TMI Blog2022 (12) TMI 1498X X X X Extracts X X X X X X X X Extracts X X X X ..... the said statutory provision was called for in the hands of the assessee. Considering the aforesaid judgment of the Hon ble Apex Court[surpa], we are of the considered view that the same in fact supports the claim of the assessee that the provisions of Section 40(a)(iib) would not be applicable to the case of the assessee qua the VAT paid by the assessee company. We, thus, in terms of our aforesaid observations set18 aside the order passed by the Pr. CIT u/s.263 of the Act, dated 28.03.2021, and restore the order of the A.O passed u/s.143(3), to the extent he had allowed the assessee s claim for deduction of VAT . Assessee appeal allowed. - SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI G D PADMAHSHALI, ACCOUNTANT MEMBER For the Appellant : Shri Praveen Jain, CA For the Respondent : Shri P.K Mishra, CIT-DR ORDER PER RAVISH SOOD, JM: The captioned appeals filed by the assessee company which is wholly owned by the State Government of Chhattisgarh are directed against the respective orders passed by the Principal Commissioner of Income Tax, Raipur-1 (for short Pr.CIT ), dated 28.03.2021, which in turn arises from the respective orders passed by the A.O. u/s. 143(3) of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in initiating 263 proceedings directing disallowance of claim of VAT u/s 40(a)(iib), provision of which itself are ultra vires. Thus disallowance is bad in law, against law of natural justice and uncalled for and may kindly be deleted. 6. Ground 6: That on the facts and on the circumstances of the case, Revision proceedings have been initiated by Pr. CIT at the peak of Global Pandemic without allowing sufficient time/ opportunity to the assessee. The disallowance is bad in law, against law of natural justice and uncalled for and may kindly be deleted. 7. Ground 7: That on the facts and on the circumstances of the case, Ld. Pr. CIT, erred in directing disallowance of VAT which is a Statutory Liability levied by the State Government, without appreciating the submissions and explanation of the assessee. The disallowance is bad in law, against law of natural justice and uncalled for and may kindly be deleted. 8. Ground 8: That on the facts and on the circumstances of the case, disallowance directed in Revision Order passed by the Ld. Pr. CIT is opposed to facts and law on several grounds. The disallowance is bad in law, against law of natural justice and uncalled for and may kindly be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Government of Chhattisgarh in the past was collecting huge amount of money from the assessee company in the form of license fee, privilege fee etc., which with the advent of the sub-clause (B) of Clause (iib) of Section 40(a) of the Act were rendered as non-deductible in the hands of the assessee company from A.Y.2014-15 onwards. The Pr. CIT was of the view that it was only pursuant to the insertion of Section 40(a)(iib)(B) vide the Finance Act, 2013 w.e.f. 01.04.2014 that had triggered the amendment in the VAT Act and had led to exclusive levy of VAT on the assessee company. It was observed by the Pr. CIT that VAT was exclusively levied on the assessee company and was neither levied on the supplier nor was it collected or loaded (included) in the retail price, meaning thereby, that this tax was being charged exclusively on the assessee company. The Pr. CIT holding a conviction that levy of such VAT on the assessee company was principally against the basic tenets of the t scheme of taxation under VAT, for the reason that the same would principally start from the beginning of the chain i.e. the production and end with the final consumer. Elaborating on his aforesaid convict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held the order passed by him u/s 143(3), dated 30.10.2017 as erroneous in so far as it was prejudicial to the interest of the revenue in view of Explanation 2 of Section 263 of the Act. Accordingly, the Pr. CIT directed the A.O to give effect to his order passed u/s.263 of the Act and disallow the assessee s claim for deduction of VAT of Rs.53.65 crore (supra). 6. The assessee being aggrieved with the order of the Pr. CIT passed u/s.263 of the Act, dated 28.03.2021 has carried the matter in appeal before us. 7. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 8. The Ld. Authorized Representative (for short AR ) for the assessee, at the very outset of hearing of appeal submitted that the issue involved in the present appeal is no more res-integra pursuant to the judgment of the Hon ble Supreme Court in the case of Kerala State Beverages Manufacturing Marketing Corporation Ltd. Vs. ACIT, Circle-1(1), Civil Appeal No.11 of 2022 (SC) dated 03.01.