2025 (5) TMI 1067 - AT - Income Tax

Presumptive income - Shipping business - Inclusion of Goods and Services Tax (GST) in computation of income u/s 44BB - HELD THAT - As per this Tribunal in assesses own case for earlier assessment years 2025 (3) TMI 1266 - ITAT MUMBAI and respectfully following the same the assessing officer (AO) directed to exclude the amount of GST while computing gross receipt in the hands of assessee. In the result ground of the appeal is allowed. Short grant of TDS - We find that the assessee while making his submission fairly submitted that he has already filed application before the AO vide application dated 25.03.2025 and necessary direction may be given to the AO for verification of fact and allow appropriate relief to the assessee - As assessee has already moved application for rectification of the assessment order therefore the AO is directed to verify the TDS claim and allow appropriate relief to the assessee.

Summary

1. The principal issues considered by the Tribunal in this appeal are as follows:

(a) Whether the final assessment order passed under section 143(3) read with section 144C(13) of the Income-tax Act is barred by limitation, rendering it void ab initio.

(b) Whether Goods and Services Tax (GST) collected by the assessee should be included in the computation of presumptive income under section 44BB of the Income-tax Act.

(c) Whether the amended provisions of section 145A of the Act apply to the computation of gross receipts under the presumptive taxation regime of section 44BB.

(d) Whether there has been a short grant of Tax Deducted at Source (TDS) credit to the extent claimed by the assessee.

(e) Whether interest levied under sections 234B, 234C, and 234D of the Act is justified.

(f) Whether penalty proceedings initiated under section 274 read with section 270A for under-reporting of income are sustainable, particularly in light of the exclusion of GST from gross receipts.

2. Issue-wise detailed analysis:

(a) Limitation for passing final assessment order

The assessee contended that the final assessment order dated 11 December 2024 was barred by limitation under section 153 of the Act, which prescribes a 12-month period from the end of the relevant assessment year (AY 2022-23) for passing the order, i.e., by 31 March 2024. The Assessing Officer (AO) passed the order beyond this period, rendering it void ab initio. Reliance was placed on the Madras High Court decision in Roca Bathroom Products (P.) Ltd.

The Tribunal noted that the assessee did not press this ground during oral submissions and treated the ground as not pressed. Consequently, this issue was dismissed without detailed examination.

(b) Inclusion of GST in computation of presumptive income under section 44BB

The core dispute centered on whether GST collected by the assessee, an oil and gas company engaged in shipping operations, forms part of gross receipts for computation of presumptive income under section 44BB. The AO and the Dispute Resolution Panel (DRP) included GST in gross receipts, relying on their view that section 145A, as amended, mandates inclusion of taxes in valuation of sales and services.

The assessee argued that GST is a statutory levy collected in a fiduciary capacity on behalf of the government and does not constitute income or gross receipts. The assessee relied on favorable ITAT orders in earlier years and judicial precedents, including decisions by the Supreme Court and various High Courts, which held that service tax (predecessor to GST) collected does not form part of gross receipts for presumptive taxation under section 44BB or analogous provisions.

The Tribunal examined the legislative framework and relevant precedents in depth. Section 44BB is a special provision for non-resident shipping companies, deeming profits at 7.5% of specified amounts paid or payable on account of carriage of goods, passengers, mail, etc. The section contains a non-obstante clause overriding general provisions under sections 28 to 43. Section 145A, introduced retrospectively from 1 April 2017, relates to valuation of inventory and purchase/sale of goods or services for computation of income under the head "Profits and gains of business or profession," mandating inclusion of taxes paid to bring goods or services to their location and condition.

The Tribunal reasoned that section 145A applies to normal provisions of income computation and disclosure standards (ICDS) and cannot override the specific scheme of presumptive taxation under section 44BB. The terms "amount paid or payable" and "amount received or deemed to be received" under section 44BB cannot be equated with the term "valuation" under section 145A. Inclusion of GST in gross receipts would amount to taxing the tax itself, leading to a cascading effect, which is contrary to legislative intent.

The Tribunal relied on authoritative decisions including the Supreme Court's dismissal of Special Leave Petitions in cases involving service tax, decisions of the Bombay High Court, Delhi High Court, and the Uttarakhand High Court, which uniformly held that service tax or GST collected as statutory levy does not form part of gross receipts or income under presumptive taxation provisions. The Tribunal also noted that GST is separately indicated in invoices and is deposited with the government, confirming its fiduciary nature.

The Tribunal distinguished the DRP's reliance on Sedco Forex International Inc., where reimbursement of mobilization charges (which could include profit elements) was involved, from pure statutory tax collections like GST.

