Practical Accounts And Taxation
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Service Tax is due, Assessee didnt collected service tax from clients, is he still eligible for IT deduction?
While examining balance sheet of the assessee, assessing officer noted that a specific amount is being claimed as unpaid service tax as liability, (since the client disallowed the amount, assessee stated whenever the amount for the services is received from the client, service tax would also be remitted) Assessing officer held as per section 43B of Income Tax Act 1961 services tax can be allowed only when paid and therefore the amount is not liable as deduction. Additionally details of clients of the assessee are not provided hence same amount is calculated as Income.
Aggrieved assessee appealed in Commissioner IT which favored him, Revenue appealed in the First and second Appellate Authority, in which both appellate authorities dismissed revenue dept appeal.Finally matter reached Bombay High Court.
High Court held that, Section 43B does not contemplate liability to pay service tax before actual receipt of the funds in the account of the assessee. Hence the liability to pay service tax into the Treasury will arise only upon the assessee receiving the funds and not otherwise.
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