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2022 (2) TMI 164 - AT - Income TaxIncome of the assessee towards Excise duty, CST and VAT - unexplained Excise duty, VAT and CST debited to the profit and loss account - sales were shown net of Excise duty and taxes, in the profit and loss account, the assessee had debited these above duties and taxes along with purchases in its trading and profit and loss account - assessee ought to have debited purchases, net of taxes and duties, as in the case of sales, the taxes and duties so debited to the profit and loss account tantamounted to excess claim and the same was accordingly disallowed and added to the income of the assessee - HELD THAT - The reasoning of the Ld. CIT(A) talks about entire CST sale made by the assessee in its different branches for dismissing this contention of the assessee, which does not address the specific contention of the assessee that the same related to Pune Branch alone and could be set off against CST sales in Pune which were not there. The fact that assessee had made total CST sales of 10.59 crores does not help the case of the Revenue in meeting and controverting the specific contention of the assessee as aforestated. The same therefore cannot form the basis for rejecting the assesses explanation, we hold. Similarly, we find that in the case of VAT while the assessee's explanation of VAT debited to the profit and loss account was that it represented the excess of amount of VAT receivable on purchases as against amount payable on sales and which was not available for set off, the Ld. CIT(A) has rejected the same by stating that the assessee has shown the same amount of VAT as debited in the profit and loss account as receivable in his balance sheet The presumption of the Ld. CIT(A), is therefore probably that the VAT receivable was very much available for set off as per the books of the assessee and as opposed to that claimed by it that it was not available for set off. We find that this finding of the Ld. CIT(A) is not based on correct appreciation of facts. Firstly as per double entry system of accounting which is universally followed for book keeping every transaction is represented by both debiting and crediting different accounts. And the outstanding debit and credit balances in the different accounts are reflected either in the profit and loss account or balance sheet as per its nature. As per the Ld. CIT(A) the assessee has both debited the profit and loss account and also shown the debit balance in the VAT receivable account in the balance sheet, which is not possible. A debit balance in an account can either be reflected in the profit and loss account as expense or as an asset in the balance sheet. It cannot be reflected in both the financial statements at the same time. Therefore surely the amount of VAT debited to the profit and loss account is not the same as that reflected as receivable in the balance sheet. This is further cemented by the fact on record that the said two amounts are not the same also. While the amount debited to the profit and loss account of VAT amounts to ₹ 6,02,804/- the amount reflected as receivable as per the Ld. CIT(A) himself amounts to ₹ 5,77,764/-. Therefore the basis of the Ld. CIT(A) for rejecting the assessee's explanation of VAT debited to the profit and loss account, we find, has no legs to stand on and is therefore dismissed. Thus we hold that the revenue authorities have proceeded on totally incorrect interpretation of facts of the case while making the impugned addition on account of Excise duty, VAT and CST debited to the profit and loss account which we find the assessee had duly explained for doing so and it is clearly not a case of any extra claim made on account of the same of the assessee. - Decided in favour of assessee.
Issues Involved:
1. Validity of reopening under Section 147. 2. Justification of additions amounting to ?27,24,159/- towards excise duty, CST, and VAT. Detailed Analysis: 1. Validity of Reopening under Section 147: The assessee challenged the validity of the notice issued under Section 148 and the subsequent proceedings under Section 147, arguing that they were illegal and unjustified. However, the appellate tribunal dismissed these legal grounds due to the absence of arguments presented by the counsel for the assessee. 2. Justification of Additions Amounting to ?27,24,159/- towards Excise Duty, CST, and VAT: The primary contention revolved around the addition of ?27,24,159/- made by the Assessing Officer (AO) towards excise duty, CST, and VAT, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. - Assessee's Argument: The assessee argued that both sales and purchases were accounted for net of taxes in the books of accounts. The amounts debited to the profit and loss account pertained to taxes on purchases for which credit could not be availed. The assessee provided evidence, including purchase accounts, excise duty accounts, CST accounts, VAT accounts, and purchase bills, to support this claim. - Revenue's Position: The AO disallowed the debited amounts, arguing that sales were shown net of taxes while purchases were debited inclusive of taxes, leading to an excess claim. - Tribunal's Findings: The tribunal found that the assessee had consistently accounted for purchases and sales net of taxes and that the debited amounts represented taxes for which credit was not available. The Revenue failed to provide any evidence to counter the assessee's claims. - Excise Duty: The tribunal noted that the excise duty debited to the profit and loss account was the balance amount not eligible for credit against excise payable. - CST: The tribunal found the CIT(A)'s reasoning flawed. The CIT(A) rejected the assessee's claim by stating that CST collected on sales should not be adjusted against CST paid on purchases. However, the tribunal held that the CST debited pertained to inter-state purchases at the Pune branch, which could not be set off against inter-state sales, thus justifying the expense. - VAT: The CIT(A) rejected the VAT claim by stating that the amount shown as receivable in the balance sheet should first be adjusted against VAT payable. The tribunal disagreed, explaining that the VAT debited to the profit and loss account was not the same as the amount shown as receivable and that the CIT(A)'s interpretation was incorrect. - Consistency Principle: The tribunal also noted that a similar issue had arisen in the Assessment Year 2014-15, where the AO accepted the assessee's explanation without making any additions. This consistency further supported the assessee's position. Conclusion: The tribunal concluded that the revenue authorities misinterpreted the facts, resulting in an unwarranted addition of ?27,24,159/-. The addition was directed to be deleted, and the appeal was partly allowed in favor of the assessee. The order was pronounced in the open court on 24-01-2022.
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