No disallowance u/s 43B for unpaid service tax unless actually received-SC dismisses SLP of ITD

No disallowance u/s 43B for unpaid service tax unless actually received. Supreme Court dismisses the SLP of the Income Tax Department

ABCAUS Case Law Citation:
ABCAUS 2827 (2019) (03) SC

Important Case Laws Cited/relied upon by the parties
Commissioner of Income­Tax v. Ovira Logistics P. Ltd [2015] 377 ITR 129 (Bom.)

The Hon’ble Supreme Court has dismissed the Special Leave Petition (SLP) filed by the Income Tax Department against the order of the Hon’ble High Court in upholding the order of the ITAT that the  service tax though debited to the profit and loss account but not credited to the Central Government cannot be disallowed u/s 43B of the Income Tax Act, 1961 (the Act).

Facts of the Case:
In the instant case, the respondent/assessee was a limited company which engaged in the business of providing detection and security services to its clients. 

During the scrutiny proceedings, the Assessing Officer (AO) inter alia, noted that the company had claimed expenses towards unpaid service tax liability.

The Assessing Officer (AO) was of the view that by virtue of Section 43B of the Act, service tax can be allowed only when paid and therefore the amount was not allowable as deduction. Hence, the same was added to the income.

Being aggrieved by this order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals) who held in favour of the assessee.

The matter travelled to the Tribunal which relying upon its finding in the earlier assessment  years, came to the conclusion that though the service tax was included in the bill raised on the customers but it was not actually collected from them. Following its earlier view, the Tribunal agreed with the First Appellate Authority and dismissed the Revenue’s appeal.

The Hon’ble High Court noted that a Division Bench of the High Court had dealt with an identical issue. It was held that Section 43B does not contemplate liability to pay service tax before actual receipt of the funds in the account of the assessee. Hence the liability to pay service tax into the Treasury will arise only upon the assessee receiving the funds and not otherwise. Thus the consideration has to be actually received and thereupon the liability will arise.

Accordingly by the impugned order, the Hon’ble High Court had dismissed the appeal of the Revenue.

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