2012 (5) TMI 331 - AT - Income Tax

Addition made under section 41(1) on account of value added tax refund receivable by AO CIT deleted the addition Held that - VAT receivable by the assessee is not to be credited as income without waiting for the refund order by the VAT authority - it is not an automatic refund and is depending on the decision of the commercial tax authority who has to adjudicate the claim - it is not a benefit accrued to the assessee during the year as the claim was not adjudicated by the commercial tax authority - against revenue Dis-allow deduction (DEPB credit) in computing the total income by AO CIT made credit deduction - Held that - decided in the case of CIT v. Kalpataru Colours and Chemicals (2010 - TMI - 76895 - BOMBAY HIGH COURT) that DEPB credit is liable to be taxed in the year of issue of credit or in the year of sale of credit - In schedule 9 to the balance-sheet ended with March 31, 2007 the export benefit (DEPB) realisation is shown as Rs. 27,83,209.74 under the head Other income . It is amply clear that the assessee has not sold DEPB credit during the relevant year. Therefore, the assessee is justified in excluding the same against revenue.

Summary

Issues:
1. Deletion of addition under section 41(1) of the Income-tax Act
2. Reduction of DEPB credit from total income

Deletion of addition under section 41(1) of the Income-tax Act:
The appeal by the Revenue challenged the deletion of an addition made under section 41(1) of the Income-tax Act concerning a value-added tax refund receivable. The Assessing Officer treated the amount as income of the assessee, but the Commissioner of Income-tax (Appeals) found that the value-added tax refund was subject to certain conditions under the West Bengal Value Added Tax Rules, 2005. The Commissioner noted that the assessee consistently offered value-added tax received in relevant assessment years for taxation under section 41(1). Citing the decision in Polyflex (India) P. Ltd. v. CIT [2002] 257 ITR 343 (SC), the Commissioner concluded that section 41(1) did not apply to this type of receivable value-added tax. The Tribunal upheld the Commissioner's decision, emphasizing that the value-added tax refund was not automatically received and depended on the decision of the commercial tax authority.

Reduction of DEPB credit from total income:
The second issue involved the reduction of DEPB credit from the total income by the Commissioner of Income-tax (Appeals). The Tribunal referred to a decision of the Bombay High Court which held that DEPB credit should be taxed in the year of issue or sale. The assessee had not sold the DEPB credit during the relevant year, and hence, the Tribunal agreed with the Commissioner's decision to exclude the amount from the income for the assessment year. The Tribunal found that the DEPB credits were not sold during the relevant assessment year and therefore should not be considered as income for that year. The Tribunal dismissed the Department's appeal, upholding the Commissioner's decision.

In conclusion, the Tribunal dismissed the Departmental appeal, affirming the decisions of the Commissioner of Income-tax (Appeals) on both issues.