2019 (4) TMI 1512 - AT - Income Tax

Disallowance of VAT expense - allowable expenses u/s 37 - Sales Tax / VAT Demand pertaining to financial years 2005-06 to 2011-12 - CBDT Circular Nos. 496/25.09.1987 674/29.12.1993. - HELD THAT - Demand has been paid by the assessee in different installments over AY 2012-13 to 2014-15 and claimed as deduction in impugned AY u/s 43B and u/s 37(1). The deduction of amount of ₹ 253.18 Lacs has already been allowed by the revenue during assessment proceedings itself and therefore, there is no dispute with respect to deduction to that extent. The payment of the demand is also not in dispute since the assessee has already placed on record proof of payment during assessment proceedings. Therefore, the payment made by assessee during AY 2014-15 but before due date of filing of return u/s 139(1) was clearly covered by the provisions of Section 43B. Both the lower authorities, in our opinion, fell in error, to observe that the aforesaid liability pertained to FY 2013-14, which is not the case here. Upon perusal of demand notices and copies of challans, we have already noted that demand pertained to earlier several financial years. This being the case, the conditions of Section 43B were fulfilled and the assessee was eligible to claim the deduction of ₹ 224.34 Lacs as per the judgment rendered in Allied Motors (P) Ltd. Vs. CIT 1997 (3) TMI 9 - SUPREME COURT . So far as the deduction we find that this payment also pertains to earlier several financial years. The Ld. AO denied the same primarily on the ground that the assessee failed to demonstrate that the deduction thereof was not claimed in preceding AY 2012-13. Upon perusal of financial statements for AY 2012-13, we find that the assessee has claimed an expenditure of ₹ 31.82 Lacs only in that AY and therefore, this deduction was not claimed in earlier AY, as alleged by AO. With a view to fortify this fact further, the assessee has placed on record an affidavit of one of the directors of the assessee company which would dispel the apprehensions raised by Ld. AO. Therefore, considering the factual matrix, this deduction was allowable to the assessee u/s 37(1). - Decided in favour of assessee.

Summary

Issues:
Disallowance of VAT expense for Assessment Year 2013-14.

Analysis:
The appeal by the assessee contested the disallowance of VAT expense amounting to ?3,76,14,295 for the Assessment Year 2013-14. The assessment for the impugned year was framed by the Deputy Commissioner of Income Tax, Central Circle-2(3), Mumbai, reducing the returned loss to ?156.46 Lacs due to the disallowance of VAT. The disallowance of VAT was the sole subject matter of the appeal. The assessee debited a total of ?629.33 Lacs as VAT expenses, with payments made in different assessment years. The assessee claimed these payments as business expenditures under Section 43B of the Income Tax Act, 1961. However, the Deputy Commissioner disallowed a portion of the claimed amount, leading to the total disallowance of ?376.14 Lacs.

During the assessment proceedings, the assessee explained that the VAT payments were related to purchases from defaulting dealers who did not remit the sales tax to the department. The assessee claimed that these were genuine transactions and the payments were allowable as business expenditures under Section 43B. The Deputy Commissioner denied a portion of the claimed amount, stating that the deductions were not allowable in the impugned assessment year. The first appellate authority upheld the decision of the Deputy Commissioner, leading to the appeal before the Appellate Tribunal.

In its defense, the assessee argued that the payments were legitimate business expenses and should be allowed as deductions. The Authorized Representative for the Assessee highlighted that the payments were made in earlier years and were allowable under Section 37(1) and Section 43B. The Departmental Representative contended that the deductions were not allowable as the conditions under Section 43B were not met by the assessee.

After hearing both parties, the Appellate Tribunal carefully examined the facts and material on record. It was established that the assessee had paid Sales Tax demands for multiple financial years, and the payments were genuine and related to business operations. The Tribunal found that the deductions claimed by the assessee were allowable under Section 43B and Section 37(1) of the Income Tax Act. The Tribunal allowed the appeal and held that the deductions of ?224.34 Lacs and ?151.79 Lacs were legitimate business expenditures and should be allowed.

In conclusion, the Appellate Tribunal allowed the appeal and directed that any future benefits or refunds arising from the payments would be taxable. The judgment was pronounced on 23rd April 2019.