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Judgment
PER MANISH AGARWAL, AM:
This appeal is filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-29, New Delhi [CIT(A) in short] in Appeal No. CIT(A), NFAC/2017-18/10080384 dated 15.02.2023 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) arising out of the assessment order dated 13.04.2021 passed u/s 143(3) of the Act for Assessment Year 2018-19.
Briefly stated that the facts are that assessee is a company and filed its return of income on 31.10.2018 declaring total income of Rs.10,51,560/-. The case of the assessee was selected for scrutiny under CASS for the reason “verification of business expenditure”. The AO observed that the assesse has outstanding liability of GST and Service Tax of Rs.38,24,902/- which was not paid on or before the filing of return of income, therefore, the same was disallowed u/s 43B of the Act. Besides this the assessee claimed interest on service tax and interest on TDS of Rs.1,52,862/- which were disallowed u/s 37(1) being penal in nature. There was difference in the income declared and the details of receipts filed before the AO, therefore, the AO made the additions of the differential amount of Rs.3,50,364/-u/s 69C as unexplained payment of commission and further of Rs.70,15,077/- as the difference in the income shown by the assessee. Besides this a sum of Rs.24,25,457/- was disallowed u/s 40A(3) of the Act being paid in cash in excess of the limit of Rs.10,000/- prescribed. Accordingly, total income of the assessee was assessed at Rs.1,48,20,222/-.
Aggrieved by the said order, assessee preferred an appeal before the Ld. CIT(A), who has partly allowed the appeal of the assessee wherein the interest of late deposit of service tax was deleted and remaining additions/disallowances were confirmed.
Against the said order, the assessee is in appeal before the Tribunal by taking following grounds of appeal:
“1.That the Order passed by the Hon'ble Commissioner of Income Tax (A) is bad in law as well as on facts & circumstances of the case and also violates the principles of Natural Justice, and hence is liable to be set aside.
2.For that in the facts and circumstances of the case the Ld. Hon'ble Commissioner of Income Tax (Appeals) erred in upholding addition to the tune of Rs 1,36,33,761/ The addition is not justified and hence the same is entitled to be deleted.
3.For that in the conspectus of facts and circumstances and law, the Ld Hon'ble Commissioner of Income Tax (Appeals) erred in disallowing the total indirect taxes to the tune of Rs.38,24,902/-. The same is not tenable and is liable to be deleted.
4 For that in the conspectus of facts and circumstances and law the Hon'ble Commissioner of Income Tax (Appeals) erred in disallowing the imputed commissions of Rs 3,50,364/- The same is not tenable and is liable to be deleted.
5.For that in the conspectus of facts and circumstances and law, the Ld Hon'ble Commissioner of Income Tax (Appeals) erred in disallowing the cash expenses to the tune Rs 24,25,547/. The same is not tenable and is liable to be deleted.
6.For that in the conspectus of facts and circumstances and law, the Ld Hon'ble Commissioner of Income Tax (Appeals) erred in disallowing the interest expenses to the tune Rs 17,961/-. The same is not tenable and is liable to be deleted.
7.For that in the conspectus of facts and circumstances and law, the Ld Hon'ble Commissioner of Income Tax (Appeals) erred in coming to a conclusion to the accounting treatment in adding commission income to the tune Rs 70,15,077/-. The same is not tenable and is liable to be
8.The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”
Grounds of appeal Nos. 1 & 2 are general in nature needs no separate adjudication.
Ground of appeal No.3 is regarding the disallowance of Rs.38,24,902/-u/s 43B of the Act.
Heard the parties and perused the materials available on record. Before us, it was claim of the assessee that service tax and GST were not routed through P&L account and, thus when no expenditure was claimed, provisions of section u/s 43B are not applicable. The assessee placed reliance on the judgment of Hon’ble Supreme Court in the case of Allied Motors (P) Ltd. vs. CIT reported in 224 ITR 677 (SC) and Noble & Hewitt (I) Pvt. Ltd. reported in 305 ITR 324 (Del.) wherein it is held that if the Service tax was not routed through Profit & Loss Account, and no expenditure was claimed, provision of section u/s 43(b) of the Act could not be applied.
After considering the facts of the case, we find that section 145A has been amended w.e.f. 1st April, 2018 by Finance Act, 2018 and relevant memorandum explaining the amendment is as under:
“These amendments will take effect from 1st April, 2018. Clause 45 of the Bill seeks to substitute new sections 145A and 145B for section 145A of the Income-tax Act relating to method of accounting in certain cases and taxability of certain income: The proposed new section 145A provides that for the purpose of determining the income chargeable under the head "Profits and gains of business or profession", (i) the valuation of inventory shall be made at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; (1) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty. cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; (iii) the valuation of inventory being securities not listed on a recognised stock exchange, or listed but not quoted on a recognised stock exchange with regularity from time to time. shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; (iv) Inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145 and for this purpose the comparison of actual cost and net realisable value shall be done category-wise. It is also proposed to provide for an Explanation in the said section so as to provide that any tax, duty, cess or fee, by whatever name called, under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment for the purposes of of the said section. The proposed new section 145B provides that notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. It is further proposed to provide that the claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved. It is also proposed to provide that income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income tax for any earlier previous year. These amendments will take effect retrospectively from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
The provision of section 145A before amendment is extracted here in below:
"Method of accounting in certain cases.
145A. Notwithstanding anything to the contrary contained in section 145,-
(a)the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession" shall be
(i)in accordance with the method of accounting regularly employed by the assessee, and
(ii)further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assossoo to bring the goods to the place of its location and condition as on the date of valuation.
Explanation-For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment;
(b)interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.”
From perusal of pre-amended and post amended section 145A, it is observed that old provisions did not include valuation of service thus, section 145A after amendment read as under:
“[Method of accounting in certain cases
145A. For the purpose of determining the income chargeable under the head Profits and gains of business or profession'-
(i)the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;
(ii)the valuation of purchase and sale of goods or services and a inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation;
(iii)the inventory being securities not listed on a recognised stock change, or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145:
(iv)the inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;"
Ongoing through the above provisions of section 145A which is considered by the various high courts that since in the earlier provisions services were not included, the assessee cannot be obligated to considered it as income and thus the courts after considering the legislative intentions, allowed the view that since the assessee is under no obligation to considered the services while following the said old provision of section 145A and thus, the courts has vacated the disallowance of service tax under section 43B. Whereas in this case, the assessee has to consider the GST while computing the income and in accordance with the amended provisions of section 145A of the Act, the disallowance of unpaid GST and service tax is very well attracted under the provision of section 43B of the Act. Further since all the decisions relied upon by the Id. AR are related to the old law and Id. AR could not brought on record any judgement on the GST laws or the amended law, we do not find force in the arguments of the Id. AR of the assessee. Based on the above observations of the law the case law relied upon are also differentiated. The ld. CIT(A) has given detailed finding citing the judgement of the Hon’ble Apex court in the case of Chowringhee Sale Bureau (P) Ltd Vs. CIT 87 ITR 542.
In the instant case as assessee has not disputed the fact that service tax and GST were paid after filing of return, though the amounts were collected from the customers and, therefore, as per section 43B the same is deemed income in the hands of the assessee. In view of above discussion, and by respectfully following the judgement of hon’ble Apex court, the disallowance made by the AO is hereby confirmed. The grounds of appeal No. 3 of the assessee is dismissed.
Ground No. 4 is with regard to the addition of the Rs.3,50,364/- made towards the difference between the commission expenses claimed and as per the tax deducted u/s 194H of the Act.
