43b disallowance for service tax

Hello,

I need your valuable guidance in respect of below issue:

Case: Income tax_43B disallowance in case of unpaid service tax

Snyposis: Assessee follows mercantile system of accounting. It has significant amount of upaid liability of service tax reflected in Balance sheet. My concern is whether same unpaid amount would be disallowable under section 43B or not?

I have quoted below cases wherein it was held that same would not be dissallowed. Stand taken by department in all below cases is "Since service tax is not routed through P&L A/c, question of disallowbility does not arise. Disallowance apply only when something is allowed earlier."

1. CIT vs. Noble And Hewitt (I) P. Ltd. [2008] 305 ITR 324 (Delhi).

2. ACIT vs. Real Image Media Technologies (P) Ltd. (ITAT Chennai).

3. Nafe Singh Gahlawat vs. ACIT

4. DCIT Vs. Ovira Logistics (P.) Ltd. (ITAT Mumbai)

However, law has used language " 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); " which includes excise, vat, service tax.

Kindly guide us for the way forward.

Thanks.

43B deals with allowability/non-allowability of expenses & its a well established pratice that expenses should be routed through P/L account . Usually service tax is to be made due first and then paid in cash. So, there is no question routing it through p/l account since burden is shifted to customer. However, if burden is not shifted (e.g. Payment received without chrarging service tax separately) then assessee has to pay service tax from in its own pocket and service tax has to be routed through P/l account and Section 43B comes into play. Another situation can be in case of Service Tax paid under RCM where assessee cant book the CCR of the same ST paid has to be routed through P/L account.