Further, the Tribunal observed that the CBDT Circular No. 10/2017 relied upon by the DRP was struck down by the Delhi High Court as ultra vires, and even if applicable, the specific provisions of section 44BB would prevail over general ICDS provisions.

The Tribunal also addressed the hypothetical argument that if GST were included in gross receipts, then corresponding deduction under section 43B (allowing deduction of taxes actually paid) would be necessary. However, since section 44BB overrides sections 28 to 43A, including 43B, the special provision governs, and no such adjustment is warranted.

Accordingly, the Tribunal held that GST cannot be included in gross receipts for computing presumptive income under section 44BB, and directed the AO to exclude GST amounting to Rs. 13,10,09,191/- from gross receipts.

(c) Applicability of section 145A to presumptive taxation under section 44BB

Closely linked to the above issue, the Tribunal analyzed the scope of section 145A, which prescribes inclusive valuation of purchase, sale, and inventory for income computation under normal provisions. The Tribunal emphasized that section 44BB, containing a non-obstante clause, overrides general provisions including those under section 145A for the purpose of presumptive taxation.

The Tribunal rejected the DRP's contention that the amendment to section 145A by Finance Act 2018, which included "services" within its ambit, mandates inclusion of GST in gross receipts under section 44BB. The Tribunal clarified that section 145A applies only when purchase, sale, and inventory valuation are all relevant, which is not the case under presumptive taxation where no books of account or audit are required.

The Tribunal further relied on judicial pronouncements holding that general provisions like section 145A cannot override specific provisions like section 44BB. The Tribunal therefore held that section 145A does not apply to computation of income under section 44BB.

(d) Short grant of Tax Deducted at Source (TDS)

The assessee claimed that TDS credit of Rs. 3,35,99,459/- was not fully granted by the AO, who allowed only Rs. 2,95,96,336/-, resulting in a short credit of Rs. 40,03,123/-. The assessee had filed an application under section 154 for rectification of the order.

The Tribunal noted the assessee's submission and directed the AO to verify the claim and allow appropriate relief if found justified. This ground was allowed for statistical purposes.

(e) Levy of interest under sections 234B, 234C, and 234D

This issue was raised but not specifically argued by the assessee, and was consequential in nature. The Tribunal did not adjudicate on this ground.

(f) Penalty proceedings under section 274 read with section 270A for under-reporting

The assessee contended that since GST does not form part of gross receipts under section 44BB, the alleged under-reporting of income is unfounded and penalty proceedings should not be sustained.

The Tribunal observed that this ground is consequential and dependent on the outcome of the GST inclusion issue. Since the Tribunal ruled in favor of the assessee on the GST issue, the penalty ground is accordingly disposed of without detailed adjudication.

3. Significant holdings:

"Section 44BB is a special provision for computing profits and gains of shipping business for non-residents at 7.5% of specified amounts paid or payable on account of carriage of passengers, livestock, mail or goods shipped at any port in India or outside India. It contains a non-obstante clause overriding the general provisions of sections 28 to 43 of the Act."

"Section 145A, introduced retrospectively from 1 April 2017, relates to valuation of inventory and purchase/sale of goods or services for income computation under the normal provisions and ICDS. It cannot override the specific scheme of presumptive taxation under section 44BB."

"GST collected by the assessee is a statutory levy collected in a fiduciary capacity on behalf of the government and does not constitute income or gross receipts for the purposes of presumptive taxation under section 44BB."

"Inclusion of GST in gross receipts would amount to taxing the tax itself, leading to cascading taxation, which is contrary to legislative intent."

"Judicial precedents including decisions of the Supreme Court, various High Courts, and the Tribunal have consistently held that service tax or GST collected as statutory levy does not form part of gross receipts or income under presumptive taxation provisions."

"The CBDT Circular No. 10/2017, relied upon by the Revenue and DRP, was held ultra vires by the Delhi High Court and cannot override specific provisions of the Act."

"The AO is directed to exclude the amount of Rs. 13,10,09,191/- towards GST from gross receipts for computation of presumptive income under section 44BB."

"The short grant of TDS credit claimed by the assessee is to be verified and appropriate relief granted by the AO."

"The ground of limitation for passing assessment order was not pressed and dismissed accordingly."

"Penalty proceedings for under-reporting of income are consequential and dependent on the exclusion of GST from gross receipts."

In conclusion, the Tribunal partly allowed the appeal by holding that GST cannot be included in gross receipts for presumptive income computation under section 44BB, directed exclusion of GST from gross receipts, and remanded the issue of TDS credit to the AO for verification and relief. Other grounds were either dismissed or treated as consequential.