Sec. 145A applies only to valuation of goods and not services

Facts:

a) The assessee was engaged in the business of real estate consultancy/agency and property management services. During the course of the assessment proceedings, the AO sought to include the service tax as trading receipts on invocation of Section 145A(ii).

b) The assessee contended that Section 145A(a)(ii) would have no application to the present facts as service tax is not mentioned therein.

c) On appeal, the CIT (Appeals) held that Section 145A(a)(ii) would apply as it is not restricted only to manufacturing and trading companies. It was concluded that the service tax stands on the same footing as excise duties, sales tax and other taxes, which are collected to be paid over to the Government.

d) Further, the Tribunal held in favour of assessee by observing that section 145A(a)(ii) deals with goods and not services.

The High Court held as under:

1) For the better appreciation of the controversy to be examined, it was necessary to reproduce Section 145A of the Act, which at the relevant time read as under :—

“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 assessee to bring the goods to the place of its location and condition as on the date of valuation.”

2) It is very clear from the reading of Section 145A(a)(ii) that it only covers cases where the amount of tax, duty, cess or fee are actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.

3) In the instant case, the assessee had admittedly not paid or incurred any liability for the purposes of bringing any goods to the place of its location as it was rendering services. Thus, on the plain reading of Section145A(a)(ii), it is self-evident that the same would not apply to the service tax billed on rendering of services. This is so as the service tax billed has no relation to any goods nor does it have anything to do with bringing the goods to a particular location.

4) Therefore, Section 145A of the Act would have no application to cases where service was provided by the Assessee. – [2016] 72 taxmann.com 300 (Bombay)