2018 (8) TMI 749 - AT - Income Tax

Monetary limit for filing an appeal by revenue - Restriction on deduction of expenditure u/s 43B - VAT/WCT liability - the customer deducted WCT at the rates applicable and made the net payment to the assessee after the deduction of WCT. The customer deposited the WCT deducted with the State Government on behalf of the assessee and the assessee credited the gross amount of invoice as turnover or sales and debited the amount on account of WCT in the manufacturing / profit & loss account. Held that - In the instant case, there is no dispute that the liability crystallized during the year under consideration and the payments were made by the customers on behalf of the assessee during the year under consideration. The assessee had already credited the gross amount of invoices as turnover for sales in its profit & loss account and also debited the amount which was deducted by the customers in the manufacturing / profit & loss account. In our opinion, when the liability relating to the business of the assessee was crystallized and paid during the year under consideration then it was an allowable expenditure. - Decided in favor of assessee.

Summary

Issues Involved:
1. Allowability of expenses under Section 43B due to non-registration with VAT authorities.
2. Deletion of addition under Section 68 due to failure to prove the identity, genuineness, and capacity of creditors.
3. Ignoring the decision of the Hon'ble Kerala High Court in the case of Unneeri Kutty.
4. Admittance of additional evidence by CIT(A) without exceptional circumstances as per Rule 46A.

Issue-wise Detailed Analysis:

1. Allowability of Expenses under Section 43B:
The Department contended that the CIT(A) erred by allowing ?1,27,284 out of ?12,36,720 disallowed under Section 43B, arguing that the expenditure was incurred due to non-registration with VAT authorities, which is mandated by law. The Tribunal noted that the tax effect involved in the departmental appeal was less than ?20,00,000, hence the appeal should not have been filed per CBDT Circular No. 3/2018 dated 12.07.2018. The Tribunal observed that the assessee's customers deducted WCT and deposited it with the State Government on behalf of the assessee. The liability crystallized and was paid during the year under consideration, making it an allowable expenditure. The Tribunal upheld the CIT(A)'s decision to allow ?1,27,284 under Section 43B.

2. Deletion of Addition under Section 68:
The Department argued that the CIT(A) erred in deleting the addition of ?30,12,580 made under Section 68, as the assessee failed to discharge his onus to prove the identity, genuineness, and capacity of the creditors. The Tribunal did not delve into the merits of this issue due to the tax effect being below the monetary threshold set by the CBDT Circular No. 3/2018.

3. Ignoring the Decision of Hon'ble Kerala High Court:
The Department claimed that the CIT(A) ignored the decision of the Hon'ble Kerala High Court in the case of Unneeri Kutty, which was affirmed by the Hon'ble Supreme Court. The Tribunal again did not address this issue in detail due to the tax effect being below the prescribed limit for filing appeals.

4. Admittance of Additional Evidence by CIT(A):
The Department contended that the CIT(A) erred in admitting additional evidence without exceptional circumstances as provided under Rule 46A. The Tribunal did not specifically address this procedural contention due to the overarching decision to dismiss the appeal based on the monetary limits set by the CBDT Circular.

Conclusion:
The Tribunal dismissed the Department's appeal, emphasizing the applicability of CBDT Circular No. 3/2018, which sets a monetary threshold for filing appeals. The Tribunal allowed the cross-objection of the assessee, deleting the addition made by the AO and sustained by the CIT(A) regarding the WCT deductions. The Tribunal's decision was pronounced on 31/07/2018.