Income Tax Appellate Tribunal - Delhi
Raj Pal Katyal, New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'F' NEW DELHI
BEFORE SHRI U. B. S. BEDI, JUDICIAL MEMBER
AND
SHRI J. S. REDDY, ACCOUNTANT MEMBER
I.T.A. No. 2665/Del/2012
Assessment Years: 2007-08
ACIT Vs. Shri Raj Pal Katyal
Circle 34 (1), C-5/190, Yamuna Vihar,
New Delhi. Delhi-110053.
PAN: AANPK2673E
(APPELLANT) (RESPONDENT)
Revenue by: Shri Bhim Singh, Sr.DR.
Assessee by: Shri. K. Sampath, Adv.
ORDER
PER J. S. REDDY, AM:
This is an appeal filed by the revenue directed against the order of ld. CIT (A)-XXVII, New Delhi, dated 22.02.2012 for the A.Y. 2007-08.
2. The assessee is individual and is engaged in the business of trading of D.G. sets, spares, accessories as well as repairing, maintaining, installing and hiring the same. He filed its return of income on 7.12.2007, declaring total income of Rs.32,96,449/-. He also declared agricultural income of 2 I.T.A. No. 2665/Del/2012 Rs.4,87,796/-.The AO passed an order u/s 142(3) on 24.12.2009, assessing the total income at Rs.64,63,425/- inter alia making a disallowance u/s 43B as well as on account of bogus creditors, aggrieved the assessee carried the matter in appeal. The first appellate authority granted part relief.
3. Aggrieved with the order of first appellate authority the revenue filed this appeal on the following grounds:
"1. On the facts and in the circumstances of the case, the ld. CIT (A) erred in deleting addition of Rs.2,12,975/- made by the AO under section 43B of the I.T. Act, 1961.
2. On the facts and in the circumstances of the case, the ld. CIT (A) erred in deleting addition of Rs.24,37,157/- made by the AO and on account of bogus creditors and advances from customers especially when the assessee has neither filed confirmation nor been able to substantiate the genuineness of these creditors.
3. Whether on facts and circumstances of the case, the ld. CIT (A) was right in holding the view that the onus of proof has been satisfactorily discharged by the assessee.
4. Whether by not writing off the liabilities by the assessee in its books of accounts, section 41(1)(a) of the I.T. Act is not attracted.
5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."3 I.T.A. No. 2665/Del/2012
4. We have heard Mr. Bhim Singh ld. Sr. DR on behalf of the revenue, and Shri K. Sampath, ld. Advocate on behalf of the assessee.
5. On a careful consideration of the facts and circumstances of the case, we hold as follows:
Ground no. 1 is disallowance u/s 43B Para 17 of the said appeal's order bring out the facts. We extract the same for ready reference:
"17. In the Balance Sheet the appellant had shown Service Tax payable at Rs.3,43,014/-out of which an amount of Rs.1,30,039/- was disallowed and added back by the appellant himself u/s 43B of the Act. With regard to the balance amount of Rs.2,12,975/-, it was submitted before the A.O. that this amount was billed but had not become payable and due as per Rule 6 of the Service Tax Law. According to this rule, the amount of Service Tax becomes payable and due to be paid to the Government account by 5th of the next month/quarter in which the payment of the bill amount is received from the recipient of the services by the assessee. As the amount of Rs.2,12,975/- had not become payable and due in terms of the provision of Rule 6 of the Service Tax law, section 43B of the Act was not applicable in the appellant's case."
6. In support of the order of the ld. CIT (A) the assessee relies on the following decision of the Tribunal.
ACIT Vs. Real Image Media Technologies (P) Ltd. 306 ITR (AT) 106 (Chennai) in this case it is held as follows:
4 I.T.A. No. 2665/Del/2012
"For the purpose of determining income under the head "Profits and gains of business or profession", the turnover would include any tax, duty, cess or fee under section 145A of the Income-tax Act, 1961. Therefore the rigour of section 43B of the Act may be applicable in the case of sales tax or excise duty but it cannot be said to be the position in case of service tax because of two reasons: (a) the assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and paid to the Government accordingly. Therefore, a service provider is merely acting as an agent of the Government and is not entitled to claim deduction on account of service tax. Hence on this account alone addition under section 43B of the Act could not be made; and (b) section 43B(a) uses the expression "any sum payable" and the word "payable" would mean that there is a kind of obligation on the part of the payee to make the payment which is already due. For example, when a person purchases goods then the other person has the liability to pay the price of the goods and it can be said that the price of the goods is payable by the customer. If the customer simply looks at the cost it cannot be said that he has become liable to make the payment. The rigour of section 43B of the Act, would be attracted only in a case where an item is allowable as deduction but deduction would not be allowed for failure to make payment.
Under section 6(1) of the Central Sales Tax Act, 1956, the dealer would become liable to make sales tax payment the moment he effects the sales in the course of an inter-state trade 5 I.T.A. No. 2665/Del/2012 or commerce. This shows that the liability to make payment of sales tax is not dependent on the fact whether such dealer has received the payment from the customer of the goods or not. The liability is fastened to the transaction of sales and once such sale is effected, the dealer becomes liable to pay.
