ACIT Corporate, Cochin V. M/s.Plant LIpids P. Ltd, Ernakulam

ITA 174/COCH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7567 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Keywords: Audit objection
• Section: 43B; 143(3); 148; 28

Judgement Text

ITA NO .174/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 174/COCH/2015 (ASST YEAR 2007 - 08 ) THE ASST COMMR OF INCOME TAX CORPORATE CIRCLE 2(1), KOCHI VS M/S PLANT LIPIDS P LTD KADAYIRUPPU PO KOL ENCHERY ERNAKULAM 682 311 ( APPELLANT) (RESPONDENT) PAN NO. AABCP6061C ASSESSEE BY SH THOMSON THOMAS REVENUE BY SH K P GOPAKUMAR, SR DR DATE OF HEARING 12 TH JAN 2015 DATE OF PRONOUNCEMENT 13 TH , JAN 2016 OR D ER PER GEORGE GEORGE. K. J M: T HIS APPEAL, AT THE INSTANCE OF THE REVENUE , IS DIRECTED AGAINST THE CIT(A)S ORDER DATED 10 TH NOV 2014. THE RELEVANT ASSESSMENT YEAR IS 2007 - 08. 2 THE SOLITARY EFFECTIVE GROUND RAISED READS AS UNDER: WHETHER THE LD CIT(A) WAS RIGHT IN DELETING THE ADDITI ON MADE BY THE AO HOLDING THAT TAX, CESS OR FEE PAYABLE UNDER ANY LAW FOR THE TIME BEING IN FORCE REFERRED TO IN SECTION 43B DOES NOT COVER PURCHASE PRICE OF RAW MATERIALS PAID BY THE ASSESSEE. ITA NO .174/C/2015 2 3 BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A PRIVATE LIMITED COMPANY . IT IS ENGAGED IN THE MANUFACTURE OF OLEORESINS , SPICE OIL AND GENERATION OF ELECTRICITY USING WIND MILLS. THE RETURN OF INCOME FOR THE CONCERNED ASSESSMENT YEAR WAS FILED ON 31.10.2007. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I T ACT, SUBSE QUENTLY, BASED ON THE AUDIT OBJECTION , THE AO ISSUED NOTICE U/S 1 48 AND REOPENED THE ASSESSMENT. WHILE COMPLETING THE REASSESSMENT, UNDER SECTION 143(3) R.W.S 147, THE AO ADDED BACK AN AMOUN T OF RS. 1,09,42,884/ - BEING IN PUT TAX PAID ON PURCHASE OF RAW MATERI AL. THE DISALLOWANCE WAS MADE BY INVOKING THE PROVISIONS OF SECTION 43B OF THE I T ACT. 4 AGGRIEVED BY THE REOPENING ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) DELETED THE ADDITION BY HOLDING THAT THE TAX , DUTY, CESS OR FEE PAYABLE REFERRED TO IN SECTION 43B DOES NOT COVER PURCHASE PRICE OF RAW MATERIALS PAID BY THE ASSESSEE. 5 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. THE LD DR STRONGL Y SUPPORTED THE ORDER OF THE A O . ON THE OTHER HAND, THE LD AR REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND RELIED ON THE FINDINGS /CONCLUSIONS OF THE CIT(A). ITA NO .174/C/2015 3 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECO RD. THE SOLITARY ISSUE THAT IS RAISED FOR OUR CONSIDERATION IS ; WHETHER, THE CIT(A) IS RIGHT IN DELETING THE ADDITION MADE BY THE AO HOLDING THAT TAX, CESS OR FEE PA Y ABLE UNDER ANY LAW FOR THE TIME BEING IN FORCE REFERRED TO IN SECI ON43B DOES NOT COVER PURCHASE PRICE OF THE RAW MATERIALS PAID BY THE ASSESSEE . 