2022 (1) TMI 1031 - AT - Income Tax

Revisions u/s 263 by CIT - availability of VAT credit on deemed import and claim of the same as expense - HELD THAT - There is no dispute to the fact that the assessee has shown purchases from Reliance Industries Ltd. SEZ which is the deemed import. The assessee on such purchases has claimed to have paid custom duty only which was shown along with the purchases. Principal CIT was of the view that in case of deemed import, there is no VAT liability and therefore the question of claiming the VAT input on such purchases does not arise. However, the assessee in the VAT return has claimed input VAT on such purchases which is not possible. As per the learned Principal CIT, this fact has not been verified during the assessment proceedings. Thus the order passed by the AO is erroneous insofar prejudicial to the interest of revenue. Assessee has claimed the benefit of input VAT in the VAT return on the deemed import. The copies of the invoices on sample basis are placed on record. On perusal of the details filed by the assessee, we note that the assessee has incurred VAT expenses on the deemed import which are eligible to be set off against the VAT output. Thus the finding of the learned principal CIT that there was no VAT input available to the assessee on the deemed import appears to be incorrect. Whether the assessee has claimed VAT input on the deemed import as an expense in the profit and loss account ? - This fact, to our understanding, has not been verified by the AO. At the time of hearing the learned AR has also not brought anything on record suggesting that the assessee has not claimed VAT input on the deemed import as an expense in the profit and loss account. For this limited purpose, we hold that the order passed by the AO is erroneous insofar prejudicial to the interest of revenue. Accordingly, we do not find any reason to interfere in the finding of the learned Principal CIT and therefore we uphold the same. Hence the ground of appeal of the assessee is dismissed.

Summary

Issues:
1. Whether the assessment order passed under section 143(3) of the Income Tax Act is erroneous and prejudicial to the interest of revenue.

Analysis:
1. The appeal was filed by the Assessee against the order of the Principal Commissioner of Income Tax-4, Ahmedabad, challenging the assessment order passed under section 263 of the Income Tax Act for the Assessment Year 2014-15.

2. The main contention raised by the Assessee was that the Principal CIT erred in holding the assessment order as erroneous insofar prejudicial to the interest of revenue.

3. The Assessee, a private limited company engaged in trading of Unrefined Sulphur, had its assessment scrutinized under section 143(3) of the Act, where discrepancies were found in the purchases made from various parties, including Reliance Industries Ltd SEZ.

4. The Principal CIT observed that the Assessee claimed VAT input credit on all purchases, including deemed imports, without showing the import duty in the VAT return, indicating domestic purchases. The AO did not verify this during assessment.

5. The Assessee argued that the differences in purchases between profit and loss account and VAT return were due to custom duty not shown in VAT return and vice versa for tax paid, supported by a reconciliation statement.

6. Despite the Assessee's contentions and documents provided, the Principal CIT concluded the assessment was erroneous and prejudicial to revenue due to lack of verification on deemed imports and VAT input claims.

7. The Tribunal noted that the Assessee paid VAT on deemed imports, allowing input VAT benefit in the VAT return. However, verification if VAT input was claimed as an expense in the profit and loss account was not done by the AO.

8. As the AO failed to verify the VAT input claim on deemed imports, the Tribunal upheld the Principal CIT's decision that the assessment order was erroneous insofar prejudicial to revenue, dismissing the Assessee's appeal.

This detailed analysis of the judgment highlights the issues, contentions of the parties, observations of the authorities, and the Tribunal's final decision, preserving the legal terminology and key details from the original text.