On 12th April 2013 ITAT bench held that CA professional income, the service tax realised should have been included in the gross receipts unless paid to Government exchequer within the due date of filing of return. Further ITAT rejects assessee claim that when a claim was not referred; the question of applicability of disallowance u/s 43B of the Act does not arise.
Whether Ld. CIT (A) was justified in confirming the AO�s addition of professional receipt of Rs.4,85,320/ to the returned income and also treating the service liability of Rs.29,00,660/- outstanding as income of the assessee for the current year.
The assessee firm, engaged in the profession of chartered accountancy, had furnished its return of income, admitting a total income of Rs.76,78,230/-. The assessee firm is following mercantile system of accounting. During the course of assessment proceedings, the assessee was required to reconcile the AIR information in respect of professional/technical service fees of Rs. 4,85,320/- received from M/s OPUS International (M) Berhad. According to the AO, since the assessee was following mercantile system of accountancy, the same should have been offered to tax in the AY under consideration, instead of assessment year 2010-11. When the assessee was countered with the above proposition, according to the AO, the assessee came forward to disclose the same and, thus, Rs.4,85,320/- was brought to tax. The AO had, further, noticed that Rs.29,00,660/- being service tax collected by the assessee was not paid, but, the same was shown as outstanding liability. After due consideration of the assessee�s contention and also for the reasons recorded in the order under dispute, the AO added the same to the assessee�s income with an observation that �to arrive at the professional income, the same should be included in its gross receipts and any payment towards tax, cess, duty etc. allowable, can be considered only as per the provisions of section 43B of the I T Act�.
On appeal Ld. CIT(A) rejected the assessee�s contentions and confirmed the stand of the AO on both the issues.
Assessee on appeal before ITAT submitted that Opus International (M) Berhad was a Project Office in India of the Malaysian Company and it had commenced its project in India w.e.f. 24.7.2008, however, the �certificate of establishment of place of business in India� from the Registrar of Companies was obtained only on 27.11.2009 and, thereafter, the assessee was appointed as statutory auditors to conduct the audit; and that the statutory audit for the first previous year 2008-09 (i.e., from 24.7.2008 � 31.3.2009) was completed only on 29.7.2010; the assessee raised an invoice on 30.7.2010 and accounted it as income in its books of account for the previous year 2010-11 and it was unfair on the part of the AO in making the addition merely based on the AIR information.
Further on disallowance of unpa service tax liability u/s 43B, assessee submitted that the service tax amount which was added back as income was not debited to the P & L account, that in other words, the assessee had preferred any claim towards service tax and that when a claim was not referred; the question of applicability of disallowance u/s 43B of the Act does not arise.
Further assessee relied upon the ITAT order reported in (2008) 9 DTR 261 (CHENNAI) contended that by no stretch of imagination, service tax collected by the assessee from its customers is considered as a benefit or income for the purpose of taxation. A service provider merely acts as an agent of the Government by collecting the service tax from the customers and remitting the same in accordance with the provisions governing service tax; that the fact that the service provider acts merely as an agent of the Government is indirectly held in (2008) 9 DTR 261 (CHENNAI).
Before ITAT it was pleaded that suitable directions be given to the AO to rectify the order of the subsequent assessment year i.e., 2011-12 for reducing the revenue by Rs.4.85,320/ as the same was offered by the assessee as income for that year; & that the addition of Rs.29,00,660/- being unpaid service tax requires to be deleted.
Ld. DR submitted that the issues have been decided against the assessee after duly analysing the same in depth by the CIT (A), no intervention of this Bench is warranted, and also placed reliance on the order of the Tribunal in the case reported in (2012) 6 TaxCorp (A.T.) 29314 (MUMBAI).
ITAT observed that, assessee submitted affidavit in which the statutory audit for the first previous year 2008-09 (i.e., from 24.7.2008 � 31.3.2009) was completed only on 29.7.2010 and, thereafter, the assessee had raised an invoice on 30.7.2010 and accounted it as income in its books of account for the previous year 2010-11 and to support its claim, the assessee had furnished the copies of the following documents:-
(i) Certificate of Establishment of place of business in India of Project office from the Registrar of Companies dated 27.11.2009;
(ii) Audit report of OPUS International (M) Berhad from the statutory auditors (the assessee) dated 29.7.2010 along with financial statements; &
(iii) Invoice raised on OPUS International (M) Berhad � Indian Project office for the service for the previous year (AY 2009-10) dt.30.8.2010
ITAT Taking into account the affidavit in which it was categorically vouched for not given any consent for the alleged addition and also the principles of natural justice and fairness, the issue is remitted back to the file of the AO with a specific direction to look into issue afresh.
Further on Unpaid service tax ITAT observed that, as rightly highlighted by the CIT(A), the assessee�s plea that sales-tax was different from service tax cannot be accepted in the present circumstance as what the assessee was a firm of Chartered Accountants is selling is services and not goods, so the tax applicable is service tax which stands on the same bracket as sales tax in terms of services rendered as sales tax holds for goods sold. We have also observed that the AO had pointed out that the said amount has been included as business receipts in its TDS Certificates and as such, the same should have been included in its receipts. This has not been precisely done by the assessee.
ITAT observed that the case relied upon assessee (2008) 9 DTR 261 (CHENNAI) Tribunal had recorded that the rigour of section 43B may be applicable in the case of Sales-tax or Excise Duty but the same cannot be said to be the position in case of Service-tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Govt. and paid to the Govt. accordingly. Therefore, a service provider is merely acting as an agent of the Govt. and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition u/s 43B could not be made and the same has been correctly deleted by the CIT(Appeals)�.
However, in the instant case, as admitted by the assessee, service tax has been collected but not paid to the Government account either up-to the end of the financial year or even up-to the date of filing of the return of income. Thus, the case law relied on by the assessee is distinguishable and cannot come to the rescue of the assessee.
Held, it is an admitted fact that during the course of assessee�s profession, a sum of Rs.29,60,000/- was realised/collected as service tax payable and the same is not capital receipt. The moment the service tax is realised, it becomes payable to the Govt. account and if it is not paid, it partakes the character of income of the assessee, since the assessee could utilise this amount in any manner whatsoever, there is no restriction placed on its utilisation. This is amply clear from the TDS certificate furnished by the assessee and also the credit appearing in the assessee�s bank account. Therefore, to arrive at the professional income, the service tax realised should have been included in the gross receipts unless paid to Government exchequer within the due date of filing of return. Since service tax realised is included in the total income, the same is to be allowed as a deduction in the year it is paid to the Government account. In the instant case, this is what has been done by the learned CIT(A). The CIT(A) had allowed the alternative plea of the assessee and had directed the Assessing Officer to deduct the service tax when the payment is made to the Govt. account in the subsequent year. Therefore, we find there is no merit in the contention raised on behalf of the assessee and this issue is decided against the assessee. It is ordered accordingly.
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