Coronation Infrastructure Pvt. Ltd. vs ITO, Ward-6(4), Delhi – Dispute Over Service Tax Liability Under Section 43B for AY 2015-16

Case Overview: Coronation Infrastructure Pvt. Ltd. vs ITO, Ward-6(4), Delhi, Assessment Year 2015-16

This case involves Coronation Infrastructure Pvt. Ltd., a company based in New Delhi, which filed an appeal against the order passed by the Income Tax Officer (ITO), Ward-6(4), Delhi for the assessment year 2015-16. The appeal was centered on the disallowance of service tax liability under Section 43B of the Income Tax Act, 1961.

Background of the Case

Coronation Infrastructure Pvt. Ltd. is engaged in contract mining and the transformation of ores and coal within designated mining areas. During the assessment year 2015-16, the company filed its income tax return under the head ‘income from business or profession’. The dispute arose when the Assessing Officer (AO) noticed that the company had not paid a substantial portion of the service tax liability before the due date of filing the income tax return under Section 139(1).

The AO observed that while the company had remitted Rs. 40 lakhs towards the service tax liability before the due date, a significant amount of Rs. 7,96,80,264 remained unpaid. The AO proceeded to add this unpaid amount to the company’s total income, invoking the provisions of Section 43B of the Income Tax Act, which mandates the disallowance of certain expenses unless they are actually paid.

The Appellant’s Arguments

In response to the AO’s actions, Coronation Infrastructure Pvt. Ltd. argued that the service tax liability was reflected as a liability in the balance sheet and was not routed through the Profit and Loss (P&L) account. The company contended that since the service tax was not claimed as a deduction, the provisions of Section 43B should not apply. The company cited the decision of the Hon’ble Delhi High Court in the case of CIT vs Noble & Hewitt (I) Pvt. Ltd., where it was held that disallowance under Section 43B could not be made if the deduction was not claimed in the P&L account.

The appellant further argued that the AO’s reliance on the decision of the Hon’ble Calcutta High Court in Chowringhee Sales Bureau Pvt. Ltd. vs. CIT was misplaced, as that case pertained to sales tax and not service tax, and the context of the rulings differed.

Tribunal’s Decision

The Income Tax Appellate Tribunal (ITAT) heard the case and reviewed the arguments presented by both parties. The Tribunal noted that the issue in dispute had been previously addressed in the company’s own case for earlier assessment years, where similar contentions were raised. In those cases, the Tribunal had remanded the issue back to the AO for factual verification and consideration of the Hon’ble Delhi High Court’s decision in the Noble & Hewitt case.

In line with these precedents, the Tribunal decided to remand the issue back to the AO once again, instructing the AO to re-examine the factual position and consider the legal principles established by the jurisdictional High Court. The Tribunal emphasized that the AO should grant adequate opportunity to the assessee to present their case and should ensure that the correct legal position is applied.

Conclusion

The appeal filed by Coronation Infrastructure Pvt. Ltd. was allowed for statistical purposes, meaning that the Tribunal did not deliver a final verdict but rather directed the AO to revisit the matter with specific guidelines. The decision highlights the importance of correctly interpreting and applying legal provisions, particularly in cases where the tax liability hinges on whether or not certain expenses have been claimed in the P&L account.

This case also underscores the necessity for the AO to carefully consider the decisions of higher judicial authorities, such as the jurisdictional High Courts, when making assessments. By remanding the case, the Tribunal ensured that the appellant’s contentions would be properly examined in light of the relevant legal precedents, thus safeguarding the principles of justice and fair play.

In summary, this case serves as a critical example of how disputes over service tax liabilities and their treatment under Section 43B of the Income Tax Act can lead to prolonged litigation, but also how the appellate process provides a mechanism for ensuring that such disputes are resolved in accordance with established legal principles.

Coronation Infrastructure Pvt. Ltd. vs ITO, Ward-6(4), Delhi – Dispute Over Service Tax Liability Under Section 43B for AY 2015-16