Service tax under section 68 of the Finance Act, 1994, has to be paid in the manner prescribed under rule 6 of the Service Tax Rules, 1994. Under rule 6 of the Rules, a service provider becomes liable to make the payment of service tax by the fifth of the month immediately following the calendar month in which the payments are received towards the value of taxable service. The first proviso gives an exception in case of individual or proprietary firms or partnerships, and in such cases, service tax has to be paid to the credit of the Central Government by the fifth of the month immediately following the quarter in which the payments are received. The only difference is that in case of individual or proprietary or partnership, the payment has to be made on the fifth of the following month following the quarter, whereas in the case of other organizations it has to be paid on the fifth of the month immediately following the calendar month. But in both the case, the liability arises to make the payment only after the service provider has received the payments. If there is no liability to make the payment to the credit of the Central Government because of non-receipt of payments from the receiver of the services, then it cannot be said that such service tax has become payable in terms of clause (a) of section 43B of the Act 6 I.T.A. No. 2665/Del/2012 because that clause specifically mentions "sum payable by the assessee".
During the assessment proceedings, the Assessing Officer noticed that the service tax was not being routed through the profit and loss account by the assessee-company, engaged in the business of running a recording and dubbing studio, production of advertisement film and television serials, manufacturing of specialized computers, trading in technical solutions, production of distribution of feature film and software development, and had shown liability towards service tax at Rs.5,72,374/- as on March 31, 2002 in its balance sheet. The Assessing Officer added a sum of Rs.5,72,374/- to the income of the assessee being service tax not paid before the due date for filing the return of income. The Commissioner (Appeals) deleted the addition made. On appeal by the Department:
Held, dismissing the appeal, that a service provider was merely acting as an agent of the Government and was not entitled to claim deduction on account of service tax. Since service tax was not payable by the assessee, the rigour of section 43B of the Act could not be applied to the case of the assessee and the Commissioner (Appeals) had rightly deleted the addition made."
7. Applying the proposition laid down in this case laws to the facts and circumstances of the case, we observed that the assessee has suo moto disallowed and added back and amount of Rs.1,30,039/- u/s 43B. If the 7 I.T.A. No. 2665/Del/2012 assessee is not entitled to claim a deduction, the question of suo moto disallowance does not arise. Thus the fact whether the assessee has recognized the service tax billow by him on the service provider as income or not and whether the assessee has claimed the service tax paid and payable as an expense / deduction u/s 37 of the Act has to be examined. The service tax in question can neither be taken as income nor can it be claimed as a deduction. Once it cannot be claimed as on deduction, the question of disallowance u/s 43B does not arise. As the facts are not clear, we set aside the issue to the file of the AO to fresh adjudication in accordance with law.
8. Coming to the second ground regarding addition on account of bogus creditors, we find that the ld. CIT (A) has rightly observed that the AO has not stated as to which section of the Act was applied for making the addition. Further it is rightly observed that section 68 could not be applied for the reasons that the credits are of the previous year and not of the current financial year relevant to the assessment year.
9. On the assumption that the additions were made u/s 41 (1) of the Act, we agree with the finding of the ld. CIT (A) for the following reasons. Section 41(1) reads as follows:
"[(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or 8 I.T.A. No. 2665/Del/2012 trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,--
(a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or
(b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.
Explanation 1 9 I.T.A. No. 2665/Del/2012 For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.] Explanation 2 For the purposes of this sub-section, "successor in business"
means,--
(i) where there has been an amalgamation of a company with another company, the amalgamated company;
(ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person;
(iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;] [(iv) where there has been a demerger, the resulting company.]"
10. The ld. CIT (A) at Para 71 brought out the following case laws: 10 I.T.A. No. 2665/Del/2012
"Bombay Dyeing & MFG. Co. Ltd. Vs. State of Bombay (AIR 1958 SC 328,335) CIT Vs. Vipro Foundary Engineers (P) Ltd. 245 ITR 21 (Mad.) CIT Vs. Emkay Glass Works (2007) 288 ITR 582 (All.) Narain Chettiar Industries Vs. ITO (2005) 277 ITR (Mad.) CIT Vs. G.P. International Ltd. (2010) 229 CTR 86 (P&H) CIT Vs. Site Devi Juneja (2010) 187 Taxman 96 (P& H) CIT vs. Jaipur Jewellers (Exports) (2010) 187 Taxman 169 (Delhi) CIT Vs. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC) CIT Vs. Rashmi Trading (1967) 103 ITR 312 (Guj.) Travancore Chemical and Manufacturing Co. Ltd. Vs. CIT (1999) 237 ITR 821 (Ker.).
11. On a perusal that the propositions laid down in this case laws, we uphold the following finding of the CIT (A):
"32. In the appellant's case, there is no such writing off of the liabilities. Nor is there any contract between the two parties regarding the cessation of the liabilities. As far as the period of limitation in respect of the liabilities is concerned, it is seen that the same does not extinguish the liability as held in the case of CIT Vs. Sugauli Sugar Works (P) Ltd (Supra). Keeping in view the facts of the case as discussed above and applicable legal position, it is held that the provisions of section 41(1) were not applicable in the appellant's case and the credit balances 11 I.T.A. No. 2665/Del/2012 standing in the name of the creditors mentioned above, had neither ceased to exist nor had been remitted in terms of provisions of section 41(1) of the Act. Therefore, the addition of Rs.24,37,157/- made by the A.O. on this account is deleted."
12. In result ground no. 2 of the revenue is dismissed.
13. In result the appeal of the revenue is allowed in part.
Order pronounced in the open Court on 28/6/2013.
Sd/- Sd/-
( U. B. S. BEDI ) (J. S. REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 28/06/2013
*AK VERMA*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR