KBH Energy and Infra Services Pvt. Ltd. vs Centralized Processing Centre (CPC)

“1 . Le arned Fac el ess Appeal Centre (N FAC) has grossly err ed i n law as we ll on facts in co nfi rmi ng adjustm ent of Rs. 45,62,808/- on account of GS T payabl e, made by the Centralized Processing C ent re (CPC) by invoki ng s ecti on 43B.

2.

Le arned NFAC has grossly er red in law as well as on facts in c onfirmi ng action of the CPC without appr eciati ng the fact t hat adj ustment of GST is beyond t he jurisdicti on of CPC .

3.

Le arned NFAC has grossly er red in law as well as on the fac ts in c onfirming acti on of the CPC i n ma ki ng adj ustment o n acc ount o f GS T amounti ng to Rs. 45,62,808/-without appreciati ng the facts that t he GST has never been cl aimed as expens e b y t he Assess ee.

4.

Le arned NFAC has grossly er red in law as well as on the fac ts in c onfirming acti on of the CPC i n ma ki ng adj ustment o n acc ount o f GS T amounti ng to Rs. 45,62,808/-by di srega rdi ng the verdicts of various courts .”

“5 . Ground No.N o. 3 relates t o disallowancedisall owance u/s 43B of t he Ac t per tai ni ng GST Liability Rs. 4 5,62,808/the Ac t pertaining GST Liability Rs. 4 5,62,808/-.

5.1.

In this re gard,r egard,regar d, t hethe ap pellantappellant has submittedsubmitte d that the CPC has made the disallowance w.r .t. GST Lia bility oft he CPC has made the disallowanc e w.r.t. GS T Liability ofthe CPC has ma de the disal lowance w.r.t. GS T Liability of Rs. 45,62,808/- withoutwit hout apprecia tingappreciating the fact that t hethe app ellantappellant never clai medclaimed it as expense in the firstfir st pla ce.place.pla ce . T heThe appellantappella nt alsoals oal so conte ndedc ontendedcont ended that since no expense is claimed ini n the P&L A /c ,A /c,A/c , it canno t be disallo wed.disallowed. In support of its claim,clai m, the appellantappella nt has s ubmittedsubmitted itsP &L A/c, relevant parts of which is repr oduce d as under:A/c , relevant parts of which is reproduc ed as under:-

5.2.

From t he above, it is clear that the appellant has not claimed any GST liability of Rs. 45,62,808/- u/s 4 3B as expense. Sectio n 43B allows deducti on of statutory dues act ually paid befor e t he due date of filing ret urn u/s 139(1) of t he Ac t. Since the appel lant has not claimed any GS T liabi lity of Rs. 45,62,808/- i n its P&L A /c , the disal lowance of the same by the AO is not justifi ed.

5.3.

The a ppell ant claime d that the GS T liability is no t debit ed t o pr ofit and loss account and henc e, same is not disal lowable u/s 43B is untenabl e, as GS T liability is inte gral to sales and turno ver, requiri ng pr oper acco unti ng treatment . The statut ory provisi on and acco unti ng standards necessitat es t he i nclusion of GST liability in the turnover , rende ring the appellant a ttempt to avoid secti on 43B through al te rnati ve acco unting met hods i s impermi ssible. Ther efo re, disal lowance o f Rs. 45,62,808/- made by AO u/s 43B i s confirmed. Accordi ngly, Ground No . 3 is Dismissed.”

“2 . Ld. Counsel fo r t he assesse e, at the outset , submitt ed t hat the CPC while processing the return made disal lowance u/s 43B in respect of G ST a nd Se rvic e Tax amo unti ng t o Rs.45,69,143/- on the ground that the same is not paid befor e due date of filing the ret urn. Ld. Couns el submitted that t he said amount repr esenti ng GST and S ervice Tax were neither ro oted t hrough pr ofit and loss account nor did the liability fr om servic e tax bel ong to t he ass essme nt year under co nsideration. L d. Couns el further pl acing reli ance on the decision of the Ho n’bl e Chat tisgarh Hi gh C ourt i n the case of Grand Motors vs. ITO i n Tax(c ) No.207/2024 dated 25.11.2024 submitt ed tha t on identical fact s where the CPC disal lowed VAT, Entry Tax , CS T whi l e proc essi ng the ret urn u/s 143(1), for no t remi tting int o Gover nment acco unt bef ore due date of filing of return of i ncome made disallowance invoki ng t he provisions of sec ti on 43B, the Hon’ble High Court re ferring to t he decisio n of the Hon’ble D el hi High C ourt i n the case of C IT vs. Nobl e & He wi tt (I) (P.) Ltd. held that si nce ass essee did not claim t he a mount in his profit and loss acc ount as his expenditure/deduction u/s 43B, the disallowance made by CPC while proc essi ng ret ur n u/s 143(1) was delete d.

3.

Ld. DR s trongl y supp orted the orders of the aut horities bel ow.

4.

Heard rival submissions, perused the orders of the aut horities below. The CPC whil e p rocessing the r eturn disal lowed VAT & GS T as t hese amounts were not remitted be fore due date for filing of return of i ncome. The acti on of t he CPC was c onfirmed by the L d. C IT(A). The issue of whether the VAT, Ent ry T ax, CS T etc. whi ch were neither debited to profit and loss acco unt nor claimed as deduc tion by the assessee and not paid before the due date for filing of return, whethe r s uch amo unts can be c onsidered for disallowance by t he CPC whil e proc essing the return u/s 143(1), c ame up for consideratio n before the H on’bl e Chattisgar h Hi gh C ourt and the Hon’bl e Chat tisgarh Hi gh Court referri ng t o its decisi on i n the case of ACIT vs. M/s Ganpati Mo tors and also the decisi on of the Ho n’ble Delhi Hi gh Court i n the case of CIT vs. Nob el & Havet (I) (P.) Ltd. held t hat no such disallowanc e is warrant ed observing as unde r:

2.

The appeal was heard on t he questi on of admission and was a dmitte d fo r fi nal heari ng by fo rmulating the followi ng substanti al question of law: -

“Whet her the C ommissioner of Income Tax (Appeals) and t he Inc ome Tax Appellat e Tribunal are concurrently j ustified i n uphol di ng the disallowance of Rs.62,32,262/- made under sub-cl ause (iv ) of clause (a) of s ub-section (1 ) of Se ction 1 43 of the Inc ome Tax Act, 1961 by wr ongl y invoki ng the pr ovisions contai ned i n S ecti on 43B o f t he IT Act and thereby rec orde d a fi ndi ng perverse to the record?”

3.

The a foresaid substantial question of law aris es on the foll owi ng factual backdr op: -

4.

The appellant ass essee is a part nership firm e ngaged in tradi ng of mot or cars, etc. and filed re turn of i ncome for t he ass essment year 2018-19 on 31-3-2019 declari ng to tal i nc ome of Rs.9,42,610/-. The Ass essi ng Officer, Centralised Proc essing Centre (CPC) proc essed the ret urn of the as sess ee and iss ued i ntimation under Secti on 143(1) of the IT Act maki ng ce rtai n disal lowances and enhanci ng total taxable i nc ome of the assessee at Rs.2,61,28,820/-. The speci fic disallowances are made under S ecti on 43B of the IT Act on account of nonpayment of liabilities s uch as VAT, Entr y Tax, CST before the pr escri bed date of filing t he ret urn of i nc ome under S ection 139(1 ) of the IT Act.

5.

Feeling aggri eved agai nst the or der of the Assessi ng Officer, t he appellant assessee preferred appeal before the first appell ate authority i. e. the C ommi ssio ner of Income Tax (App eals) under S ecti on 246A(1)(a) of the IT Act and t he CIT(A), by its or der dated 15-3-20 24, partly allo wed t he appeal of the appella nt ass ess ee to the ext ent o f Rs .1,79,97,376/- pertai ni ng to openi ng balance for t he assessment year 2018-19 deleti ng the same, but the balance disallowanc e of Rs .62,32,262/-shown as payabl e i n the balanc e sheet was c onfirmed against which t he appellant ass essee pref erred fur ther appeal be for e t he ITAT which was also, in t urn, dismissed finding no substance against whic h this appeal has b een preferred.

6.

Mr. S. Rajeswara Rao, learned counsel appeari ng for the appellant / assessee, woul d submit that the appellant did not cl aim any deduc tion of indir ect taxes incl udi ng VAT / othe r taxes i n co mputi ng t he i nc ome for the previous year and t he app ellant is followi ng the exclusive method of accounti ng for indirec t taxe s as in the past. He woul d furt her s ubmit that S ecti on 43B o f the IT Act mandates that a deduc tion other wise allowa ble under the Act s hall be allowed only i n computi ng the i ncome referred i n Secti on 28 of t hat previ ous year i n whic h such s um is act ually paid by the assessee and since the appellant did not claim any deduction o f i ndirect t axes i n computi ng the inc ome for the pre vious year i.e . the profit and loss account as expenditure, therefore , the CIT(A) and t he ITAT, bot h, hav e concurre ntly erred in dismissing the appeal of the appellant assessee. H e wo uld rely upo n the decision o f this Court i n t he matter of Assi stant Commissi oner of Income Tax-I v. M/s Ganapati Motors1 to buttress his submissi on.

7.

