Input VAT credit reversal deduction to be allowed on payment basis u/s 43B irrespective of separate VAT account
INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘SMC’ BENCH, KOLKATA
I.T.A. No. 1047/KOL/ 2015 Assessment Year: 2009-2010
BDG Metal and Power Limited … Appellant vs. Deputy Commissioner of Income Tax… Respondent
Date of Order: 09-03-2016
ORDER
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-21, Kolkata dated 15.05.2015 and in the solitary ground raised therein, the assessee has disputed the addition of Rs.27,92,456/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of VAT payment made to Sales Tax Department.
2. The assessee in the present case is a Company, which is engaged in the business of manufacturing of Steel Semies, Silica Manganese and Hot Rolled products. The return of income for the year under consideration was filed by it on 21.09.2009 declaring loss under the normal provisions of the Act and book profit of Rs.8,80,096/- under section 115JB of the Act. In the assessment originally completed under section 143(3) vide an order dated 24.10.2011, loss under the normal provisions was determined by the Assessing Officer at Rs.21,83,002/- and book profit at Rs.8,80,096/-. The record of the said assessment came to be examined by the ld. CIT(Appeals) and on such examination, he found that a sum of Rs.27,92,456/- was debited by the assessee in the Profit & Loss Account on account of “Input VAT reversal”. According to him, the said amount was not allowable as deduction since the VAT accounts were maintained separately by the assesese-company and the order passed by the Assessing Officer under section 143(3) allowing the said deduction was erroneous as well as prejudicial to the interest of the revenue. He, therefore, issued a show-cause notice under section 263, in reply to which it was submitted by the assessee that although VAT account was separately maintained, where all debits and credits had been made, there was a dispute in respect of certain credits as a result of which the claim for input credit was required to be reversed and the payments to the extent of such reversal amounting to Rs.5,86,000/- for the financial year 2007-08 and Rs.22,06,454/- for financial year 2006-07 were required to be made. It was contended that the amount of Rs.27,92,456/- thus represented actual payment of VAT made during the year under consideration and the same, therefore, was allowable as per section 43B of the Act. According to the ld. CIT(Appeals), this stand taken by the assessee required verification and accordingly setting aside the order passed by the Assessing Officer under section 143(3) by exercising his powers under section 263, he directed the Assessing Officer to verify the stand of the assesese from the relevant record.
3. As per the directions given by the ld. CIT(Appeals) under section 263, the matter was taken up by the Assessing Officer in the proceedings under section 143(3) read with section 263 and the assessee was called upon by him to explain its stand in the matter. It was submitted by the assessee that it was engaged in the business of manufacture and dealing of iron and steel during the financial years 2006-07 and 2007-08 and in the said years, stock was transferred to consignment agents without charging sales tax. The input tax credits lying against material used for manufacture of the said goods, however, were utilized for adjustment of CST/VAT payable. As subsequently brought to the notice of the assessee by the concerned Commercial Tax Officer, the credit for such input tax, however, was not available for adjustment against VAT payable and the same was, therefore, liable to be reversed. Accordingly, the relevant input tax credits were reversed by the assesese and the amounts to the extent of such reversal aggregating to Rs.27,92,456/- were actually paid by the assessee on 13.03.2009 and 26.03.2009. It was contended that the said amount thus was nothing but payment against VAT/Sales tax and the same having been actually paid during the year under consideration, deduction was allowable under section 43B of the Act. This stand of the assessee was not found acceptable by the Assessing Officer and he disallowed and added the sum of Rs.27,92,456/- to the total income of the assessee in the assessment completed under section 143(3) read with section 263 of the Act vide an order dated 19.02.2014 for the following reasons given on page 2 of the assessment order:-
“VAT & CST do not pass through Trading, P&L Accounts of the assessee. VAT & CST accounts are maintained separately. The auditor in notes on accounts certified the same. So, when an item of subsequent claim on computation whose credit is not a part of P&L accounts anything arising out of any statutory authority order paid actually or not cannot pass through P&L account. In fact, by charging the ‘Input VAT Reversed’ in its P&L where the VAT & CST collected from its customer are not included lin sales the assessee has reduced taxable income by the equal amount. Therefore, the ‘Input VAT Reversed’ claimed in the account as expenses is not allowed and added back. As a result Rs.27,92,456/- is being added”