6 .1 IN ORDER TO CONSIDER THE ABOVE ISSUE, IT IS IMPORTANT TO ANALYSIS SECTION 43B OF THE ACT, WHICH READ AS UNDER: '43B . NOTWITHSTANDING AN Y THING C ONT AINED IN ANY OTH E R PROVIS I O NS OF THIS AC T, A D E D UCTIO N O THERWISE ALLOWABLE UNDER TH IS AC T IN R ESPECT OF - (A) A N Y S UM PAYABLE BY THE AS S E S SE E B Y WA Y OF TAX, D UTY, CESS OR FEE, BY WHATE V ER N A M E CALLED, UNDER AN Y LAW FOR TH E TI M E B EING IN FORCE, OR B). C) TO (F) SHALL BE ALLOWE D (IRRESPECTI VE OF THE PREVIOUS Y EAR IN WHICH THE L I A BIL ITY TO PA Y S UCH SUM WAS I N C URRED BY THE ASSE SSEE A CCORDING TO THE METHOD OF AC CO UNTING REG ULAR LY E MPL OYE D BY HIM) ONLY IN COMPUTING TH E I NCOM E RE FERR ED TO IN SECT I O N 28 OF THAT PREVIOUS YE AR IN WHICH SUCH SUM IS ACTU ALLY PAID BY H IM . 6. 2 F ROM THE ABOVE CLAUSE (A) , IT IS C LEAR THAT ONLY S UM S PAYABLE BY T H E ASSESSEE B Y WAY OF TA X, DUTY ETC, CAN BE DISALLOWED U / S . 4 3 B . I N T HE ASSESSEE 'S CAS E , THE VAT AMOUNT INC LUDED IN THE PURCHA S E PRIC E OF RAW M ATERIAL IS TO BE PAID T O THE GOVERNM E NT BY THE SELLER O F THE RAW MATERIAL S . T H E RE IS NO OBLIGATION ITA NO .174/C/2015 4 WHETHER ST A TU TO RY OR OTHER WISE ON THE PART O F THE PURC HASER TO PA Y THE VAT TO T H E GOVERNMENT . THE ASSESSIN G O F FIC ER WAS FACT U ALLY INCORRECT IN ARRIVING AT THE CONCLU SI O N THAT THE AMO UNT DISALLOWED U / S . 4 3 B IS SALES TAX PAYABLE . T H E A MOUNT I N FACT REPRESENTE D PURCHASE PRICE OF RAW MATER IALS. WHEN THE ASSESSEE C O M PANY PU R CHA SED RAW MATE RIALS AT BANGALORE AND H Y DERABA D BRANC HES, SALES TAX (V A T ) WAS CHARGED BY T H E SE LL E R S . THE ASSESSEE COMPAN Y DEBIT ED T HE VAT CO M PONENT TO S ALES TAX PAYABLE ACCOUNT FOR C LAIMING IT AS INPUT CREDIT . SINCE T H E ASSESSEE COMPAN Y W AS MA KING STOC K TRANSFER OF F INISHED GOODS , IT CO ULD NOT C L AIM INPUT CREDIT I N RESPECT O F T HE VAT PAID ON PURCHASE OF RAW MATERIALS. T HI S VAT PAID ON PURCHASE OF RAW MA TE RIALS WA S HE NCE TRANSFERRE D F ROM VAT PAYABL E A C C O UN T T O OTHE R EXPENSES. THE ASSESSING OFF I CER HAS GROSSLY ERRED IN INVOKIN G TH E P ROV I SION OF SECTION 43B AS THE LI A BILITY TO PAY THE P U RCHASE P R ICE OF RAW MATERI A L S I S N O T COVERE D BY SECTIO N 43B . HAD THE A M OUNT N O T BEEN DE BIT E D TO VAT PAYABLE ACCOUNT , THE S A ME WOU LD HAVE BEEN DEBI T ED TO R AW M A TE RI ALS ACCOUNT . HERE , THE LIABILIT Y TO P AY TH E VAT TO T HE GOVERNMENT IS ON THE SE L L ER AND O N LY S ELLER IS HIT IT BY S ECTION 43B OF THE ACT . THE RE IS NO NEXUS