Income Tax - Service Tax paid in response to SCN without an Order - Eligible for Deduction - ITAT
A survey was carried out by the service tax authorities on 11-8-2006 and in pursuance of which a show cause notice was issued to the assessee on 19-10-2006, strong>firstly, as to why the service tax was not paid on a difference and liabilities written back under "advertisement agency services" and secondly, on annual volume discount under "business auxiliary services" categories and why outstanding service tax liability along with interest and penalty should not be levied.
After carrying out various discussions with the service tax authorities, the assessee decided to pay the service tax liability along with interest to avoid further litigation and to buy peace of mind. The assessee deposited service tax liability along with the interest for the financial year 2001-2002, 2002-2003, 2003-2004, 2005-2006 and 2006-2007. In the tax audit report, the payment was duly reported and was claimed as a revenue deduction under section 37(1). The Assessing Officer held that the amount of service tax and interest paid was a liability which was not crystallized during the year as there was no formal written order, but was paid in response to show cause notice only and further that whole matter was in dispute. He, therefore, held that the same cannot be allowed as deduction in the current year either under section 37 or under Section 43B.
The ITAT observed,
It is not disputed that the assessee has paid service tax along with interest in this year which also included the amounts pertaining to the earlier assessment years. The only issue is whether liability can be said to have been crystallized without any formal order being passed by the service tax authorities. Once the payment of service tax has been made during the year, it does not make any difference whether the same is under dispute before the service tax authorities.
Deduction claimed by the assessee in respect of any sum paid by way of tax, duty, cess, or fee, shall be allowed only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him, irrespective of the previous year in which the liability to pay was incurred on the payment of such sum as per method of accounting regularly employed by the assessee as per section145. For the claim of deduction of the sum paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant which is to be taken into account. The year in which the assessee incurred the liability to pay such tax, duty etc., has no relevance and cannot be linked in the matter of giving benefit of deduction under Section 43B.
The Tribunal held, "the amount of service tax along with interest paid by the assessee is allowable in view of the provisions of Section 43B."
We will bring you this order also tomorrow.