2023 (1) TMI 369 - AT - Income Tax

Turnover calculation - Taxing income of the appellant @ 30% instead of 25% is covered u/s 143(1) - adjustment made in the intimation u/s 143(1) and confirmed by the Ld. CIT(A) - HELD THAT - As in the case of Punjab Stainless Steel Industries 2014 (5) TMI 238 - SUPREME COURT while examining the meaning of turnover as occurring the Section 80HHC taking into consideration the guidance notes issued by Institute of Chartered Accountants of India, concluded that in normal accounting parlance turnover would mean total sale proceeds of the goods in which the assessee is dealing. Therefore, the scrap sales would not form part of turnover unless an assessee is dealing in scrap. The turnover would be adjusted for goods returned, price adjustments, trade discount and cancellation of bills. However, adjustments which do not relate to turnover should not be made e.g. writing off bad debts, royalty etc. In view of the above judgment we hold that Provisions for Doubtful Debts Write Back cannot be included in total turnover for the previous year 2016-17. On exclusion of the Provisions for Doubtful Debts Write Back the total turnover of the Appellant for the previous year 2016-17 falls below of INR 250 Crores. In view of the aforesaid, we hold that the Appellant was correct in offering its income to tax at the rate of 25% in the return of income. Additional tax demand raised on the Appellant on account of computing income tax liability by adopting rate of 30% (instead of income tax rate of 25%) is deleted. Present appeal is allowed.

Summary

Issues Involved:
1. Denial of Video Conference Hearing
2. Presumption of Prior Intimation for Adjustments
3. Tax Rate Application (30% vs. 25%)
4. Inclusion of Specific Items in Turnover Calculation

Issue-wise Detailed Analysis:

1. Denial of Video Conference Hearing:
The appellant argued that the CIT(A), NFAC erred in deciding the appeal without providing a hearing through video conference despite a specific request. This issue was raised as Ground No. 1 in the appeal.

2. Presumption of Prior Intimation for Adjustments:
The appellant contended that the CIT(A), NFAC incorrectly presumed that prior intimation had been issued regarding adjustments made by the Assessing Officer, CPC, without verifying the appellant's claim from the departmental database. This was raised as Ground No. 2 in the appeal.

3. Tax Rate Application (30% vs. 25%):
The primary issue revolved around the applicable tax rate for the assessment year 2019-20. The appellant, a domestic company, had filed its return of income for the assessment year 2019-20, offering to tax its income at the rate of 25%, applicable to a domestic company with a total turnover in the previous year 2016-17 not exceeding INR 250 Crores. However, the Assistant Director of Income Tax, CPC, computed the tax liability at the rate of 30%, applicable to companies with a turnover exceeding INR 250 Crores. The CIT(A), NFAC upheld this computation. The appellant argued that the turnover for the previous year 2016-17 was incorrectly calculated by including 'Other Income' of INR 8.53 Crores, which included 'Provision for Doubtful Debts Write Back' amounting to INR 4.09 Crores. The appellant cited the Supreme Court judgment in CIT-VII, New Delhi vs. Punjab Stainless Steel Industries, which clarified that such provisions should not be included in the turnover.

4. Inclusion of Specific Items in Turnover Calculation:
The appellant challenged the inclusion of specific items in the turnover calculation, which led to the application of a higher tax rate. The items included were:
- Interest Income on bank deposits: INR 2.86 Cr.
- Profit on sale of fixed assets: INR 0.17 Cr.
- Provision for diminution in investments write-back: INR 1.40 Cr.
- Provision for doubtful debts write-back: INR 4.09 Cr.

Judgment Analysis:

Denial of Video Conference Hearing and Presumption of Prior Intimation:
The tribunal found these grounds to be infructuous and did not provide specific relief on these issues. Therefore, Ground No. 1 and 2 were disposed of as being infructuous.

Tax Rate Application and Inclusion of Specific Items in Turnover Calculation:
The tribunal examined the appellant's contention that the 'Provision for Doubtful Debts Write Back' should not be included in the turnover calculation. Referring to the Supreme Court judgment in Punjab Stainless Steel Industries, the tribunal noted that 'turnover' in normal accounting parlance means the total sale proceeds of the goods in which the assessee is dealing. The tribunal concluded that 'Provisions for Doubtful Debts Write Back' amounting to INR 4.09 Crores could not be included in the total turnover for the previous year 2016-17. Consequently, excluding this amount, the appellant's turnover fell below INR 250 Crores, making the applicable tax rate 25%.

Conclusion:
The tribunal allowed the appeal, holding that the appellant was correct in offering its income to tax at the rate of 25%. The additional tax demand raised by adopting a 30% tax rate was deleted. Ground No. 3 to 5 raised by the appellant were allowed, while Ground No. 1 and 2 were disposed of as infructuous.

Order Pronouncement:
The appeal was allowed, and the order was pronounced on 05.01.2023.