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2024 (7) TMI 652 - AT - Income TaxDisallowances on account of non-payment of VAT before the prescribed date for filing of return u/s 139(1) - submission of AR, that the amount of VAT was not debited to the profit and loss account, as exclusive method of accounting was followed by the assessee - HELD THAT - On interpretation of section 145A(ii) in the case of CIT vs. Knight Frank (India) Pvt. Ltd. 2016 (8) TMI 1096 - BOMBAY HIGH COURT safely gathered and construed that FAA has rightly recorded his dissatisfaction and doubt on the exclusive method of accounting by the assessee, much less, Ld CIT(A) had categorically rejected the method / modality of accounting system adopted by the assessee, whereas such observations of the authorities below were missing in the case of Ganapati Motors 2017 (4) TMI 1613 - CHHATTISGARH HIGH COURT as observed by Hon ble High Court. It is apparent that, such missing observations was the circumstance / basis wherein Hon ble Jurisdictional High Court had decided the issue against the revenue - the contention of assessee that the issue in the present case is totally covered by the order of Hon ble Jurisdictional High Court is found to be devoid and bereft of substance, as the facts of the present case are distinguishable from the facts in the case of Ganapati Motors (supra). Herein, it is pertinent to mention that the decision of Hon ble Jurisdictional High Court is binding on the tribunal, the tribunal is under abundant duty to adopt the same by ritually following each and every word emanating from the said judgment, therefore, going by the Judicial discipline, respectfully adhering to the ratio of law laid down wherein the question of law was answered in favour of the assessee, conditionally, directing the revenue not to invoke the provisions of section 43B de hors any adverse inference regarding accounting modalities of the assessee, however, in the present case the very condition / inferences / doubt on accounting system is discernible in the order of Ld. CIT(A), moreover specifying the reasons for such adverse inference, absence of which was the foundation of the judgment in favour of the assessee in the case of Ganapati Motors (supra). We, therefore, unbale to concur with the contention of the Ld. AR that the issue raised in the present appeal regarding disallowance of VAT u/s 43B is covered by the decision of Hon ble Jurisdictional High Court, as in the admitted facts of present case, Ld. CIT(A) had not only doubted but also pointed out infirmity in the accounting system of the assessee which were not in accordance with the mandate of law and the ratio of judgment of Hon ble Bombay High Court in the case of CIT vs. Knight Frank (supra). Therefore, the arguments of the Ld. AR are incomprehensible, on account of factual differences in the present case as against the case Ganapati Motors (supra). CIT(A) had rightly discarded the modality of exclusive accounting system adopted by the assessee, which was not the case of the revenue, while the judgment in the case of Ganapati Motors (supra) was accorded, and the error on the part of revenue committed in the case of Ganapati Motors (supra) has now been rectified / cured in the present case. No infirmity in the order of Ld. CIT(A), while confirming the disallowance made under intimation by CPC u/s 143(1) in the present case, consequently, we do not have any fair basis to interfere with the order of Ld. CIT(A), thus, the same stands upheld. Part deletion by CIT(A), of disallowance made u/s 43B in intimation u/s 143(1) by CPC, which considering the fact of the case includes opening balance i.e. amounts pertaining to earlier year - Disallowance so vacated by the Ld. CIT(A) was under correct appreciation of facts and law, since as per the provisions of law and under the settled principle of law, any addition / disallowance of expenditure incurred, which pertains to a different year other than the year under consideration (relevant year), cannot be made in the relevant year, therefore, we concur with the decision of Ld. CIT(A), which in our considered opinion is not suffering with any infirmity, that calls for our interference. We, thus, approve the decision of Ld. CIT(A) qua the deletion of addition for amounts pertaining to earlier year and reject the contentions raised by the revenue being bereft of merits. Resultantly, ground no. 1 and 2 raised by the revenue stands dismissed.
Issues Involved:
1. Disallowance of VAT under Section 43B. 2. Disallowance of Entry Tax under Section 43B. 3. Disallowance of CST under Section 43B. 4. Power of CIT(A) to issue directions to reopen earlier years' cases. Detailed Analysis: 1. Disallowance of VAT under Section 43B: The primary contention revolves around the disallowance of Rs. 2,42,29,739/- towards VAT liabilities under Section 43B of the Income Tax Act. The appellant argued that the VAT liability includes an opening balance and the current year's credit balance, asserting that only the current year's payable amount should be subject to disallowance. The appellant claimed that VAT was not routed through the profit and loss account, citing an exclusive accounting method and various case laws. However, the CIT(A) noted that the VAT payable of Rs. 62,32,362/- was not paid within the prescribed time limit as per Section 43B, and the appellant's assertion of not debiting this amount in the profit and loss account was deemed untenable. The CIT(A) emphasized that VAT is integral to sales and turnover, requiring proper accounting treatment. The implementation of Income Computation and Disclosure Standards (ICDS) and Section 145 of the Income Tax Act mandates the inclusion of VAT in total turnover, rendering the appellant's exclusive method inconsistent with statutory requirements. The CIT(A) confirmed the adjustment of VAT payable for the current year but deleted the disallowance for the opening balance of Rs. 1,79,97,376/-, directing the AO to verify and disallow the same in earlier years if not paid before filing the return of income. 2. Disallowance of Entry Tax under Section 43B: The appellant admitted routing the entry tax payable of Rs. 2,95,902/- through the profit and loss account. As proof of payment for this entry tax before filing the income tax return was not provided, it falls under the purview of Section 43B. Therefore, the adjustments made by the AO(CPC) to the extent of Rs. 2,95,902/- were confirmed. The CIT(A) directed the AO to verify the opening balance of entry tax in earlier years and disallow the same if not paid before filing the return of income. 3. Disallowance of CST under Section 43B: The entire CST balance of Rs. 1,32,168/- was an opening balance as of 1.4.2017. As this amount pertains to earlier years, it cannot be disallowed in the A.Y. 2018-19. Therefore, the disallowance made to the extent of Rs. 1,32,168/- was deleted. The CIT(A) directed the AO to verify the opening balance of CST in earlier years and disallow the same if not paid before filing the return of income. 4. Power of CIT(A) to Issue Directions to Reopen Earlier Years' Cases: The appellant contested that the CIT(A) has no power to issue directions to the AO to reopen the case for earlier years. This ground was withdrawn by the appellant during the hearing, and the revenue did not object. Consequently, this ground of the appeal was dismissed as withdrawn. Conclusion: The ITAT upheld the CIT(A)'s decisions regarding the disallowances under Section 43B for VAT, Entry Tax, and CST. The ITAT confirmed that the CIT(A) correctly applied the law and accounting standards, and the exclusive accounting method adopted by the appellant was inconsistent with statutory requirements. The appeals of both the assessee and the revenue were dismissed.
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