IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri K.Narsimha Chary, Judicial Member ITA No.2065/Kol/2013 & ITA No.2122/Kol/2014 Assessment Year:2008-09 Selvel Advertising Pvt. Ltd. Commissioner of C/o M.L. Sahgal & Co. Income Tax, P-7, V/s. Neelam Apartments, 3 r d Chowringhee Square, Floor, Flat 3E, 61-B, Park Kolkata-700 016 Street, Kolkata-700 016 PAN No.AAECS 8398 C] DCIT, Circle-12(2), P-7, M/s Selvel Advertising Chowringhee Square, V/s. Pvt. Ltd., 10/1B, Aayakar Bhawan, 7h Floor, Diamond Harbour Road, Kolkata-700 069 Kolkata-700 027 Appellant .. Respondent By Assessee Shri J.P. Khaitan, Advocate & Shri Tarun Kumar Banerjee, AR By Respondent Shri Niraj Kumar, CIT-DR & Shri Aloke Nag, Addl. CIT-DR Date of Hearing 23-08-2016 /Date of Pronouncement 30-09-2016 O R D E R PER Waseem Ahmed, Accountant Member:- These two appeals assessee has been filed relating to Assessment Year (AY) 2008-09 passed by Commissioner of Income Tax IV, Kolkata under provision of Sec. 263 of Income Tax Act, 1961 (hereinafter referred to as Act ) vide Memo. No. CIT, Kol-IV/Kol/263/2012-13/391-393 dated 28.03.2011/01.05.2013. ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 2 Other Revenue s appeal against order of Commissioner of Income Tax (Appeals)- XII, Kolkata dated 08.09.2014. Assessment was framed by Addl. CIT, Range-12, Kolkata u/s 143(3) for AY 2008-09 vide his order dated 21.12.2010. Both appeals are heard together and are being disposed of by way of consolidated order. Shri J.P. Khitan, & Sri Tarun Kumar Banerjee, Ld. Advocates appeared on behalf of assessee and Sri Niraj Kumar & Shri Aloke Nag , Ld. Departmental Representatives appeared on behalf of Revenue. First we take up assessee s appeal in ITA No. 2065/Kol/2013 for A.Y. 08-09. 2. Facts in brief as culled out from order of lower authorities and other relevant documents are that assessee in present case, Private Limited Company and engaged in business of advertising. Assessee for year under consideration filed its return of income on 30.09.2008 declaring total income of Rs.1,93,10,736/-. Thereafter case was selected for scrutiny and notice u/s 143(2) of Act issued. assessment was framed u/s. 143(3) of Act at total income of Rs.3,5182,500/- by making certain additions / disallowances vide order dated 21.12.2010. 3. Sole issued raised by assessee in this appeal is that Ld. CIT erred in treating order passed by Assessing Officer as erroneous in so far as prejudicial to interest of Revenue u/s 263 of Act. 4. impugned order passed by ld. CIT u/s 263 of Act by observing certain defects in assessment order passed by AO u/s. 143(3) of Act. As per Ld. CIT, following facts have not been considered by AO while framing assessment u/s. 143(3) of Act:- 1) There was service tax outstanding till 30.09.2008 for amount of Rs.1,37,15,804/- which needs to be disallowed as per provision of Sec. 43B of Act; 2) assessee in its financial statement has shown life of hoarding structures over period of 3-5 years as per its accounting policy on item No. ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 3 1.4. Accordingly, depreciation was to be provided in books of account depending upon estimated useful life of hoarding structure. However, Ld. CIT observed that assessee has claimed depreciation @ 100% on hoarding structures amounting to Rs.1,05,24,933/- which is against provision of law. Accordingly, Ld. CIT further observed that hoarding structures are not purely temporary structures and therefore depreciation should be allowed on this structures @ 10% per annum like non residential buildings. Therefore, excess depreciation to tune of Rs.1,31,90,323/- [14191130 (10% of 58,25,005 + 50% of 10%) 83,66,125/-] was allowed in assessment order framed u/s.1 43(3) of Act. In view of above, notice was issued to assessee u/s 263 of Act for seeking explanation why order of AO should not be held as erroneous and prejudicial to interest of Revenue. In compliance to notice, assessee submitted that as under:- a) Non-payment of service tax amounting to Rs.1,37,15,804/-, assessee submitted that as per Sec.145A of Act turnover includes sales tax, excise duty but it does not include service tax. assessee is service provider and merely acting as agent of Govt. for collection and payment of service tax to Government. assessee is not entitled to claim deduction on account of service tax. assessee also submitted that liability to make payment of service tax arise when service provider has received payment as such there is no liability to make payment to account of Central Govt. until and unless payment is received from party concerned as per Rule-6 of Service Tax Rules, 1994. assessee also submitted that there was no debit in profit and loss a/c of assessee and no credit in profit and loss a/c of assessee on account of service liability. Therefore, there was no mistake in assessment order and no addition is required to be made. ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 4 b) Regarding depreciation, assessee submitted that necessary details with regard to depreciation claimed on temporary structures had been furnished at time of assessment proceedings. It was submitted that 100% depreciation was allowed in course of first assessment year of assessee i.e., AY 1972-73 and thereafter. No disallowance of depreciation was ever made by AO in assessment proceedings. assessee further submitted that useful life of hoarding structures were determined on basis of technical certificate given by Chartered Engineers. But it has nothing to do with provisions specified under Income Tax Act. assessee is entitled to claim depreciation under IT Act in spite of fact that no depreciation was charged by assessee in its books of account. However, Ld. CIT(A) has rejected plea of assessee by observing that payment of service tax is governed by provision of Sec. 43B of Act and therefore it is not allowed while framing assessment u/s. 143(3) of Act. Similarly, Ld. CIT observed that 100% depreciation has been allowed on basis of order passed for AY 1972-73 and also subsequent AYs also. But Ld. CIT further observed that there was huge difference in technology and life of hoarding structure. Therefore, assessment order passed in AY 1972-73 has no bearing in instant case. Accordingly, Ld. CIT held order of AO is erroneous and prejudicial to interest of revenue and he directed AO to look into matter afresh and pass necessary order as per law. Aggrieved, assessee preferred appeal before us. 5. Before us Ld. AR filed two sets of paper book one which is running pages from 1 to 70 and supplementary paper book which is running pages 1 to 108 pages and stated that issue of statutory payment of tax liability and other payments according to Sec.43B of Act has been duly investigated by AO at time of assessment proceedings. He in support of assessee s claim drew our attention to query raised by AO u/s. 142(1) of Act at time of assessment which is ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 5 placed on page 49 of item No 18 of paper book. Ld. AR also drew our attention on page 51 of paper book where reply for statutory payments of tax liability according to Sec. 43B of Act was placed. Ld. AR of assessee accordingly submitted that matter of service tax liability has been duly investigated by AO at time of assessment proceedings and therefore on this ground order of AO cannot be held as erroneous and prejudicial to interest of revenue. Ld. AR of assessee also drew our attention on page 7 of supplementary paper book where necessary details for payment according to Sec. 43B of Act were furnished in form of tax audit report. Further, Ld. AR submitted that service tax has not been shown as income in profit and loss a/c and similarly no expenses with regard to service tax has been claimed in profit and loss a/c of assessee. Ld. AR in support of assessee s claim has drawn our attention on pages 46 of supplementary paper book where profit and loss a/c of assessee was placed. Ld. AR in support of assessee s claim also relied in case of CIT vs. Noble And Hewitt (I) P. Ltd. (2008) 305 ITR 324 (Del), where Hon'ble court held:- assessee maintained its accounts on mercantile system of accounting. It had collected service tax during previous year relevant to assessment year 1999-2000. Out of service tax so collected, it had deposited part of amount but amount of Rs.14.40 lakhs was not deposited by it with concerned authorities. assessee did not claim any deduction in this regard nor did it debit amount as expenditure in profit and loss account. Assessing Officer as well as Commissioner (Appeals) nevertheless disallowed amount and added it back to income of assessee. Tribunal set aside order. On appeal to High Court: Held, dismissing appeal, that since assessee did not debit amount to profit and loss account as expenditure nor claim any deduction in respect of amount and considering that assessee was following mercantile system of accounting, question of disallowing deduction not claimed would not arise. Further, Ld. AR of assessee with regard to depreciation on hoarding structures submitted that Assessing Officer has raised specific query for depreciation claimed on hoarding structures. query raised by AO at time of assessment is placed on page 53 of paper book assessee in response to query raised by AO has submitted detailed reply which is placed on page 55 of Paper Book. He ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 6 requested Bench to allow assessment order and quash impugned order passed by Ld. CIT. On other hand, Ld. DR with regard to service tax issue supported order of ld. CIT. with regard to depreciation claimed by assessee @ 100% on hoarding structures, it