the correct and total facts before the Tribunal. In other words, if this Court does not appreciate his principal argument on sustaining the order of the Tribunal, he is substantially in agreement with the alternative argument of the assessee for remitting the matter to the Tribunal. 8. We have perused the order of the Assessing Officer, CIT (Appeals), and excerpted the mistake committed by the Tribunal from the material on record. We are of the view that the questions now formulated are substantial in nature, for conclusions are recorded on an erroneous appreciation of the reply of the assessee. 9. Therefore, for statistical purposes, the questions are answered in favour of the assessee and against the Revenue. a) The common order dated 19.05.2020 is set aside and remitted to the Tribunal for consideration and disposal in accordance with the law. b) The parties, if so advised, are given the liberty to bring ITA Nos.62/2020, 66/2020 -12- on record such material as respective parties may deem fit in support of their contentions. 10. The Assessee also claims the application of Section 145A of the Act. For the view we have expressed above, it is clear that we have not examined the availability or the extent to which the assessee’s case could be considered under Section 145A. All contentions are left open to be considered by the Tribunal. Appeals are allowed and remanded with the observations as indicated above. Sd/- S.V.BHATTI JUDGE Sd/- BASANT BALAJI JUDGE JS ITA Nos.62/2020, 66/2020 -13- APPENDIX OF ITA 66/2020 APPELLANT ANNEXURES ANNEXURE-A TRUE COPY OF THE ASSESSMENT ORDER DATED 30.03.2015 FOR ASSESSMENT YEAR 2011-13. ANNEXURE-B TRUE COPY OF THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), KOCHI DATED 06.08.2019. ANNEXURE-C TRUE COPY OF IMPUGNED ORDER DATED 19/05/2020 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO. 653/Coch/2019-& 04/Coch/2020. ANNEXURE-D TRUE COPY OF THE ORDER DATED 25.08.2015 OF THE SUPERINTENDENT OF SERVICE TAX, KOCHI. ANNEXURE-E TRUE COPY OF THE PAYMENT CONFIRMATION MADE BY THE APPELLANT DATED 30.09.2015. ITA Nos.62/2020, 66/2020 -14- APPENDIX OF ITA 62/2020 APPELLANT ANNEXURES ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 30.09.2016 FOR ASSESSMENT YEAR 2014-15 ANNEXURE B TRUE COPY OF THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), KOCHI DATED 23.10.2019. ANNEXURE C CERTIFIED COPY OF IMPUGNED ORDER DATED 19.05.2020 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL,KOCHI BENCH IN I.T.A.NO.653/COCH/2019 & O4/COCH/2020. ANNEXURE D TRUE COPY OF THE ORDER DATED 25.08.2015 OF THE SUPERINTENDENT OF SERVICE TAX,KOCHI. ANNEXURE E TRUE COPY OF THE PAYMENT CONFIRMATION MADE BY THE APPELLANT DATED 30.9.2015 ANNEXURE F TRUE COPY OF MODIFIED ASSESSMENT ORDER AND DEMAND NOTICE DATED 30.10.2020 FOR AY 2014-15. "