Service tax liability

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 April 2016 if service tax liability not paid before filing of ITR then whether as per section 43 b , it will be allowed or disallowed.

CA Kumar Mukesh

CA Kumar Mukesh (Expert)
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23 April 2016 Section 43b will be applicable only if service tax is treated as expense. I. E. No can at credit is taken... Then in that case... Service tax not paid will be disallowed..

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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24 April 2016 No disallowance under section 43B would arise if Service Tax does not pass through the P & L Acoount. and the same is not claimed as a deduction in omputing taxable income. Hon'ble Delhi High Court in the case of CIT vs. Noble And Hewitt (I) P. Ltd. [2008] 305 ITR 324 (Delhi) in which their Lordships have held that since the assessee did not debit the amount to the profit & loss account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee was following mercantile system of accounting, the question of disallowing the deduction not claimed would not arise.

The ITAT Madras in the case of ACIT vs. Real Image Media Technologies (P) Ltd. (supra) and the Tribunal came to the conclusion that since the Service Tax was not payable by the assessee, the rigour of the provision of Section 43B could not be applied to the facts of the case. The relevant observations of the Tribunal are extracted hereunder:

"The rigour of the provision of section 43B would be attracted only to a case where an item is allowable as deduction but because of the failure to make payment, such deduction would not be allowed. The rigour of section 43B might be applicable to the case of sales- tax or excise duty but the same could not be said to be the position in case of service-tax because the assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and is paid to the Government account, 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 could not have been made, and the same had been correctly deleted by the Commissioner (Appeals)."

Therefore, unless service tax is claimed as an expense and passes through the P&L Account, there will be no question of disallowing a non-deduction in computing the Profit from business.

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