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.03.2021 not being in conformity with the aforesaid binding judicial pronouncement was liable to be struck down. 8.2 Alternatively, it was submitted by the Ld. AR that the case of the assessee had been selected for limited scrutiny u/s.143(2) of the Act, for three reasons, viz. (i). Large deduction claimed under chapter VI-A; (ii). Large other expenses claimed in the Profit Loss a/c; and (iii). Mismatch in sales turnover reported in Audit report and ITR , and the assessee s claim for deduction of VAT did not fall within the scope of either of the reasons for which the case was picked up for limited scrutiny. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that the claim for deduction of VAT of Rs.53.65 crore (supra) was raised by the assessee under the sub-head VAT/Sales tax [Sr. No.7 (vi) of Part A-P L account of return of income] and did not form part of other expenses of Rs.7,82,43,058/- that were claimed under the sub-head Other expenses [Sr. No.38 of Part A- P L account of return of income]. It was, thus, the claim of the Ld. AR that as the case of the assessee was, inter alia, selected for limited scrutiny for making verifications of Large other expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2 had rightly held the order passed by the A.O as erroneous, in so far as it was prejudicial to the interest of the revenue u/s.263 of the Act. Apropos the maintainability of the assessee s claim for deduction of VAT of Rs. 53. 65 crore (supra), it was submitted by the Ld. DR that as VAT was in substance fee or charge , therefore, the same was clearly liable to be disallowed u/s. 40(a)(iib) of the Act. Advancing his aforesaid contention, it was submitted by the Ld. DR that in the preceding years the State Government of Chhattisgarh was collecting huge amount of money from the assessee company in the form of license fee, privilege fee etc., and it was only with the advent of the sub-clause (B) of Clause (iib) of Section 40(a) of the Act, which rendered the said payment as non-deductible in the hands of the assessee company from A.Y.2014-15 onwards, that the amendment was made available in the VAT Act therein extending the levy on the assessee company. It was submitted by the Ld. DR that as the VAT was exclusively levied on the assessee company and was neither levied on the supplier nor was it collected or loaded in the retail price, therefore, it was established beyond d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax , and Section 40(a)(iib) does not contemplate tax , and surcharge on sales tax is not a fee or a charge , therefore, no disallowance under the said statutory provision was called for in the hands of the assessee. For the sake of clarity the relevant observations of the Hon ble Supreme Court are culled out as under: 16. For the aforesaid reasons, we hold that the gallonage fee, licence fee and shop rental (kist) with respect to FL-9 and FL-1 licenses granted to the appellant will, squarely fall within the purview of Section 40(a)(iib) of the Income tax Act, 1961. The surcharge on sales tax and turnover tax, is not a fee or charge coming within the scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which can be disallowed under the said provision and disallowance made in this regard is rightly set aside by the High Court. At this stage, we may herein observe, that in the case before the Hon ble Apex Court it was observed that now when the assessee s claim for deduction of sales tax was allowed by the department, therefore, there was no justification in declining the said claim qua the surcharge levied on the same. In sum and substance, in its aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivil Appeal No.11 of 2022 (SC), dated 03.01.2022, and the Hon ble Apex Court had categorically observed that though the gallonage fee , license fee etc. paid by the assessee would fall within the purview of Section 40(a)(iib) of the Act, but the same would not be the position in so far the payment of tax was concerned. Considering the aforesaid judgment of the Hon ble Apex Court, we are of the considered view that the same in fact supports the claim of the assessee that the provisions of Section 40(a)(iib) would not be applicable to the case of the assessee qua the VAT paid by the assessee company. We, thus, in terms of our aforesaid observations set aside the order passed by the Pr. CIT u/s.263 of the Act, dated 28.03.2021, and restore the order of the A.O passed u/s.143(3), dated 30.10.2017 to the extent he had allowed the assessee s claim for deduction of VAT of Rs.53.65 crores (supra.) 14. As we have vacated the direction given by the Pr. CIT u/s.263 of the Act, dated 28.03.2021 to the A.O for disallowing the assessee s claim for deduction of VAT of Rs.53.65 crore (supra), therefore, we refrain from adverting to the other contentions that have been advanced by the Ld. AR qua th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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