UNIVERSAL MEDICAP LIMITED,VADODARA vs. THE DY.CIT, CIRCLE-2(1)(1), VADODARA

Page No 3 Universal Medicap Ltd. . vs. DCIT ………………………………… 5.3.5 Position of the law gets further cleared from the Hon'ble Supreme Court of India decision in the case of Mc Dowell & Company Limited vs The Commercial Tax Officer on 17 April, 1985 wherein it is held that excise duty is a part of the consideration which a buyer pays to purchase liquor and is includible in the turnover of the assessee (manufacturer) although the buyer had directly paid it to the Excise Department. The relevant part of the observation of the Hon'ble Supreme Court is under:- ……………………….. Thus, as per rules the total turnover for FY 2015-16 in the appellant's case stands at Rs.54,76,38,034/-. 5.3.6 Further, the appellant has referred to the assessment order U/s 143(3) dated 15/11/2018 for AY 2016-17 and Rectification Order U/s 154 dated 23/06/2020 24/06/2020 and 03/09/2020) for the A.Y. 2018-19 passed by Assistant Commissioner of Income Tax, Circle 2(1)(1), Vadodara. I have perused the above referred orders passed in the appellant's case and find that the assessment order dated 15/11/2018 for AY 2016-17 was passed accepting the retuned income. The AO has not mentioned much about the turnover except the following. "During the year under consideration, the assessee company has shown gross turnover at Rs. 49,57,42,686/- and profit before tax of Rs. 10,92,64,479/- as compared to last year's gross turnover of Rs. 50,23,21,733/- and profit before tax of Rs. 12.07.70,122/-” From the above, it can be assumed that the AO has stated what is reported by the assessee company in terms of turnover therefore this order cannot be taken as basis for determination of the turnover for the year concerned. 5.3.7 About the rectification orders u/s 154 passed in the appellant's case on various dates, I would say that the AO has passed these orders, which are exactly similar in nature in addressing the issue, relying on the mere statement about the turnover in the assessment order dated 15/11/2018 without much analysis of the details and verification of the facts about the issue. Therefore I held these rectification orders u/s 154 of the Act dated Page No 4 Universal Medicap Ltd. . vs. DCIT 23/06/2020, 24/06/2020 and 03/09/2020 as erroneous herewith and any effect of these orders ceases to exist 5.3.8 In view of the above it is concluded that the turnover of the appellant company exceeds fifty crores rupees for FY 2015-16, thereby CPC has correctly applied the tax rate of 30% for AY 2018-19 in the appellant's case, Hence, ground no 1 and 2 of the appeal are dismissed herewith.”

1. Your Appellant submits that CIT(Appeals) i.e. National Faceless Appeal Centre Delhi erred in passing order by calculating tax at the rate of 30 percent instead of 25 Percent as per the Computation sheet prepared by CPC ITD portal by confirming the order passed u/s 143(3) of the Act by the Ld. Assessing Officer i.e. National E-Assessment Centre, Delhi, accordingly demand of Rs.62,50,957/- has been confirmed and demand notice issued along with E-Assessment Order (Appeals).

2. Your appellant submit that the tax is to be calculated Tax at 25 Percent instead of 30 percent. (As per the return filed and rectification order U/s 154 of the Income Tax Act, 1961 dated 23/06/2020, 24/06/2020 and 03/09/2020) issued by DCIT Circle 2(1)(1) Vadodara) and final E Assessment Order U/s 143(3) dated 05/02/2021 issued on 25/02/2021 is issued by National E Assessment Centre Delhi, and final order u/s 250 of the IT Act dated 30-09-2024 passed by National Faceless Appeal Centre and calculated Tax in the Computation sheet at 30 Percent instead of 25 Percent and raised the demand for Rs. 62,50,957/-.) It is therefore submitted that Calculate Tax at the Rate of 25 Percent and the Demand Notice and Calculation Sheet received along with E Assessment Order Form National Faceless Appeal Centre, Delhi be modified accordingly. 3. Your Appellant submits that Sales for FY 2015-16 wrongly considers as Rs. 54,76,38,034/- and calculate tax @ 30% though all the supporting documents i.e. Audited financials of FY2015-16 (prepared as per provisions of Sec 145A of the Act), for supporting Sales of Rs. 48,84,65,642/- submitted during appeal proceedings. Still, the details filed were ignored by the learned Commissioner (Appeals) NFAC Delhi and revoked Sec 145A of the IT Act and confirmed the Tax Computation sheet prepared on the ITD Portal of CPC.

Page No 5 Universal Medicap Ltd. . vs. DCIT

4. Your Appellant craves leave to add, alter, amend or delete any of the grounds of appeal.

5. Ld. Counsel appearing for the assessee submitted that Turnover is the revenue earned by the Assessee on sale of goods/services. Excise duty, Cess collected by the Assessee on behalf of the respective Departments cannot be considered Turnover of the Assessee Company. Further Surcharge - is based on Turnover of the assessee company, which is revenue earned by it on account of sale of goods/services. It can never intend to include collection of Excise duty, Cess by the Assessee on behalf of Department as part of Turnover. Further that the Judgement relied upon by CIT(A) namely Mc Dowell & Co Ltd vs. CTO is not applicable in this case, since the decision relates to Sale Tax Act and is not applicable to provisions of Income-tax Act. Ld Counsel further made following submissions which reads as follows: a) As per the assessee, the turnover for the financial year 2016-17 is Rs.48.85 crore, which is less than Rs. 50 crores excluding excise duty which is also not disputed by the revenue. But it is alleged by the revenue to include the excise duty as a part of the turnover in pursuance to the provisions of section 145A. b) The provision of section 145A mandates to include the amount of tax, duty, cess or fee (In the case on hand excise duty) in the turnover, while determining the income under the head profits and gains of business or profession. The provision of section 145A was brought under the statute by the Finance (No.2) Act, 1998. The purpose of bringing such amendment in the provision under the law was to avoid the controversy in relation to the inclusion of MODVAT credit relating to opening and closing Inventory which can be verified from the CBDT Circular No.772 of 1998, dated 23- 12-1998. c) From the Circular No. 772 of 1998, dated 23-12-1998, it is transpired that the purpose of the provision of section 145A was Page No 6 Universal Medicap Ltd. . vs. DCIT limited to the extent of valuation of opening and closing Inventory to find out the income under the head profits and gains of business or profession. d) The purpose of including the excise duty in the amount of the turnover under the provisions of section 145A was different as evident from the object for which it was brought under the statute. Thus the meaning of the turnover as provided under section 145A cannot be adopted while determining the rate of tax in pursuance to First Schedule of Finance (No. 2) Act, 2019 based on turnover. e) Likewise it is also important to note that the assessee is collecting the excise duty from the customers in the capacity of an agent only and does not give any rise to the Income of the assessee. The Supreme Court in the case of CIT v. Lakshmi Machine Works [2007] 160 Taxman 404/290 ITR 667 had directed to exclude the excise duty from the amount of turnover. (copy enclosed as Page no 13 to 27)

f) Besides the above, the excise duty is leviable on manufacturing of the goods and the rate of the same varies based on different goods being manufactured. There can be a situation where a company manufactures goods subject to excise duty at the rate of 5 per cent, whereas another company manufacturing other goods and excise duty is applicable on the same at the rate of 25 per cent of the sales. Thus in a situation where both the companies having exact amount of sales but because of different rate of excise duty their turnover can be of different amount and consequently both the companies may fall under different tax bracket, i.e. 25 per cent or 30 per cent, as the case may be, which does not appear to be inconsonance with the intent of Article 14 of the Constitution of India. g) We bring to your kind attention decision of Bangalore ITAT in case of Kluber Lubrication India (P.) Ltd. 208 ITD 470, (copy enclosed as Page no 5 to 12) in similar case where Hon'ble ITAT has held that the meaning of the turnover as provided under section 145A cannot be adopted while determining the rate of tax Page No 7 Universal Medicap Ltd. . vs. DCIT in pursuance to First Schedule of Finance (No. 2) Act, 2019 based on turnover (Para 12.6 of its Order). h) We bring to your kind attention decision of Hon'ble Supreme Court In case of CIT v. Vegetable Products Ltd 88 ITR 192, wherein its is held that where two interpretations of a charging provision are possible, then benefit should go to the Assessee.

“….2. The assessee has filed an application dated 13.01.2020 for A.Y. 2018-19 stating that it has filed ROI for A.Y 2018-19 on 21.09.2018 showing total income of Rs. 15,95,14,140/- and claimed refund of Rs 61,06,910/-. However, CPC has. processed the ITR vide order passed u/s 143(1) of the Act dated 16.07.2019 with a demand of Rs.31,24,800/- instead of the refund of Rs.61,06,910/- The CPC has calculated tax @30% instead of 25% since the turnover of the assessee for FY 2015-16 is less than 50 crores. Therefore, the assessee has filed rectification application on 27.12.2019 before to CPC which has intimated on 30.12.2019 that the rectification of the ITR is to be done by the jurisdictional AO 3. The contention of the assessee was considered and found acceptable. On verification it is observed that the gross turnover of the assessee for F.Y. 2015-16 relevant to A.Y. 2016-17 was Rs.49,57,42,686/- i.e. less than 50 crores. Therefore, as per the Finance Act 2018 the tax for AY 2018-19 was supposed to be calculated @25% by OPC instead of 30% in view of the facts of the case, the tax for AY 2018- 19 is being calculated at the rate of 25% Page No 8 Universal Medicap Ltd. . vs. DCIT 4 Since the mistake is apparent from the record, same is required to be rectified. Accordingly, it is being rectified to the extent as discussed above. Total income of the assessee remains same 5 Give credit to the prepaid taxes as discussed above. Issue Demand notice/Challan/RO, as the case may be Charged interest under section 234 A/B/C, accordingly. Issued demand notice and challan accordingly.

7.1. However while passing the regular assessment order u/s. 143(3) of the Act, the A.O. determined the total income at Rs.16,55,82,896/- by making an addition of Rs. 2,255 being duty draw back and computed the tax at 30% instead of 25%. On a similar issue, Co-ordinate Bench of Bangalore Tribunal in the case of Kluber Lubrication India (P.) Ltd. vs. DCIT reported in [2024] 166 taxmann.com 161 (Bangalore-Trib.) held as follows: ”….The controversy before us relates to the turnover declared by the assessee whether it should be inclusive of excise duty or not and whether such adjustment can be raised by the CPC in the intimation while processing the return of income under section 143(1) of the Act so as to find the rate of tax in pursuance to First schedule of Finance (No. 2) Act 2019 which is extracted as under: Paragraph E In the case of a company,— Rates of income-tax I. In the case of a domestic company,— (i) where its total turnover or the gross receipt in the previous year 2016- 17 does not exceed two hundred and fifty crore rupees; 25 per cent of the total income; (ii) other than that referred to in item (i) 30 per cent of the total income. 12.1 As per the assessee the turnover for FY 2016-17 is Rs. 226.49 crore, which is less than 250 crores excluding excise which is also not disputed by the Revenue. But it is alleged by the revenue to include the excise duty as a part of the turnover in pursuance to the provisions of section 145A of the Act. In this regard, we find pertinent to refer the provision of section 145A of the Act which reads as under:

Page No 9 Universal Medicap Ltd. . vs. DCIT 145A. For the purpose of determining the income chargeable under the head "Profits and gains of business or profession",— (i) the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; (ii) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; **** ***** **** Explanation 1.—For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. *** **** ***** 12.2 On perusal of above provision, we note that the provisions of section 145A of the Act mandates to include the amount of tax, duty, cess, or fee (in the case on hand Excise duty) in the turnover while determining the income under the head profit and gains from business and profession. The provision of section 145A of the Act was brought under the statute by the Finance Act 1998. The purpose of bringing such amendment in the provision under the law was to avoid the controversy in relation to the inclusion of MODVAT credit relating to opening and closing inventory which can be verified from the CBDT circular No. 772 of 1998 dated 23rd December 1998, the contents of the same is extracted as under: Method of accounting in certain cases 52.1 The issuerelating to whether the value of the closing stock of the inputs, work-in-progress and finished goods must necessarily include the element for which MODVAT credit is available, has been the matter of considerable litigation over the years. 52.2 Consistent with the other provisions of the Act, with a view to put an end to this point of litigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new section 145A is inserted. This section provides that the valuation of purchase, sale and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever Page No 10 Universal Medicap Ltd. . vs. DCIT name called), actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. 12.3 Thus, from above CBDT circular, it is transpired that the e purpose of the provision of section 145A was limited to the extent of valuation of opening and closing inventory to find out the income under the head profit and gains from Business & Profession. 12.4 Besides the above, it is also pertinent to note that the ICAI, while issuing guidance note on tax audit report under section 44AB of the Act, relevant para 5.5, has clarified if the assessee is following inclusive method of accounting, then the same i.e. excise duty should be part of the turnover and vice-versa if the assessee follows exclusive method of accounting i.e. that the taxes such as GST, Excise duty etc. collected from customers on behalf of Government is shown under separate account and payment of the taxes to government is debited in such separate account, then the value of taxes should be excluded from the turnover. In the present case, the assessee claimed to have maintained accounts using exclusive method of accounting which is not disputed by the Revenue. Thus, the ICAI does not mandate to include the excise in the amount of turnover as alleged by the Revenue. 12.5 Subsequently, the Finance (No. 2) Act 2019 has brought the provisions in its First schedule stating that tax liability on the corporate assessee shall be 25% of its income provided the turnover does not exceed Rs. 250 crores in the financial year 2016-17. With reference to the financial statement of the assessee for the financial year 2016-17, it is revealed that the turnover of the assessee excluding excise duty stands at Rs. 226,49,17,098/- crores and after inclusion of the excise duty stands at Rs. 255,42,36,561/- only. Accordingly, the revenue while processing the return of income under the provision of section 143(1) of the Act has taken a stand that assessee for the year under consideration is subject to the levy of tax at the rate of 30% as the turnover of the assessee exceeds the threshold limit of Rs. 250 crores. The thrust of the revenue was based on the provisions of section 145A of the Act and the guidance note issued by the ICAI. 12.6 Now the controversy arises whether the meaning of the turnover as provided under section 145A of the Act should be applied while determining the tax rate i.e. 30% or 25% should be adopted. In our considered view, the purpose of including the excise duty in the amount of the turnover under the provisions of section 145A of the Act was different as evident from the object for which it was brought under the statute which is reproduced in the preceding paragraph. Thus, we are of the opinion that the meaning of the turnover as provided under section 145A of the Act cannot be adopted while determining the rate of tax in pursuance to First schedule of Finance (No. 2) Act 2019 based on turnover. However, we keep this issue open and are not inclined to adjudicate at this juncture whether to include or exclude the amount of excise duty from the amount of turnover on the issue on hand.

Page No 11 Universal Medicap Ltd. . vs. DCIT 12.7 Similarly, the ICAI does not mandate to include the amount of excise duty in the value of sales which has already been observed in this preceding paragraph. 12.8 Likewise, it is also important to note that the assessee is collecting the excise duty from the customers in the capacity of an agent only and does not give any rise to the income to the assessee. The judgement of Hon’ble Supreme Court in the case of CIT vs. Lakshmi Machine Works reported in 290 ITR 667 has directed to exclude the excise duty from the amount of turnover. However, the judgment was in the context of deduction under section 80HHC of the Act. 12.9 Besides the above, we are also conscious about the fact that the excise duty is leviable on manufacturing of the goods and the rate of the same varies based on different goods being manufactured. There can be a situation where a company manufactures goods subject to excise duty at the rate of 5% whereas another company manufacturing other goods and excise duty is applicable on the same at the rate of 25% of the sales. Thus, in a situation where both the companies having exact amount of sales but because of different rate of excise duty their turnover can be of different amount and consequentially both the companies may fall under different tax bracket i.e. 25% or 30% as the case may be which does not appear to be in consonance with the intent of Article 14 of Constitution of India. 12.10 Based on the above discussion, it is transpired that the issue whether to include or exclude the excise from the amount of turnover for determining the rate of tax in pursuance to First schedule of Finance (No. 2) Act 2019 is a debatable issue which cannot be resolved in the intimation processed under section 143(1) of the Act.”

7.2. Thus the controversy is fully settled that the meaning of turnover as provided u/s. 145A of the Act cannot be adopted while determining the rate of tax in pursuance to Finance Act, 2018 based on turnover.

7.3. Respectfully following the above Co-ordinate Bench decision of this Tribunal, the order passed by the CIT(A) is hereby set-aside and direct the Assessing Officer to compute the rate of tax at 25% and pass appropriate orders in accordance with law.

Page No 12 Universal Medicap Ltd. . vs. DCIT