Mr . Amit C haudha ri, l earned Standing C ouns el for the Income Tax D epartment / Rev enue, would s ubmit t hat the appellant di d not claim the said amount of Rs.62,32,262/- in his profit a nd l oss account as expenditure and the case is covered by the decision rend er ed by t his Court in M/s Ganapa ti Motors ’s case (s upra).

8.

We have heard learned co unsel for the parties and considered their rival s ubmi ssions made herei n-above and also went through the reco rd with utmost circumspection.

9.

In order to consi der the plea raised at the Bar, it woul d be appropri ate to notice S ect ion 43B(a) of the IT Act, which states as under: -

“43B . Ce rtai n deducti ons to be only on ac tual

pay ment. —Notwi thstanding anythi ng contai ned i n any othe r pr ovision of this Act, a deducti on otherwise allowa ble und er thi s Act i n respect of—

(a)

any sum paya ble by the assessee by way of tax, duty, c ess or fee, by whatev er name called, under any law for t he time bei ng i n f orc e, or xx x xxx xxx”

10.

In this regard, decision o f this Court i n M/s Ganapati Motors’s case (s upra) would be more rel evant in which the issue befor e the C ourt was, whether S ec tion 43B of the IT Act is att rac ted even when the assessee does not cl aim any deducti on o n t he strength of t hat provision and consi der ing the said questi on, thi s C ourt held i n paragra ph 3 as under: -

“3 . The Assessi ng Authority, on the instant issue, noticed that the assess ee’s claim r egardi ng the tr eatment of VA T in the Book s of A ccounts has been ve rified from the Bo oks and that has been found to be in order. The Assessing A uthority also found that VAT has been found separately accounte d f or i n t he B ooks of Acc ounts . The only ground o n which the Ass essi ng Authority r efused to excl ude t he VA T collected by the dealer from the pr ofit of busi ness is on the basis t hat the VAT c ompo nent was not paid off on or before the due date for furnishi ng the r eturn in relati on to the previ ous year under S ecti on 139(1) o f the Inc ome Tax Act. The First Appellat e Authority al so noticed tha t it is an undisput ed fac t that-t he A ppella nt di d not charge VA T to the Profit and L oss acco unt. It was theref ore noted by the First Appellate Authority t hat in s uch circums tances, the liabil ity may still be unpaid, but it cannot be disallowed bei ng not claimed as deduction in the B ooks of Accounts. ”

11.

Similarly, the D el hi High Court in the matte r of Commissi o ner o f Inc ome-t ax v. Noble & He wi tt (I) (P.) Ltd. held i n paragrap h 6 as under: -

“6 . In our opi nion sinc e the assessee did not d ebit the amo unt t o t he Profit & L oss Account as a n expenditure nor did the ass essee claim any deduction in res pect of the amount and consi der ing t hat the assessee is f ollowi ng the mercantile system of acco unti ng, the questio n of disallowi ng t he deduction not claimed woul d not arise. ”

12.

R everti ng t o t he fac ts of the case, it is admitted position o n rec ord that the appellant / assessee did not claim the amount of Rs .62,32,262/- in his profit and l oss acco unt as an e xpendit ure / deducti on, nor the appellant claim deduction i n r espect of that ac count under S ec tion 43B of the IT Act. In that vie w of the matter, the Assessi ng Officer , the C IT(A ) and the ITAT, al l t hree aut horities have concurrently erred in hol ding that the appellant has claimed deducti on / expendi ture under Secti on 43B of the IT Act adding t o its taxable i ncome. Accordi ngly, the impugned o rder pass ed by t he ITAT holdi ng that the appell ant is liable t o pay tax on Rs.62,32,262/-, is liable to be and is her eby set asid e. The substantial questi on of la w is answer ed i n favour of the assessee and against the R evenue.

7.

This decision squarely applies to the facts of the assessee’s case. Thus, r espectf ully followi ng the s aid decisi on, we set aside the order of the Ld. C IT(A ppeals) and dir ect t he A O/CPC to delet e the disal lowance of Rs.45,69,143/- mad e u/s 43B in respect of VAT and GST and re-c ompute the i nc ome acc ordingl y. Gro und N o. (C) of gr ounds of a ppeal is allowed.”

“3 . In this case the di sallowanc e of Rs. 13,27,094/- was made by the C PC under S ecti on 43B of t he Income Tax Act on acc ount of mismatc h i n the amount repor ted as disal lowance under S ecti on 43B as per the Tax Audit Report . The adj ustment was made by CPC on ac count of nonpayment of GST, wi thi n t he due date.

4.

The L d. CIT(A) relyi ng on the judgm ent of Chowri nghee Sales Bureau Pvt. L td. vs. C IT 87 ITR 542 (SC) and the ca se of Wyzmi nds Sol uti ons Pvt. Ltd. vs. ITO in I TA No. 3417/Bang/2018 upheld the acti on of the CPC .

