TCS Payable not hit by section 43B as it can not be debited in Profit and Loss account and claimed as deduction – ITAT
In a recent judgment, the ITAT Amritsar has held that TCS Payable is not hit by the provisions of section 43B of the Income Tax Act being amount of “income tax” of the buyers it can not be debited in profit and loss account and claimed as a deduction.
ABCAUS Case Law Citation:
ABCAUS 4078 (2024) (06) ITAT
Important Case Laws relied upon:
CIT vs Noble and Hewitt (I) Private Limited, reported 305 ITR
CIT vs Everest Litho Press, reported in 285 ITR 297
In the instant case, the assessee had challenged the order passed by the JCIT(Appeal) confirming the order passed by the CPC Bangalore u/s 143(1) of the Income Tax Act, 1961 (the Act) making an addition u/s 43B in the returned income on account of TCS payable as reported in Tax Audit report.
The assessee was engaged in the business of trading in Scrap and the provisions of section 206C (1) of the Act 61, were applicable on him for collection of tax (TCS).
The addition was made by the CPC on the basis of qualified reporting by the auditor of the assessee in the tax audit report (TAR) as evident from Form No 3CD, clause no 26B (b) serial No – 1 where TCS payable was reported by the auditor.
There was a further reporting by the auditor in clause-5, serial no 6 and 7 of Form 3CD, that the assessee had collected tax at source on sales of scrap and the amount so collected had not been deposited with interest thereon and no return of TCS had been filed till the date of TAR.
On the basis of the above mentioned qualified reporting in TAR, the addition was made by CPC, Bangalore u/s 143(1), for violation of provisions of section 43B of the Act.
In the course of first appellate proceedings, the assessee pointed out before the JCIT(A) that there had been a mistake in reporting the correct figure of TCS collection which was another figure instead of amount as mentioned in tax audit report, and since the assessee had not made any claim of deduction of the above amount in the profit and loss account, the said amount was not hit by the provisions of section 43B of the Act, and as such the question of disallowing the deduction not claimed at all would not arise.
The first appellate authority was not convinced and the addition was sustained on the ground that the assessee should have taken adequate steps to rectify or revise the tax audit report in time after detection of the error and also due to the fact that the assessee had debited an identical amount (as reported in TAR) in audited profit and loss account.
Before the Tribunal the assessee retreated the same argument, that it was an inadvertent error on the part of the tax auditor in mentioning the figures of provisions for taxation as TCS payable, and since the amount of TCS payable which was a different amount had neither been claimed as deduction nor debited in the profit and loss account, the same cannot be disallowed under section 43B of the Act. In support of his contention he relied upon several judgments of Hon’ble Delhi and Madras High Court.
The Tribunal observed that from the reading of various sub sections of sec 206C of the Act, it is clear that TCS amount is “income tax” of the buyer of goods collected by the assessee (seller) for subsequent payment of the amount so collected to the credit of the Central Government, and the assessee is simply holding the said amount as custodian of the Government, till the time of actual deposit.
The Tribunal observed that in the instant case, the assessee had declared sales in audited profit and loss account which is excluding TCS and since the TCS is not credited in the accounts, the question of debit of the said amount in profit and loss account, also does not arise.
The Tribunal opined that TCS amount is not a sum payable by the assessee, it is the income tax of the buyers, collected and retained, by the assessee as per provisions of section 206C of the Act, and recorded through journal entries, and held by the assessee as custodian of the Government, and the same is duly reflected as liability in the audited balance sheet.
The Tribunal held that the said amount of “income tax” of the buyers can not be debited in profit and loss account and claimed as a deduction, the assessee, it is not hit by the provisions of section 43B of the Act, and the addition was liable to be deleted.
Accordingly, the appeal of the assessee was allowed.
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