was submitted that order of AY 1972-73 was passed 40 years back. Thee must have been changes in hoarding structures, therefore facts should be looked afresh while allowing 100% depreciation on hoarding structures. As per accounting policy of assessee, useful life of hoarding structure has been determined over period of 3-5 years. Ld. Finally ld. DR vehemently supported order passed by Ld. CIT u/s. 263 of Act. 6. We have heard rival contentions of both parties and perused materials available on record. From foregoing discussion, we find that Ld. CIT has held order of AO as erroneous in so far as prejudicial to interest of revenue on account of two reasons Firstly service tax amount has not been paid on or before filing IT return as mandated under provision of Sec. 43B of Act. Secondly, AO at time of assessment has allowed depreciation @ 100% on hoarding structure. Now question before us arise whether impugned order passed by ld CIT u/s 263 of Act is erroneous and prejudicial to interest of revenue in aforesaid facts and circumstances of case. As per Service Tax Law, Service Tax is payable as and when payment /fees for underlying service provided are realized. As appellant firm has not received sum till end of financial year i.e. 2007-08, question of paying same did not arise at all. As already stated fact of non-realization of fees is disputed by AO in his order. If for any reason payment for services rendered is not realized (bad debts), there was no liability as to payment of service tax. Thus service tax law stands on different footing as compared to other laws like Central Excise or VAT. As per provisions of section 145A of Income-tax Act 1961, taxes and duties should form part of Gross Receipts but it as application is restricted to purchase and sale of goods only, and does not extend to service contracts. Thus, liability of service tax dos not ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 7 also arise as per section 145A of Act. provisions of section 145A of Income-tax Act 1961 that read as under:- Notwithstanding anything to contrary contained in Section 145, (a)The valuation of purchase and sale of goods ) and inventory for purposes of determining income chargeable under head Profits and gains of business for profession shall be- (i) in accordance with method of accou9nting regularly employed by assessee; and (ii) further adjusted to include amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by assessee to bring goods to place of its location and condition as on date of valuation. It is clear from above provisions that it applies only in respect of valuation of purchase and sale of goods and inventory and not to service contracts. Therefore action of Assessing Officer in invoking provisions of section 145A of Act and adding Service Tax to Gross Receipts is incorrect in as much as against very basic principles of section 145A. Apart from above, we find that payment for services rendered was not received in financial year under consideration. provisions of Section 43B of Act reads as under:- Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of- (a) any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, or (b) . Reading of this section makes it clear that any deduction claimed of any amount paid by way of any tax, duty, cess, etc. will be allowed only if said sum is paid. In present case liability to pay service tax itself has not, crystallized owing to non receipt of payment. Thus, question of claiming deduction of such tax does not arise. Chennai Bench of ITAT in case of Assistant Commissioner of Income- tax, Media Circle-II, Chennai v. Real Image Media Technologies (P) Ltd. [2008] 114 ITD 573 (CHENNAI) had occasion to examine identical case it was held that, rigor of provision of section 43B would be attracted only to case where item ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 8 is allowable as deduction but because of failure to make payment, such deduction would not be allowed. rigor of section 43B might be applicable to case of sales-tax or excise duty but same could not be said to be position in case of service-tax because of two reasons. firstly, assessee is never allowed deduction on account of service tax which is collected on behalf of Government and is paid to Government account, accordingly. Therefore, service provider is merely acting as agent of Government, and is not entitled to claim deduction on account of service tax. Hence on this account alone addition under section 43B could not have been made. Secondly, section 43B(a) uses express on any sum payable . For making any disallowance, first of all it has to be established that such sum is payable. word payable used in section 43B means that there is kind of obligation on part of payee to make payment which is already due. plain reading of rule 6 of Service Tax Rules would