Case Law Details
ATS Real Estate Builders P. Ltd. Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) Delhi recently ruled in the case of ATS Real Estate Builders P. Ltd. v. DCIT concerning the disallowance of ₹3.55 crore under Section 43B of the Income Tax Act, 1961. The dispute arose from adjustments made by the Centralized Processing Center (CPC) during the assessment process, leading to the addition of GST payable to the taxable income. The ITAT found the adjustment unwarranted, as the GST amount had not been routed through the Profit & Loss (P&L) account.
The assessee contended that GST payable had been credited to the government account and reflected under current liabilities, not as an expense in the P&L account. Citing judicial precedents, including CIT v. Noble and Hewitt (I) P. Ltd. (Delhi High Court) and CIT v. Calibre Personnel Services P. Ltd. (Bombay High Court), the assessee argued that Section 43B applies only to amounts claimed as deductions in the P&L account. As no such deduction was claimed, the GST liability could not be disallowed.
The Revenue defended the adjustment, citing inconsistencies between the Tax Audit Report and the Income Tax Return (ITR). However, the ITAT noted that the Revenue did not provide evidence to refute the assessee’s claims. Additionally, the Tribunal emphasized that adjustments under Section 143(1) are limited to prima facie errors and cannot address debatable issues like the one at hand. Judicial precedent in Abhishek Cements Ltd. v. Union of India (Delhi High Court) was also invoked to support this view.
After reviewing the facts, the ITAT held that the GST payable did not qualify for disallowance under Section 43B, as it was not claimed as an expense. The Tribunal relied on the Delhi High Court’s decision in CIT v. Noble and Hewitt (I) P. Ltd., which categorically stated that deductions not claimed in the P&L account cannot be disallowed under Section 43B. Consequently, the Tribunal reversed the findings of the Commissioner of Income Tax (Appeals) [CIT(A)] and directed the deletion of the disallowed amount.
The ruling underscores the importance of adhering to judicial precedents and procedural safeguards in income tax assessments. The decision also reinforces the principle that adjustments under Section 143(1) must address only apparent errors, leaving contentious issues for full adjudication. This judgment provides clarity on the applicability of Section 43B and serves as a reference for similar cases involving GST or other statutory dues.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)/Additional/Joint Commissioner of Income Tax-(Appeals)-1, Bengaluru (hereinafter referred to as ‘the CIT(A)’) dated 22.02.2024, for assessment year 2020-21.
2. The assessee in appeal has raised as many as six grounds of appeal. Ground no. 1 & 6 of appeal are general in nature, hence, require no Ground no. 2 to 4 of appeal are in respect of single issue i.e. disallowance u/s. 43B of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) Rs.3,55,01,693/- on account of GST payable. In Ground no. 5 of appeal the assessee has assailed disallowance of Rs.5,68,496/- made in respect of late deposit of employees contribution towards Provident Fund. The ld. Counsel for the assessee made statement at the Bar that he has not pressing ground no. 5 of appeal. Thus, solitary issue for consideration before the Tribunal is disallowance made under the provisions of Section 43B of the Act.
3. Shri Ved Jain, appearing on behalf of the assessee submits that assessment was made u/s. 143(1) of the Act. Notice was received by the assessee from CPC on 30.09.2021 proposing adjustments inter alia for disallowance u/s. 43B of the Act on account of mismatch in expenditure as indicated in the Audit Report and ITR-4. The assessee vide reply dated 21.09.2021 explained that GST amounting to Rs.3,55,01,693/- is not charged to Profit & Loss account during the year. GST collected from customers has been credit to Central Government Account. Whatever GST or Service Tax remains payable at the end of Financial Year is shown as GST payable or Service Tax payable under the head current liabilities. The CPC without considering submissions of the assessee made adjustment of aforesaid amount u/s. 43B of the Act. The assessee carried the issue in appeal before the CIT(A), but failed to get desired relief. The ld. Counsel for the assessee submits that disallowance u/s. 43B of the Act can only be made in respect of deductions which are claimed in profit and loss account. Where no deduction for any particular expense has been claimed in profit and loss account, no disallowance is required to be He reiterated that amount of GST payable has not been routed through profit and loss account. In support of his submissions that deduction/expenses not routed through profit and loss account cannot be disallowed u/s. 43B of the Act placed reliance on following decisions:
i. CIT Noble and Hewitt (I) P. Ltd., 2007 (9) TMI 238 (Delhi) decided on 10.09.2007;
ii. CIT vs. Calibre Personnel Services P. Ltd., 2015 (2) TMI 587 (Bom.) decided on 02.02.2015; &
iii. CIT S & A Finman ltd., 2022 (12) TMI 691, ITAT Delhi decided on 14.12.2022.
3.1 The Counsel for the assessee further submitted that no adjustment can be made u/s. 143(1) of the Act when issue is debatable. The disallowance made u/s. 43B of the Act on account of GST payable is not a prima facie adjustment; rather the same is a debatable issue since said amount was never routed through P&L account. One of the possible view is that since said amount was never routed through P&L account, therefore, how can same be added back in taxable income. To support his second contention he placed reliance on following decisions:
i. Abhishek Cements Ltd. Union of India, 44 taxmann.com 348 (Delhi); &
ii. CIT Eicher Goodearth Ltd. 269 ITR 125 (Delhi).
4. Per contra, Shri Vipul Kashyap representing the department vehemently defended the impugned order. The ld. DR submits that there was mismatch in expenditure reflected in Audit Report and ITR. The inconsistency in expenditure claimed in Tax Audit Report was pointed to the The reply of the assessee was not satisfactory, hence, disallowance was made u/s. 43B of the Act which was further upheld by the CIT(A). He prayed for dismissing appeal of the assessee.
5. Both sides heard, orders of the authorities below examined and case laws on which the ld. Counsel for the assessee placed reliance considered. At the outset, ld. Counsel for the assessee made statement at Bar that he has not pressing ground no. 5 of appeal assailing disallowance made u/s. 36(1)(va) of the Act in respect of late deposit of employees contribution towards Provident Fund. In view of statement made by ld. Counsel for the assessee, ground no. 5 of appeal is dismissed.
6. The ground no. 2 to 4 of appeal are in respect of single issue i.e. disallowance made under provisions of section 43B of the Act in respect of Goods & Service Tax payable. The short contention of the assessee is that GST amounting to Rs.3,55,01,693/- has not been routed through Profit and Loss account, therefore, no disallowance can be made in respect of aforesaid amount u/s. 43B of the Act. Similar submission was made by the assessee before the CIT(A). We find that the fact the amount disallowed u/s. 43B of the Act has not been routed through P&L account is not rebutted by the Revenue. No contrary material has been placed before us, by the Revenue to show that the assessee has claimed deduction in respect of GST Rs.3,55,01,693/-. The contention of the assessee that aforesaid amount has been reflected as GST payable under the head current liabilities is uncontroverted. The Hon’ble Delhi High Court in the case of CIT vs. Noble and Hewitt (I) P. Ltd. (supra) held that where the assessee has neither claimed deduction on account of Service Tax nor has debited the amount to Profit and Loss account, the provisions of section 43B of the Act do not get attracted. Hence, question of disallowance of deduction not claimed does not arise.
7. In light of facts of the case and the decision rendered by Hon’ble Jurisdictional High Court, we find merit in submissions of the assessee. Hence disallowance made by the AO u/s. 43B of the Act is directed to be deleted. The findings of the CIT(A) in respect of this issue are reversed and ground no. 2 to 4 of appeal are allowed.
8. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on Monday the 27th day of January, 2025.
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