4. Against the order passed by the Assessing Officer under section 143(3) read with section 263, an appeal was preferred by the assessee before the ld. CIT(Appeals) and the submissions made before the Assessing Officer were reiterated on behalf of the assessee before the ld. CIT(Appeals) in support of its claim for deduction of Rs.27,92,456/- on account of payment against the reversal of VAT credits. The submission of the assessee was not found acceptable by the ld. CIT and he confirmed the disallowance made by the Assessing Officer on this issue for the following reasons given paragraph no. 7 of his impugned order:-
“7. I have considered the submission of the appellant and perused the assessment order. The facts of the case have already been discussed as above. It is observed that there is no dispute on the fact thta in its profit and loss account the appellant company had shown the sales and purchases at net figures i.e. the sales credited to the profit and loss account did not contain the amount of sales tax collected from the customers and similarly the purchases debited did not contain the amount of sales tax/VAT paid by the appellant. The appellant company had maintained a separate account VAT and CST accounts and the payment of statutory liabilities was settled through these accounts. In the year under consideration the appellant company claimed deduction of Rs.27,92,456/- under the head ‘Input VAT Reverse’. Before the AO as well as in the course of appellate proceedings it is claimed by the appellant that in the FY 2006-07 and 2007-08, it had claimed excess input tax credit on transfer of stock to its consignment agents outside the state, as per the show cause notice issued by the concerned government department. Hence, the appellant company made the payment of tax in the year under consideration and reversed the input tax credit to the extent of disentitlement. As per the appellant the deduction on account of tax payment is allowable u/s 43B of the Act on the basis of actual payment in the year under consideration. On the other hand, the AO has disallowed the claim of the appellant on the ground that the payment of VAT/CST has not been routed through the profit and loss account and that the appellant company had maintained separate accounts for the same. Hence, any payment made by the appellant subsequently as per the order of a statutory authority could not be passed through the profit and loss account. In other words, the claim of the appellant of payment under the head ‘Input VAT Reverse’ is not allowable as deduction in the profit and loss account. On careful consideration of the facts, I am inclined to agree with the view taken by the AO. Since the appellant has maintained separate VAT and CST accounts and any statutory liability which arose is settled through these accounts without routing through the profit and loss account and, therefore, any payment made subsequently on account of excess claim of Input Credit is not allowable as deduction even on payment basis. In view of above, the disallowance made by the AO is upheld. The ground no. 2 is dismissed”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
5. At the time of hearing, the ld. counsel for the assessee reiterated before me the submissions made before the authorities below in support of the assessee’s case, while the ld. D.R. strongly relied on the impugned order of the ld. CIT(Appeals) in support of the revenue’s case.
6. I have considered the rival submissions and also perused the relevant material available on record. As rightly contended by the ld. counsel for the assessee, it appears that the exact nature of amount in dispute paid by the assessee on account of reversal of VAT inputs has not been appreciated either by the Assessing Officer or by the ld. CIT(Appeals) in the right perspective. The input tax credit on account of VAT paid on purchases was actually claimed by the assessee in the F.Ys. 2006-07 and 2007-08 and since the relevant materials purchased by the assessee were used for manufacture of goods, which were transferred to its consignment agent without charging sales tax, the assessee was not entitled for the input tax credit. Such credits, however, were wrongly claimed by the assessee against CST/VAT payable for the relevant years and only as a result of show-cause notice issued by the Assistant Commissioner, Commercial Taxes, the credit wrongly claimed was reversed by the assessee and the amount in question was paid against such reversal. The said payment made by the assessee thus was on account of CST/VAT actually payable for the F.Ys. 2006-07 and 2007-08 and the same having been paid in the year under consideration. I agree with the contention of the ld. counsel for the assessee that the assessee was entitled for deduction of the same in the year under consideration as per section 43B of the Act. The method of accounting followed by the assessee to maintain a separate VAT account to make all credit and debit entries relating to VAT therein is not relevant to decide the allowability of the amount in question paid by the assessee on account of reversal of Input VAT Credit, inasmuch as the wrong claim of credit for inputs in the earlier years had resulted in short payment of CST/VAT payable by the assessee and the same having been paid during the year under consideration, the assessee, in my opinion, was entitled for deduction of such tax on payment basis under section 43B. I, therefore, delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow this appeal of the assessee.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on March 09, 2016.
(P.M. Jagtap) Accountant Member
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