Wyzmindz Solutions Pvt. Ltd. Vs ITO (ITAT Bangalore)
Conclusion: Service tax collected by assessee and not paid to the Government exchequer before the due date of filing of return was to be disallowed under section 43B and the same should be allowed on actual payment in the assessment year in which it was actually paid.
Held: Assessee was a resident company following mercantile method of accounting, carrying on the business of IT enabled services. Assessee had filed its return of income declaring Income at Rs.Nil, after setting of brought forward losses and paid applicable taxes u/s 115JB of the I.T.Act. Assessee’s case was taken up for scrutiny u/s 143 and notice was issued u/s 143(2) to assessee by AO. AO concluded the assessment by determining the total income after disallowing service tax collected by the assessee u/s 43B of the Act. It was held that the service tax collected by assessee and not paid to the Government exchequer before the due date of filing of return, was to be disallowed, though it was not charged to the profit and loss account and it attracted the provisions of section 43B and the present provisions of section 145A could not be applied in view of non obstante clause in section 43B of the Act. However, it should be allowed on actual payment in the assessment year in which it was actually paid.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the assessee is directed against the order of the CIT(A), dated 25.10.2018. The relevant assessment year is 2014-2015.
2. This is the second round of this appeal before the Tribunal. In the first round, the Tribunal vide its exparte order dated 18.01.2019, dismissed the appeal of the assessee. Thereafter, the assessee filed miscellaneous petition and the Tribunal vide its order in MA No.80/Bang/2019 dated 13.09.2019, recalled its earlier order dated 18.01.2019 for fresh adjudication. Hence, this appeal is before the Tribunal for the second round.
3. The assessee has raised the following grounds:-
“1. The impugned order passed by the learned Commissioner of Income-tax[Appeals] and that of the learned assessing officer passed under Section 143[3] of the Act to the extent which is against the appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case.
2. The appellant denies itself liable to be assessed on a total income determined by the learned assessing officer amounting to 58,17,228/ – and confirmed by the learned Commissioner of Income-tax [Appeals], as against the income reported by the appellant of Rs NIL the facts and circumstances of the case.
3. The provisions of section 145A applies only in respect of valuation purchase and sale of goods and inventory and not to service contracts for all transaction prior to 01/04/2017 (FA 2018).
4. The provisions of section 145A cannot be invoked for adding service tax to gross receipts (i.e., service tax cannot be included as part of trading receipts under section 145A of the Income Tax Act, 1961) for AY 2014-15.
5. The unpaid service tax liability cannot be disallowed under section 43B of the Income Tax Act, 1961, when the same is not claimed as expense in P&L account?
6. The learned officer has failed to appreciate the fact that the Service Tax amount has not been passed through the Profit & Loss Account and the same has not been expensed (i.e., not claimed as expenditure),
therefore, the question of invoking the provisions of section 43B does not arise and disallowance of Service Tax amount of Rs. 48,82,245/- is not justifiable.
7. The disallowance of b/f loss of Rs. 9,34,983/- arises due to additions made U/s 43B & 36 (1)(va), for FY 2012-13 & 2013-14, which is opposed by appellant in filed appeal dated 30.03.2016, which is still under appeal proceeding, hence addition of this amount is not justifiable.
8. The learned Commissioner of Income-tax [Appeals] was not justified in not providing one more opportunity and considering the fact and circumstance under which the erstwhile authorized representative of assessee was prevented from attending the hearing before him and to produce the sufficient explanation.
9. The learned assessing officer also erred in levying the interest u/ s. 234B of the Act and the same are not in accordance with law on the facts and circumstances of the case. Further, the quantum period and rate are not discernible from the assessment order.
10. The appellant craves leave of this Hon’ble Tribunal to add, alter, modify delete or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing of the appeal.
