POWER AND INSTRUMENTATION (GUJARAT) LIMITED,AHMEDABAD V. CIRCLE 3(3)(1), AHMEDABAD

ITA 1212/AHD/2024

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The case involves Power and Instrumentation (Gujarat) Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the AO's rectification order under Section 154 of the Income Tax Act, 1961. The dispute centered on the inclusion of inter-branch transfers in the turnover calculation for determining the applicable tax rate under the Finance Act, 2017. The assessee argued that these transfers, amounting to Rs.1,41,39,000, should be excluded as they do not represent actual sales but internal movements of goods. The CIT(A) had included these transfers in the turnover, leading to a higher tax rate of 30% instead of the concessional 25% rate for companies with a turnover below Rs. 50 crores for FY 2015-16. The Tribunal, after examining the submissions and evidence, including a Chartered Accountant's certificate, ruled in favor of the assessee.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 472264 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-11-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 08-06-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ATUL PANDEY
• Assessee Lawyers: CHETAN AGARWAL; MISTAKE INCLUDED
• Keywords: Additional evidence; Corroborative evidences; TDS
• Section: 250; 154; 143(1)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद \u0011ायपीठ “डी“,अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD \u0016ी िस\u0018ाथ\u001a नौिटयाल, \u0011ाियक सद\u001e एवं \u0016ी मकरंद वसंत महादेवकर, लेखा सद\u001e क े सम%। ] ] BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.1212/Ahd/2024 िनधा \u000fरण वष\u000f /Assessment Year : 2018-19 Power and Instrumentation (Gujarat) Ltd. 12, Sunshin Industrial Estate Rakhial, Ahmedabad – 380 023 बनाम/ v/s. The ACIT Circle-3(3)(1) Ahmedabad – 390 014 \u0013थायी लेखा सं./PAN: AACCP 4292 Q (अपीलाथ&/ Appellant) ('( यथ&/ Respondent) Assessee by : Shri Chetan Agarwal, AR Revenue by : Shri Atul Pandey, Sr.DR सुनवाई की तारीख/Date of Hearing : 26/11/2024 घोषणा की तारीख /Date of Pronouncement: 06/12/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the assessee is directed against the order dated 07/05/2024 passed by the Commissioner of Income Tax (Appeals) [hereinafter referred to as \"CIT(A)\"] passed under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as \"the Act\"], upholding the order of rectification dated 23-11-2021 under Section 154 of the Act for the Assessment Year (AY) 2018-19 passed by the Assistant Commissioner of Income Tax, Circle 3(1)(1), Ahmedabad [hereinafter referred to as \"AO\"]. ITA No1212/Ahd/2024. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 2 Facts of the case: 2. The assessee is engaged in the business of electrical contracting, trading in electrical equipment, and providing industrial and commercial electrical services across India. The assessee filed its return of income for A.Y. 2018-19, declaring total income of Rs.3,10,65,024/- on 31/10/2018. The return was processed under Section 143(1), a demand of Rs.1,08,57,395/- was raised. The assessee observed the error in computation of tax liability and credit on account of TDS. Therefore, the assessee filed an application for rectification u/s 154. The AO, on scrutiny, gave credit of TDS and passed order u/s 154 r.w.s. 143(1) of the Act. 3. The assessee preferred an appeal before the CIT(A) contending that the AO erroneously denied the benefit of the concessional tax rate of 25% under the Finance Act, 2017. The CIT(A) concluded that the Finance Act, 2017, provides a concessional tax rate of 25% for domestic companies if their turnover or gross receipts for Financial Year (FY) 2015-16 do not exceed Rs.50 Cr. The CIT(A) determined the turnover for FY 2015-16 based on the assessee’s audited financial statements, which reported a turnover of Rs.51,18,86,268/-, inclusive of inter-branch transfers of Rs.1,41,39,000/- The assessee contended that the turnover of inter-branch transfer should be excluded as such transfers are not actual sales. The assessee submitted a certificate from the Chartered Accountant who also was statutory auditor as per Companies Act, 2013. The assessee also submitted the details of Purchase and Sale giving particulars of inter branch sale and purchase amounting to Rs.1,41,39,000/- to the CIT(A). The CIT(A) concluded that the branch ITA No1212/Ahd/2024. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 3 transfers are also part of the turnover. The CIT(A) upheld the order of the AO and dismissed the appeal of the assessee. 4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us with following grounds of appeal: 1. LD. CIT(A) ERRED IN LAW AS WELL AS ON FACT IN UPHOLDING ORDER U/S.154 PASSED BY LD.AO. 2. LD. CIT(A) ERRED IN LAW AS WELL AS ON FACT IN UPHOLDING ‘TURNOVER OF APPELLANT AT RS.51,18,86,268 FOR THE PURPOSE OF TAX COMPUTATION, WHICH FACTULLY INCULDES BRANCH TRANSFER OF RS. 1,41,39,000 RESULTING INTO ACTUAL TURNOVER OF RS. 49,77,47,420. 3. LD. CIT(A) ERRED IN LAW AS WELL AS ON FACT IN UPHOLDING TAX RATE OF 30% INSTEAD OF 25% BASED ON ACTUAL TURNOVER OF RS. 49,77,47,420. 5. During the course of hearing before us the Authorized Representative (AR) of the assessee stated that the company has multiple branches in different parts of India and the company transfers goods from one branch to another branch. The AR further stated that the assessee by mistake included inter branch transfers in both total sale and purchase as reflected in the profit and loss account. The AR also stated that during the course of appellate proceedings the details of sales and purchases were given to the CIT(A) along with the certificate from the Chartered Accountant who was also an auditor of the assessee under Companies Act, 2013. Upon enquiry, the AR also stated that such inter-branch transfers are duly reported in the VAT returns of the company. The assessee submitted copies of VAT returns for records. 