show that service provider becomes liable to make payment of service tax by 5th of month immediately following calendar month in which payments are received towards value of taxable service. first proviso provides for exception in case of individuals or proprietary firms or partnership firms, and in such cases, service tax has to be paid to credit of Central Government by 5th of month immediately following quarter of calendar year in which payments are received. only difference is that in case of individual or proprietary or partnership firm, payment has to be made on 5th of following month after following quarter of calendar year whereas in case of other organizations it has to be paid on 5th of month immediately following calendar month. But in both cases, liability arises to make payment only after service provider has received payments. If there is no liability to make payment to credit of Central Government because of non-receipt of payments form receiver of services, then it cannot be said that such service tax has become payable in terms of clause. In this connection, we also relied in judgment of Hon'ble Delhi High Court in case of Noble And Hewitt (i) P. Ltd. (supra). ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 9 Similarly for issue raised for depreciation claimed @ 100% on hoarding structure, we find that hoarding structures are temporary in nature and they cannot be equated with building for reason that temporary structures are raised in temporary location which are taken on lease once structures are removed value becomes almost nil and cannot be used again. In this connection, we also rely order of co-ordinate Bench of this Tribunal in B in ITA No.657 to 659/Kol/2011 for AY 06-07 to 08-09 dated 01.01.2015, relevant operative portion of said order is reproduced below:- .. From arguments of both sides and considering appellate order, we are of view that LED Video Display Boards are temporary structures and they cannot be equated with plant and machinery for reason that these structures are displayed outside in temporary locations and on land taken on lease for temporary period. Once you dismantle these temporary structures, it will reduce its value to almost nil and it cannot be used second time or third time and life span of LED Vide Display Boards is also not more than 6 months to 1 year. land is neither owned by assessee nor it is held by assessee on lease basis. structures put on such and, whatever in nature, are purely temporary structures. Even sometimes, these structures are not taken by assessee for re-use again. When such structures re put on land not belonging to assessee, expenditure is held to be nature of revenue in view of judgment of Hon'ble Supreme Court in case of CIT Vs. Madras Auto Service P t. Ltd. (1998) 233 ITR 468 (SC). In view of above, we confirm order of CIT(A) and this issu9e of revenue s appeal is dismissed. Respectfully following precedents, as above, we hold that impugned revision order is unsustainable in law and we, therefore, cancel same. This ground of assessee s appeal is allowed. 7. In result, assessee s appeal is allowed. Coming to Revenue s appeal in ITA No.2122/Kol/2014 for A.Y. 08-09. 8. Revenue has raised following grounds:- 1. That in facts of case and in law Ld. CIT(A) erred by deleting addition of Rs.1,37,15,804/- Service Tax to tune of Rs.1,37,15,804/- remaining unpaid till due date of filing of return of income. As assessee had received/realized Service Tax to tune of Rs.1,37,15,804/- during year but failed discharge liability to make payment of such Service Tax before due date of filing of return of income. 2. That in facts of case and in Ld. CIT(A) erred by deleting addition of excess depreciation claimed of Rs.1,31,90,324/- without ITA No.2065/Kol/2013 & 2122/Kol/2014 A.Y. 2008-09 Selvel Advertising Pvt. Ltd. vs. CIT-IV/DCIT Cir-12(2) Kol. Page 10 appreciating that benefit enjoying by assessee is of enduring nature over period of time. 9. At outset we find that both common issues raised by Revenue are allowed in favour of assessee in paragraph no. 6 of this order in ITA No. 2065/Kol/2013. Following same, we dismiss both issue raise by Revenue in its appeal 10. In result, assessee s appeal stands allowed and that of Revenue is dismissed. Order pronounced in open court on 30/09/2016 Sd/- Sd/- (K.Narsimha Chary) (Waseem Ahmed) Judicial Member Accountant Member *Dkp - 30/09/2016 Kolkata Copy of Order Forwarded to:- 1. Assessee-Selvel Advertising Pvt. Ltd. C/o M.L. Sahgal & Co., Neelam Apartments, 3rd Floor, Flat 3E, 61-B, park Street, Kolkata-16 2. /Revenue-CIT, Kol-IV, P-7, Chowringhee Squre,/DCIT, Circle-12(2), 7th Floor, P-7, Chowringhee Sq., Kolkata-69 3. Concerned CIT 4. - CIT (A) 5. DR, ITAT, Kolkata 6. Guard file. By order True Copy Selvel Advertising Pvt. Ltd. v. Commissioner of Income Tax, P-7, Kolkata