11. For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.”
4. The facts of the case are that the assessee is a resident company registered under the Companies Act, 1956, following mercantile method of accounting, carrying on the business of IT enabled services. The assessee has filed its return of income for the assessment year 2014-2015 on 29.11.2014, declaring Income at Rs.Nil, after setting of brought forward losses of Rs.9,34,983 and paid applicable taxes of Rs.61,116 u/s 115JB of the I.T.Act. The assessee’s case was taken up for scrutiny u/s 143 and notice was issued u/s 143(2) on 28.08.2015 to the assessee by the A.O. The assessee filed the details as called for by the A.O. in response to notice u/s 143(2). Thereafter, the A.O. concluded the assessment by determining the total income at Rs.58,17,228 by disallowing service tax collected by the assessee at Rs.48,82,245 u/s 43B of the Act. Aggrieved by the order of assessment, the assessee went in appeal before the CIT(A), who confirmed the order of the Assessing Officer.
5. Aggrieved by the orders of the Income Tax Authorities, the assessee is in appeal before the Tribunal.
5.1 The learned AR filed a detailed submission and also reiterated the submissions made before the Income-tax authorities and also supported the grounds of appeal raised by it. The learned AR also relied on the following judgments/orders:-
(i) CIT v. Noble & Hewitt (I)(P) Ltd. [(2008) 166 Taxman 48 (Delhi).
(ii) Pharma Search v. ACIT [(2012) 21 taxmann.com 44 (Mum.).
(iii) CIT v. Knight Frank (India) (P) Ltd. [(2016) 72 taxmann.com 300 (Bombay)]
(iv) Shri N.R.Kumaraswamy v. ACIT [ITA No.1778/Bang/2017 – order dated 31.05.2018]
(v) Envision Enterprise Solutions P. Ltd. v. ITO [ITA No.315/Hyd/2016 – order dated 12th August, 2016]
(vi) CIT v. Vatika Township (P.) Ltd. [(2014) 49 taxmann.com 249 (SC)]
5.2 The learned Departmental Representative, on the other hand, submitted that the assessee has collected the service taxes and not paid to the Government exchequer till the due date of filing of return of income. Hence, it is to be treated as income of the assessee to be assessed for the assessment year under consideration. For this proposition, he relied on the order of the co-ordinate Bench of the Tribunal in the case of M/s. Jain Christopher v. DCIT in ITA No.855/Bang/2012 – order dated 12.04.2013. According to the learned DR, even if it is not charged to the profit and loss account and claimed as deduction, it does not change the chargeability of such non remittance of service tax in the hands of the assessee.
According to the learned DR, the moment when the service tax is realized, it becomes payable to the Government account and if it is not paid, it partakes the character of income of the assessee, since the assessee could utilize this amount in any manner whatsoever, there is no restriction placed on its utilization. Therefore, the assessee is liable to remit the collected service tax to the Government account within the stipulated date of filing of the return. Since the service tax realized is not included to the total income and not paid to the Government account, the same has to be treated as net profit of the assessee. The learned DR also relied on the following orders:-
(i) M/s. Hemkunt Infratech (P) Ltd. v. Deputy Commissioner of Income-tax [ITA No.6683/Del/2017 – order dated 23.03.2018]
(ii) Madhya Gujarat Viz. Co. Ltd. v. ITO [ITA No.2583/Ahd/2010 – order dated 09.11.2016]
(iii) M/s. Wyzmiundz Solutions Pvt. Ltd. v. ITO [ITA No.3417/Bang/2018 – order dated 18.01.2019]
(iv) M/s.Bartronics India Ltd. v. ACIT [ITA No.2188/Hyd/2011 & ITA No.2189/Hyd/2011 – order dated 31.05.2012, wherein held as under:-
“38. We have heard both the parties and perused the material on record and carefully considered assessment order and CIT(A) order. Admittedly the assessee has not paid the service as required under the provisions of section 43B which is also very much covered u/s 43B. The provisions of section 43B is very clear and it states that “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”. Therefore, even service tax is liability which covers u/s 43B and non-payment the same within the stipulated time as specified under section 43B attracts disallowances. Accordingly, we upheld the disallowances and confirmed the disallowances.”
