No sec. 43B disallowance on unpaid service tax if amount on which service tax was payable not received: HC

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The assessee is engaged in the business of providing detection and security services to its clients. On scrutiny of the balance sheet it was observed that assessee has claimed approx Rs. 5.12 Cr as unpaid Service Tax as its Liability. It is stated that the gross receipts include the service tax but whenever it is due and payable, namely, when the amount for the services is realized, it would be remitted. That is how the above sum was shown as liability in the Balance Sheet.

The Assessing Officer was of the view that Section 43B of the Income Tax Act, 1961, service tax can be allowed only when paid and therefore the amount is not liable as deduction. Hence, the same was added as income.

The First Appellate Authority held that, tax becomes payable only when it is collected from the customer. It is in these circumstances that following its earlier view, the Tribunal agreed with the First Appellate Authority and dismissed the Revenue’s appeal. This Court held that Section 43B does not contemplate liability to pay service tax before actual receipt of the funds in the account of the assessee. Hence the liability to pay service tax into the Treasury will arise only upon the assessee receiving the funds and not otherwise. Thus the consideration has to be actually received and thereupon the liability will arise.

Citation: [2018] 97 taxmann.com 525 (Bombay)

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