CIT-8 Vs Calibre Personnel Services Pvt. Ltd. (Bombay High Court)
Bombay High Court in CIT-8 vs. Calibre Personnel Services Pvt. Ltd. addressed the disallowance of unpaid service tax under Section 43B of the Income Tax Act for Assessment Years 2007-08 and 2008-09. The Revenue challenged the Income Tax Appellate Tribunal’s (ITAT) decision that upheld the assessee’s position that unpaid service tax, not debited to the profit and loss account, should not be added to taxable income. The Assessing Officer initially added ₹1.34 crores as taxable income, which the CIT(A) reduced to ₹82 lakhs.
On appeal, the ITAT ruled in favor of the assessee, citing CIT vs. Noble & Hewitt Pvt. Ltd. (305 ITR 324, Delhi HC), which held that Section 43B applies only when a tax liability is claimed as a deduction. Since Calibre Personnel Services Pvt. Ltd. had not debited the service tax liability to its profit and loss account but instead recorded it under current liabilities, the tribunal concluded that Section 43B was inapplicable. The tribunal also remanded the case to the Assessing Officer to verify the facts before applying the precedent.
The Revenue contended that Noble & Hewitt Pvt. Ltd. was inapplicable, arguing that it did not properly consider Section 43B or the mercantile system of accounting. However, the Bombay High Court rejected this argument, stating that the Delhi High Court had adequately addressed both issues. The court affirmed that Section 43B is only triggered when a tax liability is claimed as a deduction in the profit and loss account.
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