6. I have heard the rival submissions and perused the material on record. In this case, the assessee has collected an amount of Rs. 48,82,245 as service tax and not remitted the same to the Government exchequer, before the due date of filing of the return of income. As such, the issue whether the provisions of section 43B of the I.T.Act applies to service tax, which is not paid before the due date of filing of the return. It was considered by the co-ordinate Bench of the ITAT, Hyderabad Benches in the case of M/s. Bartronics India Ltd. v. ACIT [ITA No. 2188 and 2189/Hyd/2011 – order dated 31.05.2012] that when the assessee has not paid the service tax as required under the provisions of section 43B, which is also very much covered u/s 43B of the I.T.Act. The provisions of section 43B of the Act is very clear and it states that “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”. Therefore, even the service tax is liability which covers u/s 43B of the Act and non-payment of the same within the stipulated time as specified u/s 43B of the Act attracts disallowance. Now the question is that when the assessee has not claimed it as expenditure in the profit and loss account, could it be disallowed u/s 43B of the Act. This was considered by the Hon’ble Apex Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [(1973) 87 ITR 542 (SC)], in which it was held that the sales tax collected by the assessee is revenue receipt even if it is shown by the assessee under non-revenue head and such treatment by the assessee is not decisive. Further, in the case of M/s.Jain Christopher v. DCIT in ITA No.855/Bang/2012 – order dated 12.04.2013, it was held as under:-
“7.2 During the course of assessment proceedings, the AO observed that a sum of Rs.29 lakhs representing service tax collected by the assessee had not been paid, but, was shown as ‘outstanding liability’. Being queried, it was explained that it had not preferred any claim for deduction and, thus, it was argued, the question of disallowance u/s 43B of the Act does not arise. The AO took a view that even though the assessee had not claimed the same in its P & L account as an expenditure and, therefore, section 43B has no application. However, he was of the view that the fact remains that service tax collected by the assessee but not paid to the Government account up-to the end of the financial year or even up-to the date of filing of the return of income and, thus, by not including this amount in its service, it had clearly made a claim indirectly. As rightly highlighted by the CIT(A), the assessee’s plea that sales-tax was different from service tax cannot be accepted in the present circumstance as what the assessee was a firm of Chartered Accountants is selling is services and not goods, so the tax applicable is service tax which stands on the same bracket as sales tax in terms of services rendered as sales tax holds for goods sold. We have also observed that the AO had pointed out that the said amount has been included as business receipts in its TDS Certificates and as such, the same should have been included in its receipts. This has not been precisely done by the assessee. The case laws relied on by the assessee is dealt with as under:
(i) ACIT v. Real Image Media Technologies (P) Ltd. (ITAT Chennai):
7.2.1 The assessee was running a recording and dubbing studio, production of advertisement, films and television serials etc., as well as in software development. The amount of service tax included in bills issued but not received. Accordingly, the Hon’ble Tribunal had recorded its findings that ‘As per s. 68 of Finance Act, 1994 read with rule 6 of Service Tax Rules, 1994, the service tax becomes payable only on receipt of service tax from the client. Therefore, the amount of service tax included in bills but not received could not be disallowed under s. 43B’. After analysing the relevant provisions of Income tax Act as well as Service Tax Act, the Tribunal had, further, recorded its findings as under:
“12………………………………………………………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 Hon’ble Supreme Court in the case of Chowringhee Sales Bureau Ltd. V CIT 110 ITR 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 purchase 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 reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Govt. and paid to the Govt. accordingly. Therefore, a service provider is merely acting as an agent of the Govt. and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition u/s 43B could not be made and the same has been correctly deleted by the CIT(Appeals) ”.
However, in the instant case, as admitted by the assessee, service tax has been collected but not paid to the Government account either up-to the end of the financial year or even up-to the date of filing of the return of income. Thus, the case law relied on by the assessee is distinguishable and cannot come to the rescue of the assessee.