BETWEEN T HE BUYER OF RAW MATERIALS A ND THE VAT DEPARTMEN T AS THE BUYER IS PAYING THE PURCHASE PRICE OF RAW MATERI ALS INC LUDING VAT. M O REO V ER , TH E ASSESSEE HAS ACTUALLY PAID THE PU R CHASE PRI CE OF RAW MATE R IA LS. 6.3 THE CIT(A) HAS DELETED THE ADDITION MADE BY THE AO AFTER EXAMIN ING THE PURCHASE REGISTER AND COPIES OF THE PURCHASE BILLS. THE RELEVANT FINDING OF THE ITA NO .174/C/2015 5 CIT(A) AT PARA 6.3 OF THE IMPUGN ED ORDER READS AS FOLLOWS : ' I HAVE GONE THROUGH THE AS SESS MENT ORDER A ND THE S UBMISSIONS OF THE A SSESSEE . DURING THE COURSE OF APPELLAT E PROCEED INGS, T O SUBSTANTIATE THE CLAIM THAT THE VAT P A Y ABLE REPRESENTED PURCHA SE TAX O N RAW MA T E R IALS, THE APPELLAN T PRODUCED THE PURCHASE REGISTER AND C OPIE S OF PUR CHASE B ILLS . ON VERIFICATION OF THE PURCHA SE REGIST ER W ITH THE INVOICES, IT IS SEE N THA T ONLY PURCHASE COS T O F RAW MATER IALS (EXCLUDI N G V AT PAID) IS INCLUDED IN THE COST OF MATERIALS. INPUT C R E D I T RECEIVABLES ON PURCHASE OF RAW MATERIALS ARE D E BIT ED TO 'SALES TAX PAYABL E/ VA T AL C .' THE INELIGIBLE P ORTION OF THE INPU T C REDIT TO BE CARRIED FORWARD TO S UB S EQUENT YEAR S IS D E B I T ED T O THE PROFIT AND LOSS ACCOUNT S E PA R A TE LY. IN S HO RT, WHAT IS DEBI T ED TO PR OFIT AN D LOSS A C COUNT IS THE V AT PAID ON PU RCH A SE OF RAW MATERIALS AND NOT SALES TAX /VAT PA YABLE O N S ALE OF PRO DUCT S . IT I S T O B E NOTED THAT TAX, DUTY, CE S S O R F EE PAYABL E UN D E R ANY LAW FO R T HE TIME BEING IN F ORC E R E F ERRED TO IN SECTION 43B DOES NO T COVER PURCH ASE PRICE OF RAW MATERIALS PAID B Y T H E APP ELLANT. WHAT IS PAYABLE BY THE APPELLANT TO T HE SELLER OF THE G O ODS IS THE GRO SS VA L UE OF MATER I ALS AS PER BILL INCLU D IN G TAXES. FOR T H E SELLER , IT IS A S TATUTORY LIABILI TY A S H E I S L EGA L LY B OUND TO COLL E CT VAT A ND PAY THE SA ME TO T HE GOVER NMENT. SIN CE IT IS REFLECTED IN THE PURCHAS E BILL S WITH THE PUR C H AS E REGISTER TH AT THE APPELLAN T HA S NOT I NCLUDED THE TAX ELEMENT I N T HE COST OF RAW MATERIALS AND AGAIN CLAIMED VA T PA Y ABL E AS A N EXPENSE, THEREFOR E THERE IS NO REA SON FOR MAKING THE DISALLOWANCE U/ S . 43B ' . 6.4 IN VIEW OF THE AFORESAID REASONING AND THE FINDINGS OF THE C IT(A) WHICH HAS NOT BEEN DISPELLED B Y THE REVENUE , WE HOLD THAT THE ORDER OF THE CIT(A) IS CORRECT AND IS IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. IT IS ORDERED ACCORDINGLY. 7 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH , DAY OF JAN 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 13 TH , JAN 2016 RAJ* ITA NO .174/C/2015 6 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN