Excise duty should not be included in turnover for determining tax rates under Finance Act 2019

ITAT Bangalore held that excise duty should not be included in turnover for determining tax rates under Finance Act 2019. The tribunal found that including excise duty in turnover calculations for tax rate determination would create constitutional issues under Article 14, as companies with identical sales but different excise duty rates would face different tax brackets. The court ruled that whether to include excise duty in turnover for tax rate purposes is a debatable issue that cannot be resolved during processing under section 143(1). The revenue's adjustment was set aside and the assessee's appeal was allowed.

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Issues Involved:
1. Denial of claims and/or relief with respect to tax liability and interest.
2. Violation of the principle of natural justice by not affording an opportunity for personal hearing.
3. Taxability of total income at a higher tax slab of 30% despite turnover not exceeding INR 250 Crores.
4. Inclusion of Excise Duty in the total turnover/gross receipts.
5. Levy of interest under Section 234C of the Income-tax Act, 1961.
6. Non-allowance of consequential interest on refund due under Section 244A of the Income-tax Act, 1961.
7. Additional ground: Assessing total income at a higher tax rate of 30% instead of 25% under Section 143(1).

Issue-wise Detailed Analysis:

1. Denial of Claims and/or Relief with Respect to Tax Liability and Interest:
The assessee argued that the denial of claims and/or relief concerning tax liability and interest by the CIT(A) was unjustified and erroneous. The Tribunal noted the grounds but did not press this issue further as it was dismissed as not pressed by the assessee's counsel.

2. Violation of the Principle of Natural Justice:
The assessee claimed that the CIT(A) violated the principle of natural justice by not providing an opportunity for a personal hearing. This issue was also dismissed as not pressed by the assessee's counsel.

3. Taxability of Total Income at a Higher Tax Slab of 30%:
The primary contention was that the CIT(A) erred in confirming the tax rate at 30% when the turnover did not exceed INR 250 Crores in FY 2016-17. The Tribunal reviewed the facts and found that the turnover excluding excise duty was indeed below INR 250 Crores. The Tribunal held that the inclusion of excise duty in the turnover for determining the tax rate is a debatable issue and cannot be resolved under Section 143(1) of the Act. The Tribunal directed the AO to delete the addition made, thereby allowing the ground of appeal.

4. Inclusion of Excise Duty in Total Turnover/Gross Receipts:
The Tribunal examined whether excise duty should be included in the turnover for tax rate purposes. It noted that Section 145A mandates including excise duty for determining income under "Profits and gains of business or profession," but this does not necessarily apply to determining the tax rate under the First Schedule of the Finance (No. 2) Act 2019. The Tribunal found that the issue is debatable and should not be resolved in the intimation processed under Section 143(1). The Tribunal also referred to the ICAI guidelines, which do not mandate including excise duty in turnover if an exclusive method of accounting is used.

5. Levy of Interest Under Section 234C:
The Tribunal did not specifically address this issue in the judgment, focusing primarily on the tax rate and turnover issues.

6. Non-Allowance of Consequential Interest on Refund Due Under Section 244A:
Similar to the previous issue, the Tribunal did not specifically address this issue in the judgment.

7. Additional Ground: Assessing Total Income at a Higher Tax Rate of 30%:
The Tribunal admitted the additional ground, noting that all necessary facts arose from the order of the authorities below. The Tribunal reiterated that the issue of including excise duty in turnover is debatable and directed the AO to delete the addition made by him.

Conclusion:
The Tribunal concluded that the adjustment made by the revenue while processing the return of income under Section 143(1) was not sustainable due to the debatable nature of including excise duty in turnover for determining the tax rate. The Tribunal set aside the CIT(A)'s findings and directed the AO to delete the addition, thereby allowing the appeal partly. The judgment emphasized that debatable issues should not be resolved in the intimation processed under Section 143(1).

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