2024 (7) TMI 1374 - AT - Income Tax

Turnover as provided u/s 145A - Determination of turnover declared by the assessee whether it should be inclusive of excise duty or not? - Taxability of income at a higher tax slab of 30% despite turnover not exceeding INR 250 Crores. - whether such adjustment can be raised by the CPC in the intimation while processing the return of income u/s 143(1) of the Act so as to find the rate of tax in pursuance to First schedule of Finance (No. 2) Act 2019 - HELD THAT - The purpose of including the excise duty in the amount of the turnover under the provisions of section 145A of the Act was different as evident from the object for which it was brought under the statute which is reproduced in the preceding paragraph. Thus, we are of the opinion that the meaning of the turnover as provided under section 145A of the Act cannot be adopted while determining the rate of tax in pursuance to First schedule of Finance (No. 2) Act 2019 based on turnover. However, we keep this issue open and are not inclined to adjudicate at this juncture whether to include or exclude the amount of excise duty from the amount of turnover on the issue on hand. Similarly, the ICAI does not mandate to include the amount of excise duty in the value of sales which has already been observed in this preceding paragraph. Likewise, it is also important to note that the assessee is collecting the excise duty from the customers in the capacity of an agent only and does not give any rise to the income to the assessee. The judgement in the case of CIT vs. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT has directed to exclude the excise duty from the amount of turnover. However, the judgment was in the context of deduction under section 80HHC of the Act. Excise duty is leviable on manufacturing of the goods and the rate of the same varies based on different goods being manufactured. There can be a situation where a company manufactures goods subject to excise duty at the rate of 5% whereas another company manufacturing other goods and excise duty is applicable on the same at the rate of 25% of the sales. Thus, in a situation where both the companies having exact amount of sales but because of different rate of excise duty their turnover can be of different amount and consequentially both the companies may fall under different tax bracket i.e. 25% or 30% as the case may be which does not appear to be in consonance with the intent of Article 14 of Constitution of India. Based on the above discussion, it is transpired that the issue whether to include or exclude the excise from the amount of turnover for determining the rate of tax in pursuance to First schedule of Finance (No. 2) Act 2019 is a debatable issue which cannot be resolved in the intimation processed u/s 143(1) of the Act. Whether to include excise duty as a part of the turnover while applying the tax rate is a debatable issue and the same cannot be resolved while processing the return of income under section 143(1)? - CIT-A while adjudicating the issue discussed above has not made any reference to the turnover for the financial year 2016-17 which was required to be considered for working out the applicable tax rate. As such the Ld. CIT(A) has adopted the turnover of the assessee for the year under consideration for working out the tax rate applicable to the assessee. We are of considered opinion that the adjustment made by the revenue while processing the return of income under section 143(1) of the Act in the given facts and circumstances is not sustainable being an issue of debatable nature. Hence, we set aside the finding of the Ld. CIT(A) and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is hereby allowed.

Issues Involved:
1. Denial of claims and/or relief with respect to tax liability and interest.
2. Violation of the principle of natural justice by not affording an opportunity for personal hearing.
3. Taxability of total income at a higher tax slab of 30% despite turnover not exceeding INR 250 Crores.
4. Inclusion of Excise Duty in the total turnover/gross receipts.
5. Levy of interest under Section 234C of the Income-tax Act, 1961.
6. Non-allowance of consequential interest on refund due under Section 244A of the Income-tax Act, 1961.
7. Additional ground: Assessing total income at a higher tax rate of 30% instead of 25% under Section 143(1).

Issue-wise Detailed Analysis:

1. Denial of Claims and/or Relief with Respect to Tax Liability and Interest:
The assessee argued that the denial of claims and/or relief concerning tax liability and interest by the CIT(A) was unjustified and erroneous. The Tribunal noted the grounds but did not press this issue further as it was dismissed as not pressed by the assessee's counsel.

2. Violation of the Principle of Natural Justice:
The assessee claimed that the CIT(A) violated the principle of natural justice by not providing an opportunity for a personal hearing. This issue was also dismissed as not pressed by the assessee's counsel.

3. Taxability of Total Income at a Higher Tax Slab of 30%:
The primary contention was that the CIT(A) erred in confirming the tax rate at 30% when the turnover did not exceed INR 250 Crores in FY 2016-17. The Tribunal reviewed the facts and found that the turnover excluding excise duty was indeed below INR 250 Crores. The Tribunal held that the inclusion of excise duty in the turnover for determining the tax rate is a debatable issue and cannot be resolved under Section 143(1) of the Act. The Tribunal directed the AO to delete the addition made, thereby allowing the ground of appeal.

4. Inclusion of Excise Duty in Total Turnover/Gross Receipts:
The Tribunal examined whether excise duty should be included in the turnover for tax rate purposes. It noted that Section 145A mandates including excise duty for determining income under "Profits and gains of business or profession," but this does not necessarily apply to determining the tax rate under the First Schedule of the Finance (No. 2) Act 2019. The Tribunal found that the issue is debatable and should not be resolved in the intimation processed under Section 143(1). The Tribunal also referred to the ICAI guidelines, which do not mandate including excise duty in turnover if an exclusive method of accounting is used.

5. Levy of Interest Under Section 234C:
The Tribunal did not specifically address this issue in the judgment, focusing primarily on the tax rate and turnover issues.

6. Non-Allowance of Consequential Interest on Refund Due Under Section 244A:
Similar to the previous issue, the Tribunal did not specifically address this issue in the judgment.

7. Additional Ground: Assessing Total Income at a Higher Tax Rate of 30%:
The Tribunal admitted the additional ground, noting that all necessary facts arose from the order of the authorities below. The Tribunal reiterated that the issue of including excise duty in turnover is debatable and directed the AO to delete the addition made by him.

Conclusion:
The Tribunal concluded that the adjustment made by the revenue while processing the return of income under Section 143(1) was not sustainable due to the debatable nature of including excise duty in turnover for determining the tax rate. The Tribunal set aside the CIT(A)'s findings and directed the AO to delete the addition, thereby allowing the appeal partly. The judgment emphasized that debatable issues should not be resolved in the intimation processed under Section 143(1).

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