Service revenue need not to be include service tax-Sec 145A(a)(ii) not applicable to service revenue

Brief of the case:

The Hon’ble Bombay HC in the above cited case held that Sec 145A(a)(ii) has no applicability on service revenue which follows that service revenue need to be inclusive of service tax. It also held that service tax which has not even been claimed as deduction cannot be disallowed by recasting the profit and loss account of the assessee.

Facts of the case:145a145

• The assessee is engaged in the business of real estate consultancy and property management services. During the course of assessment proceedings AO sought to include the service tax billed by it for rendering services as trading receipts by applying the provisions of Sec 145A(ii) of the Act.
• AO also invoking the provisions of Sec 43B sought to disallow such service tax remaining unpaid on the due date of furnishing return of income. For this, AO also sought to recast the assessee’s profit and loss account so as to reflect the receivable service tax as apart of the consideration for the services rendered.
• In appeals,CIT (A) held that Section 145A (a)(ii) of the Act would apply as it is not restricted only to manufacturing and trading companies. Therefore, AO was right in recasting the profit and loss account of the assessee and also right in disallowing the unpaid service tax.
• However, tribunal did not agree with the view taken by CIT(A) and held that Section 145A(a)(ii) of the Act would have no application in respect of the service tax billed on rendering of services. This for the reason the Section 145A (a)(ii) deals with goods and not services.
• Aggrieved revenue is in appeal before the High Court.

Contention of the Assessee:

• The assessee contended that Sec 145A(a)(ii)m does not applies to service revenue as it clearly state regarding the adjustment in value of sale and purchase of goods by including the taxes chargeable on sale/purchase of goods . No similar provision is there for service revenue to include service tax in revenue.
• Therefore, just to invoke Sec 43B , AO cannot recast the profit and loss account to include the service tax in revenue figure and service tax paid in expenses and then disallowing the same by invoking Sec 43B.

Held by Hon’ble High court:

• High court observed that it is very clear from reading sec 145A (a)(ii) of the Act that it only covers cases where the amount of tax, duty, cess or fee is actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation . But in the present case assessee is not dealing in goods at is neither a trader nor a manufacturer rather a service provider.
• Thus, it is very clear from the wordings of Sec 145A (a)(ii) that the same would not apply to revenue from rendering of services because service tax billed has no relation to any goods nor does it have anything to do with bringing the goods to a particular location.
• Further, the assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income.Therefore, when any amount has not even claimed as deduction then no question arises to disallow the same.
• In result appeal of revenue was dismissed.