6. The Departmental Representative (DR) relied on the orders of lower authorities and reiterated that the inter-branch transfers are part of turnover. ITA No1212/Ahd/2024. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 4 7. We have heard the rival parties and perused the material available on records. The core issues to be decided in this appeal is whether the inter- branch transfers amounting to Rs.1,41,39,000/- should be included in the turnover for the purpose of determining the tax rate applicable under the Finance Act, 2017. 7.1. We find that under the Income Tax Act, 1961, while \"turnover\" is not explicitly defined, judicial precedents and accounting principles clarify that inter-branch transfers—being internal movements of goods or services within the same entity—are not part of turnover. 7.2. The assessee operates multiple branches across India and routinely transfers goods between these branches. These inter-branch transfers are internal movements of stock which do not generate external revenue and are thus typically excluded from the computation of turnover. According to generally accepted accounting principles and Accounting Standards, only revenue from external customers qualifies as turnover. Inter-branch transfers, which do not involve realizations, should be excluded unless otherwise required by specific tax regulations. 7.3. Under indirect tax laws (VAT in the present case), branch transfers are considered \"supplies\" and included in the aggregate turnover for compliance thresholds. However, such treatment under VAT does not automatically apply to income tax computations, as the concepts of \"turnover\" and \"aggregate turnover\" differ in these contexts. ITA No1212/Ahd/2024. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 5 7.4. We also note that the assessee provided a Chartered Accountant's certificate and detailed reconciliation statements substantiating that the amount of Rs.1,41,39,000/- represents inter-branch transfers erroneously included in the turnover reported in the audited financial statements for FY 2015-16. 7.5. Based on the discussion above and evidence provided, inter-branch transfers amounting to Rs.1,41,39,000/- should not be included in the turnover for income tax purposes. 7.6. The concessional tax rate of 25% was introduced under the Finance Act, 2017, applicable to domestic companies for the Financial Year (FY) 2017-18 (Assessment Year 2018-19). The relevant provision states that a domestic company is eligible for the concessional tax rate if its turnover or gross receipts for the base year, FY 2015-16, does not exceed Rs. 50 crores. 7.7. In the present case, the turnover of the assessee, as per the audited financial statements for FY 2015-16, was reported at Rs.51,18,86,268/-. This turnover figure included Rs.1,41,39,000/-, representing inter-branch transfers. Excluding inter-branch transfers of Rs.1,41,39,000/-, the assessee’s revised turnover for FY 2015-16 is Rs.49,77,47,420/-, which is below the threshold of Rs.50 crores. Therefore, the assessee qualifies for the concessional tax rate of 25% under the Finance Act, 2017. The application of the higher tax rate of 30% by the lower authorities was based on an erroneous inclusion of inter-branch transfers in turnover, which does not align with statutory provisions, accounting principles, or judicial guidance. The AO and CIT(A) did not adequately consider the assessee's submissions and evidence. ITA No1212/Ahd/2024. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 6 The CIT(A) dismissed the assessee's contentions without proper examination, relying solely on the figures in the audited financial statements. 7.8. In view of the above findings the orders of the AO and CIT(A) are set aside. The AO is directed to – - Exclude inter-branch transfers of Rs.1,41,39,000/- from the turnover for FY 2015-16 after verifying the reconciliation statements, CA certificate, and other supporting evidence provided by the assessee. - Apply the concessional tax rate of 25% for A.Y. 2018-19 as per the Finance Act, 2017, since the assessee's turnover is below Rs.50 crores. - Recalculate the tax liability for A.Y. 2018-19 based on the corrected turnover and tax rate. - Provide the assessee with a reasonable opportunity to present any additional evidence or explanations during the process. 8. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 6th December, 2024 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 06/12/2024 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS ITA No1212/Ahd/2024. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 7 आदेश की \"ितिलिप अ#ेिषत/Copy of the Order forwarded to : 1. अपीलाथ$ / The Appellant 2. \"%थ$ / The Respondent. 3. संबंिधत आयकर आयु& / Concerned CIT 4. आयकर आयु& ) अपील ( / The CIT(A)-(NFAC), Delhi 5. िवभागीय \"ितिनिध , अिधकरण अपीलीय आयकर , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u000f फाईल / Guard file. आदेशानुसार/ BY ORDER, स%ािपत \"ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 05.12.2024 2. Date on which the typed draft is placed before the Dictating Member. : 05.12.2024 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 06.12.2024 7. Date on which the file goes to the Bench Clerk. : 06.12.2024 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : "