Service tax & Vs section 43B of income tax act

Tax queries 4041 views 7 replies

CA Nilesh Thakker

112 Points Joined August 2009

Hi All

I have a query on service tax vs section 43B of income tax, which is below.

A client (Company) of one of my freind has raised service tax invoices to its clients (Appx. 60 lakhs, includes 6 lakhs service tax elements) in the FY 08-09. Now company has collect all the money due from its debtots as mentioned above. Services tax liability has not passed though P & L Accounts. All service tax amount collected has not been deposited in to services tax authorities till date.

My question is whether such service tax collected and not paid will be covered under section 43B of the Income tax Act and to be added to the income of the company for FY 0809? if it is to be added in FY 0809 and paid after due date (in FY0910) of filing of income tax return, whether it is to be allowable deduction for FY0910?

I would be thankful of all of you who would answer of my above query.

Thanks

Replies (7)

Sorabh Gupta

Manager ( Taxation )

877 Points Joined July 2008

Nilesh

No it is not covereed u/s 43B as section 43B says about the EXPENSES not about the incomes.As far as my concerned , in this situation service tax law is applicable only & the client will be penalised according to it.

PIYUSH JINDAL

study

84 Points Joined September 2008

sorabh is saying right

Rajeev

www.rkmco.com

985 Points Joined September 2009

is service tax payable debited to P&L ? if not then the question of disallowance doesnt arise

Nitesh Bhandari

Ca Finalist Articled Trainee

93 Points Joined June 2009

if its not taken to P&L account then the question of disallowance doesnt arise at all...

refer case law :

[2008] 166 TAXMAN 48 (DELHI)

HIGH COURT OF DELHI

Commissioner of Income-tax

Noble & Hewitt (I) (P.) Ltd.

MADAN B. LOKUR AND DR. S. MURALIDHAR, JJ.

IT APPEAL NO. 839 OF 2007

SEPTEMBER 10, 2007

CA Nilesh Thakker

112 Points Joined August 2009

thanks to all of you, but i am still not satisfied myself about your answers, if i collect as taxes onbehalf govt and not paid, it should be treated as my income in the year of default. i have not gone thtough case law as provided by Nitesh since i was on leave for my CA final examination. I will go with case law soon.

CA Nilesh Thakker

112 Points Joined August 2009

how can tax collected on behalf of the govt. be expenditure for the assessee?? please provide me if any illustrative, you have. my view as follows :

Sales : 110000 (incl 10000 Sales tax)

Entry 1)

Debtors A/c 110000 dr

SalesA/c 100000 cr

Sales tax 10000 cr (P&L a/c income)

Entry 2 )

Sales tax 10000 (p&l a/c expenses) dr

sales tax 10000 (liability) cr

here on impact on profit or loss of the assessee, if sales tax paid only 9000 then 1000 is outstanding.

if we credited sales tax 10000 directly to liability side and paid only 9000 then also we will have 1000 outstanding.

does it really matter not to credit sales tax directly to liability?

Laxminarayan Sahu

CA Final Student

29 Points Joined August 2010

whatever balance of your servicetax liability not collected from client as on 31 March 10 would have been shown on balance sheet as liability. while filing income tax return we will calculate how much is recovered from clint out of that balance amount and paid to govt before IT return filing. and the rest amount will be ur Income (disallowed as per 43B) for that relevant FY 09-10. and if it is collected subsequently and paid than it will automatic be removed from your b/s and while filing the subsequent IT returns wht ever disallowed earlier will be now allowed as paid in the respective FY. i think it may help u a little.