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Dis allowance of unpaid service tax u/s. 43b

Ashok Katarmal (Manager Accounts) (75 Points)

13 February 2016

Respected All,

We are under process of IT assement, in our books there is unpaid service tax (under duties and taxes) since 2 years.

Question is, is this unpaid service tax would be considered as revenue by IT officer and may attract tax ,interest on it and penalty.

if any judgments are there, please direct.

Please Guide.

Regards,

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2 Replies

Keval (Consultant) (120 Points)
Replied 13 February 2016

Dear Mr. Ashok,

As per my view

Section 43B starts with the words "Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force......." , Before discussing the allowance or disallowance of Service Tax due to non-payment, it is important to know the method of accounting followed by subject entity. If the method of accounting followed by the entity is mercantile system then in any case service tax will no be routed through Profit and Loss account and the subject entity would not have claimed it as deduction in computation of Income. In mercantile accounting system Service Tax payable account and Service Tax Receivable/CENVAT account are reflected in balance sheet only.

Applying Section 43B with non-payment of service tax in case of mercantile accounting system. Section 43B specify "a deduction otherwise allowable under this Act". In mercantile accounting system service tax is not routed through P & L and therefore non payment of service tax will not be added to your computation of income in the assessment.

If the method of accounting is different and earlier the deduction has been claimed then Section 43B will be attracted.

For details refer: -

Delhi High Court

Cit vs Noble And Hewitt (I) (P) Ltd.

[2008] 305 ITR 324 (Delhi)

Ashok Katarmal (Manager Accounts) (75 Points)
Replied 15 February 2016

Thanks a lot Sir,

Your Reply is elaborative, we are maintaining books by mercantile accounting system, now I have confidence, this will help me for presenting my case, in case additions are made.

again thanks,

Warm Regards,