5.

The assessee in appe al befor e us against the afor esaid order pass ed by the Ld. CIT(A).

6.

Howe ver, the facts reve al t hat the ass essee has not claimed t he amount of GST i n the Profit & L oss Account. He nce, the fact s o f t he j udgments r el ied upo n by t he Ld. CIT(A) ifefer from the facts of t he assessee’s c as e. Si nce the ass ess ee has not claimed t he amount in the Pro fit & Loss Acc ount, no disallowance is called for i n the insta nt case.

7.

Relianc e i n this regard is being placed i n the case of CIT vs. U P H otels Pvt. Ltd. 3 5 taxmann.com 565 (Allahabad ), i n which the Al lahabad High C ourt held that in cas e assessee has not claim ed any deductio n in res pect of its liability for payment of l ux ury tax, no questi on o f additi on under section 43B will arise. While passi ng the order the Hi gh Court has made t he followi ng observati ons:

“The Act imposes tax on i ncome. In order to form income of a pe rso n, the pe rso n must rec eive or dee med to receive any sum. The amount of lux ury tax whic h was not received cannot form part of the inc ome of a ny perso n. [Para 7 ]

The Act furt her gives relief, de ducti on and exempti on from payment of i nco me-tax to the pe rso n on various income. S ecti on 4 3B provides a right to t he assessee to claim deduc ti on of any sum payable by the assess ee by way of tax, duty , cess or fee etc. This secti on imposed a conditi on that suc h deduction be allowed only in case of actual payment of the l iabilities menti oned therein by the assessee. Secti on 43B is concer ned with ded ucti on claimed by t he assessee. Thus, the scope of inquiry by the Assessi ng Offic er under s ec tion 43B is as to whether the ass essee can be allowed deduction whic h c an onl y be all owed to t he assessee when it has liability to pay under the law and has act ually pai d that am ount. The questio n of additi on will arise only when the assess ee has claimed deduction and the Assessi ng O ffice r finds that conditions mentioned in t hi s s ecti on has not been satisfi ed. In this cas e the assess ee has not claimed any deducti on i n respect of its li ability for paym ent of luxury tax as such no ques tion of additi on will a rise . [Par a 8 ]

Secti on 43B do es not caste duty on the assess ee to realize t he vari ous amounts mentioned .i n it. In case , where a pers on has not r ealiz ed luxury tax from t he cust omers t hen under the law he bei ng liable to pay i t and it will be realize from him under the releva nt law irrespective of t he fac t that he ha s collect ed or not . B ut it does not give the Assessing Officer any jurisdictio n t o add it in t he gross income of t he assessee. C ommissio ner (Appeals ) as well as t he Tri bunal have c onc ur rently found t hat the assessee has not re alized the amount of l uxury tax, which was added i n its gr oss incom e. [Para 9 ]

In view of t he afores aid discussi ons , the questi on ref erred to i n this refer ence is answered in t he af fir mative i.e . agains t t he r evenue and i n fav our of the assessee. [Para 11]”

“7 . We hav e heard both t he parti es and pe rused all the rel evant materials av ail able o n rec ord. The assessee did not debit the amount to t he pro fit and loss account as a n expenditure not the as sessee claimed any deduction i n respect of am ount. In fact, the assessee has treate d the same as curre nt liabilities and provisions and al so gi ven the descrip tion under Schedul e 7 re garding duties and taxes. Thus, the contention of the Id. A.R . that the provisions of section 43B is no t appl icabl e to the assessee as t he assessee has paid the GST amount befor e filing of t he ret urn o f i ncome appears t o be correct. T he decision of Hon’ble Apex Cour t in case of Chowri nghee S ales B ur eau (P.) L td.. (supr a) will not be applicable as i n the present case, ass ess ee had given the det ails of t he current liabilities and not estimat ed t he same and was not debited the same as an expenditure in profit and loss acc ount and not claimed any deducti on to that effect. But si nc e t he assessee had paid the said amo unt prior to filing o f the ret urn of i nc ome, t he decisi on of Hon’ble Del hi High Court wil l be applicabl e in case of assess ee as the ratio laid down by the N obl e & H awi tt (I)(P .) Ltd. (s upra) will be squar ely applicabl e i n t he present c as e. Thus, t he appeal o f t he assessee is allo wed.”

9.

Acc or dingl y, since the ass esse e has not claimed deduction of this amo unt and has not routed the sa me thr ough P&L Account, we are of t he considered view that no disallowanc e is called for under S ecti on 43B of t he Act for the unpaid G ST si nce no deduction was claimed by the assessee wi th res pect to the af oresaid amount .

10.

In the res ul t, t he appeal of t he assessee is allowed.”