2015 (12) TMI 1024 - AT - Income Tax

Tribunal: VAT in Sale Consideration, Follow 43B for IT Act Compliance

The Tribunal held that VAT collected should be included in the sale consideration and routed through the Profit & Loss Account. If VAT is not paid ... Disallowance u/s 43B on account of VAT collected but not paid - VAT was not claimed as expenditure in the profit and loss account - Held that:- In the facts of the present case, admittedly, the assessee had collected VAT amount of ₹ 22,68,716/- and had paid Rs.Rs.8,21,505/- against the said amount due during the accounting period, the balance amount of ₹ 14,47,211/- was not paid by the assessee before the close of year or before the date of audit report. However, under the provisions of section 43B of the Act, in case the said amount is paid by the assessee before the due date of filing the return of income as prescribed under section 139(1) of the Act, the assessee is entitled to the claim of deduction under section 43B of the Act. The necessary details in this regard are not available on record. Accordingly, we direct the Assessing Officer to verify whether the assessee has deposited the said amount before the due date of filing the return of income under section 139(1) of the Act and allow the claim in accordance with law. Issues Involved:1. Disallowance under section 43B of the Income Tax Act, 1961, of Rs. 14,47,211/- of VAT collected but not claimed as expenditure.2. Applicability of the decision of the Supreme Court in Chowringhee Sales Bureau (P) Ltd. Vs. CIT in the context of section 43B disallowances under the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Disallowance under section 43B of the Income Tax Act, 1961, of Rs. 14,47,211/- of VAT collected but not claimed as expenditure:The assessee, dealing in food products, had a gross turnover of Rs. 8.43 crores and declared a gross profit of Rs. 26,55,364/-. The audit report indicated that out of the total VAT dues of Rs. 22,68,716/-, only Rs. 8,21,505/- had been paid, leaving a balance of Rs. 14,47,211/- unpaid. The Assessing Officer added this unpaid amount as income, considering it as government dues that must be deposited before the due date.The assessee argued that the VAT collected was credited to the VAT collection account and not routed through the Profit & Loss Account, hence it should not be disallowed under section 43B. The CIT(A) upheld the addition, relying on the Supreme Court decision in Chowringhee Sales Bureau (P) Ltd. Vs. CIT, which was contested by the assessee.The Tribunal analyzed the provisions of section 145A and section 43B of the Act. Section 145A mandates that the valuation of purchase and sale of goods and inventory should include any tax, duties, cess, or fees actually paid or incurred. Section 43B stipulates that certain deductions, including taxes, are allowed only on actual payment.The Tribunal noted that the VAT collected should be included as part of the sale consideration and routed through the Profit & Loss Account. If the VAT is not paid before the due date of filing the return, it should be disallowed under section 43B, even if not routed through the Profit & Loss Account. The Tribunal directed the Assessing Officer to verify if the VAT was paid before the due date of filing the return and allow the claim accordingly.2. Applicability of the decision of the Supreme Court in Chowringhee Sales Bureau (P) Ltd. Vs. CIT in the context of section 43B disallowances under the Income Tax Act, 1961:The assessee contended that the Supreme Court's decision in Chowringhee Sales Bureau (P) Ltd. Vs. CIT, which was given in the context of the Income Tax Act, 1922, is not applicable to section 43B disallowances under the Income Tax Act, 1961. The Tribunal, however, found that the principles laid down in section 145A and section 43B of the Act are applicable, and the VAT collected should be included in the sale consideration and routed through the Profit & Loss Account.The Tribunal distinguished the case from the Delhi High Court's decision in CIT Vs. Noble and Hewitt (I) P. Ltd., which dealt with service tax and not VAT. The Tribunal emphasized that VAT, being part of the sale consideration, must be accounted for under section 145A, and any unpaid VAT by the due date should be disallowed under section 43B.Conclusion:The Tribunal concluded that the assessee's appeal is to be decided based on the verification of whether the VAT amount was paid before the due date of filing the return. The Assessing Officer was directed to verify this and allow the claim in accordance with the law. The appeal of the assessee was decided as indicated above.