By TIOL News Service

AHMEDABAD, NOV 22, 2016: THE ISSUE IS - Whether where the assessee has not deposited the service tax payable before the due date of filing of return, which was collected from its customers, then such amount needs to be added to the net profit of assessee. YES IS THE VERDICT.

Facts of the case:

The assessee during the subject year had suo motu added service tax payable at Rs.13.56 lacs to the profits as profit and loss account u/s 43B. At the time of completion of assessment proceedings there was no dispute as service tax payable at Rs.13.56 lacs added to the net profit was accepted by AO as to the computation of income filed by the assessee. Later on at the time of filing appeal before CIT(A) assessee took the ground against the order of AO for not allowing deduction of unpaid service tax amounting to Rs.13.56 lacs without considering the fact that provisions of section 43B were applicable on the service tax payable.

On appeal, the ITAT held:

++ the crux of the issue raised in this Cross Objection is whether provisions of section 43B apply to the service at payable at the end of the year. In the case of assessee amount of Rs.13.56 lacs was added to the net profit as profit and loss account towards inadmissible items at the time of filing return of income. Post assessment, the assessee preferred appeal before CIT(A) raising the ground that service tax payable was not wrongly added to the net profit by applying the provisions of section 43B because service tax payable was not reflected in the profit and loss account and it was a mere liability in the balance sheet for tracking the tax payable because in this case assessee is a mere collecting agent. This ground of the assessee was allowed by CIT(A). Interpreting the provisions of section 43B sub-sec.(a), which in our view contemplates that this clause has been enacted with regard to taxes charged by the assessee from its customers and if the taxes so charged are payable at the end of the year and are not paid to the credit of the government even before due date of filing return then such amount needs to be added back to the income of assessee and can be claimed as expenditure in the following year in which such tax or due is paid. In our view section 43B sub-sec.(a) does not have a direct link of the amount of tax to be passed through profit and loss account;

++ after going through the record, we find that assessee has been unable to place on record any detail to prove that service tax payable of Rs.13,56,000/- was in relation to those services on which service tax are payable only when the due amount from customers is received and the particular provisions of service tax is applicable to assessee for the year under appeal. Assessee came away with the mere plea that it is a collecting agent and service tax is not reflected in the profit and loss account so as to keep service tax payable out of the ambit of provisions of section 43B sub-sec.(a). In absence of necessary details and in the given facts and circumstances of the case, we are of the view that service tax payable at Rs.13.56 lacs is covered under the provisions of section 43B sub-sec.(a) and if assessee has not deposited the service tax payable before the due date of filing of return of income then the amount needs to be added to the net profit of assessee which in this case has been rightly done so by the assessee at the time of filing return of income.

(See 2016-TIOL-2018-ITAT-AHM)