Section 271(1)(c) – Disallowance u/s 43B in respect of service tax, not debited to P&L, does not attract penalty u/s 271(1)(c)

10. C.S.
Datamation Research Services Pvt. Ltd. vs. ITO (Delhi) R.K. Panda (A.M.) and Amit Shukla (J.M.) ITA No. 3915/Delhi/2016 A.Y.: 2011-12 Date of order: 15^th June, 2020

Counsel
for Assessee / Revenue: Salil Kapoor / Jagdish Singh

Section 271(1)(c) – Disallowance u/s 43B in
respect of service tax, not debited to P&L, does not attract penalty u/s
271(1)(c)

FACTS

The assessee
company, engaged in the business of manpower supply and operational support,
filed its return of income on 24^th March, 2012 declaring an income
of Rs. 33,89,810. On being asked by the A.O. to furnish complete details of
‘other liabilities’ of Rs. 4,61,10,276 under the head Current Liabilities, the
assessee filed a revised computation of income wherein it included an amount of
Rs. 1,45,61,540 being amount disallowable u/s 43B of the IT Act due to
non-payment of service tax. The A.O. noted from the tax audit report that there
is clear mention of this amount as having not been paid within the stipulated
time period and disallowable u/s 43B. Since the tax audit report was not
furnished along with the return of income, the A.O. held that it was a
deliberate attempt on the part of the assessee to suppress the amount. The A.O.
thereafter completed the assessment at a total income of Rs. 1,79,51,350
wherein he made an addition of Rs. 1,45,61,540 being the amount of service tax
disallowable u/s 43B.

The assessee
did not prefer any appeal against this order. Subsequently, the A.O. initiated
penalty proceedings u/s 271(1)(c). Rejecting various explanations given by the
assessee and observing that the assessee has concealed its particulars of
income and furnished inaccurate particulars, the A.O. levied penalty of Rs.
48,36,979 being 100% of the tax sought to be evaded u/s 271(1)(c).

Aggrieved,
the assessee preferred an appeal to the CIT(A) who upheld the action of the
A.O.

Still
aggrieved, the assessee preferred an appeal to the Tribunal where it contended
that the notice was bad in law since the A.O. had not struck off the
inappropriate words and also that, on merits, the penalty is not leviable.

HELD

The Tribunal
held that the levy of penalty u/s 271(1)(c) is not valid in law in view of
non-striking off of the inappropriate words in the penalty notice.

On merits,
the Tribunal noted that the Hon’ble Delhi High Court in the case of Noble
& Hewitt (I) (P) Ltd. (305 ITR 324) has held that where the
assessee did not debit the amount to the P&L account as an expenditure nor
did the assessee claim any deduction in respect of the amount where the
assessee was following mercantile system of accounting, the question of
disallowing the deduction not claimed would not arise.

The CIT(A) in
the assessee’s own case for A.Y. 2012-13, deleted the addition of unpaid
service tax amounting to Rs. 94,68,278 which was added back by the assessee in
its revised computation of income, and Revenue had not preferred any appeal
against the order of the CIT(A) deleting the addition made by the A.O. on
account of the unpaid service tax liability, although the assessee in its
revised computation of income had added the same u/s 43B. Therefore, the issue
as to addition u/s 43B on account of non-payment of service tax liability when
the same has not been debited in the P&L account nor claimed as an expenditure,
has become a debatable issue. It has been held in various decisions that
penalty u/s 271(1)(c) is not leviable on account of additions which are
debatable issues.

The Tribunal
held that even on merits penalty u/s 271(1)(c) is not leviable

The appeal filed by the assessee was allowed.