Case Law Details
Schlumberger Solutions Pvt. Ltd. Vs ACIT (ITAT Dehradun)
In Schlumberger Solutions Pvt. Ltd. vs ACIT, the ITAT Dehradun dealt with a Miscellaneous Application (M.A.) filed by the assessee seeking recall of an earlier tribunal order dated 29.11.2021 for Assessment Year 2010–11.
The original tribunal order had dismissed the Revenue’s appeal by holding that service tax does not form part of gross receipts for computing income under Section 44BB of the Income Tax Act. However, the assessee contended in the M.A. that the tribunal had misunderstood the actual issue involved in the appeal.
The assessee submitted that the Assessing Officer (AO) and Transfer Pricing Officer (TPO) had disallowed an unpaid service tax liability of ₹1,65,73,768 under Section 43B. This disallowance was deleted by the Dispute Resolution Panel (DRP) on the ground that the service tax amount was not routed through the Profit and Loss Account and no deduction had been claimed. Therefore, disallowance under Section 43B was not applicable.
The Revenue had filed an appeal before the tribunal against the DRP’s deletion of the disallowance. However, the tribunal, while deciding the appeal, framed the issue incorrectly as whether service tax forms part of gross receipts for the purpose of Section 44BB. The assessee argued that this was an error of fact since the actual issue pertained to disallowance under Section 43B and not computation under Section 44BB.
The tribunal examined the grounds of appeal and found that the issue decided earlier was indeed contrary to the grounds raised by the Revenue. It observed that the coordinate bench had misinterpreted the issue and decided a different question. Accordingly, the tribunal held that the earlier order suffered from an error and recalled it. The M.A. filed by the assessee was allowed.
Upon reconsideration of the appeal on merits, the tribunal noted that an identical issue had already been decided by a coordinate bench in another case for Assessment Year 2012–13. In that decision, it was held that where the assessee had not claimed deduction of service tax expenditure, there was no basis for disallowance under Section 43B.
Applying the same reasoning, the tribunal observed that in the present case also, the service tax liability was not claimed as an expenditure and was not routed through the Profit and Loss Account. Therefore, disallowance under Section 43B was not justified. The Departmental Representative could not provide any reason to deviate from the earlier decision.
Following the precedent, the tribunal dismissed all grounds raised by the Revenue and upheld the DRP’s decision deleting the disallowance.
In conclusion, the tribunal allowed the assessee’s Miscellaneous Application, recalled the earlier order due to factual error, and upon fresh adjudication, dismissed the Revenue’s appeal on merits. The tribunal reaffirmed that unpaid service tax cannot be disallowed under Section 43B where no deduction has been claimed by the assessee.
FULL TEXT OF THE ORDER OF ITAT DEHRADUN
The captioned Miscellaneous Application [“M.A”] is filed by the assessee against the order passed by the Co-ordinate Bench of ITAT in ITA No.3266/Del/2017 dated 29.11.2021 for the Assessment Years 2010-11 wherein the Co-ordinate Bench has held that the amount of service tax received, do not form part of the gross receipt for computing the income u/s 44BB of the Act and accordingly, the appeal of the Revenue is dismissed.
2. In the M.A. filed, the assessee claimed that the AO/TPO has disallowed the amount of unpaid service tax of liability amounting to INR 1,65,73,768/- which was deleted by Ld. DRP by observing that the said amount was since not transacted through the Profit & Loss Account and thus, no expenditure was claimed. Therefore, the same could not be disallowed u/s 43B of the Act.
3. Against the said observation of Ld. DRP, the Revenue has filed the appeal before the tribunal. However, as observed above, the Coordinate Bench while deciding the appeal of the revenue has misunderstood the issue and held that the service taxes do not form part of the gross receipt for computation of income u/s 44BB of the Act. The assessee therefore, prayed that order of the coordinate bench suffered error of fact and be recalled and decided in terms of the grounds of appeal taken by the revenue.
4. On the other hand, Ld. Sr. DR for the Revenue supported the MA filed by the assessee.
5. Heard the contentions of both the parties and perused the material available on record. From the facts and grounds of appeal taken by the Revenue, it is observed that Revenue has challenged the action of Ld. DRP in deleting the disallowance made u/s 43B towards unpaid service tax liability. However, the Co-ordinate Bench while deciding the appeal in para 2 of the order, has misunderstood the issue and observed as under:-
2. “The only issue involved in this case whether service tax is negligible in the course of Revenue for computing the profits under presumptive basis of provision of section 44BB of Income Tax Act, 1961 or not.”
6. Since the issue decided by the Co-ordinate Bench is contrary to the Grounds of appeal taken by the Revenue and therefore, the order of Co-ordinate Bench is hereby, recalled.
7. In the result, the M.A. filed by the assessee is allowed.
ITA No. 3266/DEL/2017 [Assessment Year : 2010-11]
8. Now coming to the merits of appeal, it is observed that during the course of hearing, judgment of the Co-ordinate Bench in ITA No.5834/Del/2016 dated 31.05.2021 for AY 2012-13 was placed on record wherein this issue has been decided by the Co-ordinate Bench in favour of assessee vide para 9 of the order which reads as under:-
9. “With respect to the third ground the learned dispute resolution panel has categorically held that assessee has not claimed deduction of the service tax expenditure and therefore there is no question of making any disallowance on that account. The learned department representative could not show was any reason to differ from the direction of the learned dispute resolution panel. In view of this we dismiss ground number 3 of the appeal of the learned assessing officer.”
9. Since the issue under appeal is identical, therefore, by respectfully following the order of the Co-ordinate Bench, all the Grounds of appeal taken by the Revenue are dismissed.
10. In the result, appeal of the revenue is dismissed.
11. In the final result, M.A. filed by the assessee in M.A. No.2/DDN/2022 [Assessment Year : 2010-11] is allowed and appeal of the Revenue in ITA No. 3266/DEL/2017 [Assessment Year : 2010-11] is dismissed.
Order pronounced in the open Court on 30.03.2026.
