October 2019

Business expenditure Disallowance u/s 43B of ITA, 1961 Deduction only on actual payment Service tax Liability to pay service tax into treasury arises only upon receipt of consideration by assessee Service tax debited to profit and loss account Cannot be disallowed

K.B.Bhujle
Advocate

2.     Principal CIT vs. Tops Security Ltd.; [2019] 415 ITR 212 (Bom.) Date of order: 10th September, 2018 A.Y.: 2006-07

 

Business expenditure Disallowance u/s 43B of ITA, 1961 Deduction only on actual payment Service tax Liability to pay service tax into treasury arises only upon receipt of consideration by assessee Service tax debited to profit and loss account Cannot be disallowed

 

The assessee provided detection and security services to its clients. The AO found from the balance sheet that the assessee had claimed the amount of unpaid service tax as its liability. The AO held that according to section 43B of the Income-tax Act, 1961 the service tax could be allowed only when paid and that the amount was not allowable as deduction. The assessee submitted that the gross receipts included the service tax but whenever it was due and payable, namely, when the amount for the services was realised, it would be remitted.

 

The Commissioner (Appeals) held that the tax became payable only when it was collected from the customer. The Tribunal found that though the service tax was included in the bill raised on the customers, it was not actually collected from them and confirmed the order of the Commissioner (Appeals).

 

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

 

(i)   The Tribunal was justified in holding that the service tax debited to the profit and loss account but not credited to the Central Government by the assessee could not be disallowed u/s 43B.

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