Heard the parties and perused the material available on record. It was the claim of the assessee that a sum of Rs.8,42,227/- was debited in commission account however, TDS was made on the gross payment of commission of Rs.11,09,059/- and the differential amount was debited under the other heads of expenses. Since no reconciliation was filed before the lower authorities, therefore, disallowance was made. Before us, the assessee submits that an opportunity be provided so that necessary reconciliation would be submitted in this regard. Considering the request of the assessee, this issue is set aside to the file of AO and assessee is directed to file the necessary reconciliation of the difference and the AO is directed to decide the issue in accordance with law. Ground of Appeal No.4 of the assessee is partly allowed for statistical purposes.
Ground No.5 with regard to disallowance of Rs.24,25,547/- made u/s 40A(3) of the Act in respect of cash payment made in excess of the limits prescribed. Before us, the assessee claimed that the same were paid to Embassies for the visa fees on behalf of various customers and consolidated entries were made in the books of account of these payments. The AO has considered the consolidated entries and made the disallowance. Ld. AR submits that the visa charges for each individual paid in cash were below the prescribed limits of Rs.10,000/- u/s 40A(3) and thus if the payment of each individual is considered there was no payment in excess of Rs. 10,000/- and thus no disallowance u/s 40A(3) is to be made in this regard. Ld. AR filed the copies of the vouchers and visa receipts which are placed at pages 105 to 163 of the PB and requested for the deletion of the addition made.
On the other hand, the Ld. Sr. DR submits that though the assessee has not stated this fact before the lower authorities, however in the interest of justice and in absence of verification on the part of the AO, the claim of the assessee be not admitted at this stage. He thus prayed that the matter be remanded to the file of AO for making necessary verification.
Heard the parties and perused the materials available on record. It is observed that the disallowance was made solely for the reason that expenses were claimed in the books of accounts as incurred in cash of more than Rs.10,000/-, whereas the assessee has claimed that entries of the consolidated payments were made in the books of accounts and payment of VISA charges of each different individual person was less than Rs.10,000/-. For this assessee filed some copies of the receipts of VISA charges paid to various Embassies. Considering the facts in the instant case, we set aside the issue to the file of the AO for making verification of the claim of the assessee that the payments made in respective each individual is less than the limit prescribed u/s 40A(3), decide the issue in accordance with law. Ground of appeal No.5 is allowed for statistical purposes.
Ground No.6 of the assessee is with respect to the confirmation of the disallowance of interest on TDS of Rs.17,961/-.
Heard the parties and perused the material available on record. Assessee has paid interest on delayed payment of TDS, since, TDS is part of the tax and, therefore, interest charges on delayed payment in penal in nature and cannot be held as expenditure u/s 37(1) of the Act, accordingly, we hereby upheld the disallowance. Ground of appeal No.6 of the assessee is dismissed.
Ground No.7 of the assessee with respect to the confirmation of addition of Rs.70,15,077/- being difference between the receipts declared and as per Form 26AS.
Heard the parties and perused the material available on record. The AO has made the addition of the gross receipt shown by the assessee in ITR and the details furnished during the course of assessment proceedings. Before us, the Ld. AR submits that the necessary reconciliation statements could not be submitted before the lower authorities as the assessment as well as appellate orders were passed online and no proper opportunities were provided to the assessee. He, therefore, requested that the matter may be sent to the AO as the assessee is having the necessary reconciliation along with necessary details which would be filed to the satisfaction of the AO. He prayed accordingly.
Heard the parties and perused the material available on record. It is observed that difference was worked out on the basis of details submitted and the gross receipt declared by the assessee. The assessee has filed a chart placed at PB page 163 to 165. On perusal of the same, it is observed that the facts narrated in the said chart are crucial to decide the issue however it requires verification from the books of accounts. Considering the entirety of case, we hereby admit the additional evidence and send back them to the file of AO for making necessary verification of the facts stated by the assessee before us and further direct to decide the issue in accordance with law. With these directions, grounds of appeal No. 7 raised by the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed.