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Facts
The assessee, M/s Kluber Lubrication India Pvt. Ltd., is in appeal against the order passed by the NFAC. The primary issue revolves around the tax rate applicable to the assessee for AY 2019-20. The assessee's turnover for FY 2016-17 was Rs. 226.49 crores excluding excise duty, but Rs. 255.42 crores including excise duty.
Held
The Tribunal held that the issue of whether to include excise duty in the turnover for determining the tax rate under the First Schedule of the Finance (No. 2) Act 2019 is a debatable issue. Such adjustments cannot be made in an intimation processed under Section 143(1) of the Act.
Key Issues
Whether excise duty should be included in the turnover for the purpose of determining the applicable tax rate under the Finance Act, and whether such an issue can be resolved under Section 143(1) of the Income-tax Act.
Sections Cited
Section 143(1), Section 145A, Section 234C, Section 244A, Section 80HHC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH: BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 25/08/2023 in DIN No. ITBA/NFAC/S/ 250/2023-24/1055447712(1) for the assessment year 2019-20.
The assessee has raised the following grounds of appeal:
“1. That on facts and circumstances of the case and in law, the denial of claims and/or relief with respect to the tax liability, including interest thereon, by the Ld. CIT(A), is grossly unjustified, erroneous and unsustainable, and necessitates grant of appropriate relief in accordance with law.
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That on facts and circumstances of the case and in law, the Ld. CIT(A) has violated the principle of natural justice by not affording an opportunity for personal hearing before passing the impugned order. 3. That on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming that the total income of the Appellant is taxable at a higher tax slab of 30 percent when the total turnover / gross receipts of the Appellant did not exceed INR 250 Crores in FY 2016-17. 4. That on facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in including the Excise duty, amounting to INR 28,93,19,463, as a part of the total turnover/gross receipts referred in Paragraph E of Part-I of the First Schedule of the Finance (No.2) Act, 2019. 5. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Ld. AO to levy interest under Section 234C of the Income-tax Act, 1961. 6. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing consequential interest on refund due under Section 244A of the Income-tax Act, 1961. 2.1 The assessee vide letter dated 21/03/2024 has also raised the additional ground of appeal, which is reproduced as under:
“2. "That on the facts and circumstances of the case, the Ld. AO erred in assessing the Appellant's total income at a higher tax rate of 30% as against 25% by exercising the jurisdiction under Section 143(1) of the Income-tax Act, 1961 ". 3. At the outset, the ld. Counsel for the assessee before us submitted that he has been instructed not to press ground No. 2 raised in the memo of appeal, therefore, we dismiss the same as not pressed.
Regarding the admission of the additional ground of appeal, we note that all the necessary facts relating to the issue raised in the additional ground of appeal arise from the order of the authorities below. Furthermore, the additional ground is legal in nature. Therefore, in view of the principles laid down by the Hon’ble Supreme Court in the case of National Thermal Power Company Vs. CIT reported in 229 ITR 383, we admit the additional grounds raised by the assessee.
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Interconnected issue raised by the assessee in the ground of appeal and additional ground of appeal is that the ld. CIT(A) erred in levying the tax @ 30%, whereas the turnover of the assessee does not exceed Rs. 250 crores for financial year 2016-17.
5.1 The necessary facts are that the assessee in the present case, a private limited company, is engaged in the business of manufacturing and trading lubricants. The assessee filed its return of income declaring turnover of Rs. 276.06 crores and taxable income at 53,24,46,070/- only. The assessee calculated tax liability on the taxable income @ 25% as per the rate provided under first scheduled of Finance Act 2019 (No. 2) where the tax rate for the domestic company was specified @ 25% only if the turnover/gross receipts does not exceed in the financial year 2016- 17 for Rs. 250 crores. According to the assessee, the turnover/ gross receipts in the financial year 2016-17 excluding the excise duty was at Rs. 226,49,17,098 and excise duty was at Rs. 28,93,19,463 aggregating to Rs. 255,42,36,561/- only. However, while processing the return of income u/s 143(1) of the Act dated 5/2/2021, tax was calculated @ 30% considering the turnover exceeding Rs. 250 crores. An application u/s 154 of the Act was filed by the assessee vide letter dated 25/02/2021 challenging the rate of tax adopted by the Revenue. According to the assessee, it was a mistake apparent from record and, therefore, the same needs to be rectified. However, the rectification order u/s 154 was passed dated 22/12/2021 confirming the intimation processed u/s 143(1) of the Act dated 5/2/2021.
The assessee carried the matter before the ld. CIT(A) against the finding of the AO u/s 154 of the Act. The assessee before the ld. CIT(A) reiterated that the turnover of the assessee for the financial year 2016-17 does not exceed Rs. 250 crores and, therefore, the tax rate applicable to
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it stands @ 25% as provided under the First Schedule of Finance (No. 2) Act 2019. It was also pointed out by the assessee that the turnover does not include the amount of exercise duty for determining the tax rate applicable to it. It was also contended that the opportunity of personal hearing was not offered by the AO despite making the request for the same. However, the ld. CIT(A) found that the turnover of the assessee for the year in dispute exceeds Rs. 276 crores and, therefore, the assessee is liable to pay the tax @ 30% on its income. The ld. CIT(A) also observed that the word ‘turnover’ has nowhere been defined u/s 2 of the Act but dictionary meaning of ‘turnover’ includes the amount of sales as well as amount of tax leviable on the sales. As such, the ld. CIT(A) confirmed the finding of the AO.
Being, aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. AR before us filed a paper book running from pages 1 to 149, two case law compilations running from pages 1 to 125 and 1 to 63 along with written submissions having 11 pages. The ld. AR besides reiterating the submissions made before the authorities below contended whether the inclusion and the exclusion of excise duty in calculating the amount of turnover is debatable issue and therefore, the same cannot be considered while deciding the rate of tax in the processing of the return of income u/s 143(1) of the Act.
The ld. AR also contended that there can be a situation where 2 different assessees have exact amount of turnover, but the rate of excise duty is different on the goods manufactured by them and this situation may lead to different value of the turnover on account of inclusion of excise duty in the amount of turnover. Accordingly, If the excise duty is included in the amount of turnover for rate purposes as provided in the
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First Schedule of the Finance (No. 2) Act 2019 may give different results, which is against the principles of Article 14 of the Constitution of India. The article 14 of the Constitution of India provides that The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.
As per the ld. AR, the amount of excise duty has to be included in pursuance to the provisions of sec. 145A of the Act but whether such excise duty has to be included while calculating rate of tax in the manner provided under First Schedule of the Finance (No. 2) Act 2019 is a debatable issue therefore, such adjustment cannot be made under sec. 143(1) of the Act. The ld. AR further clarified that the assessee is using an exclusive method of accounting which is also approved by the ICAI in its guidance note. Thus, the turnover of the assessee cannot be inclusive of excise duty.
On the other hand, the ld. DR before us field written submission running into 3 pages and contended that the amount of excise duty is part a of turnover in pursuance to the provisions of sec. 145A of the Act as well as the guidance note issued by the ICAI. The ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 143 (1) of the Act specifies making certain adjustments while processing the return of income. 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:
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Paragraph E In the case of a company,— Rates of income-tax I. In the case of a domestic company,— 25 per cent of the total income; (i) where its total turnover or the gross receipt in the previous year 2016-17 does not exceed two hundred and fifty crore rupees; (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: 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
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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 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 purpose of the p rovision 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
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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
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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.
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
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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. In holding so we draw support and guidance from the judgment of Hon’ble Madhya Pradesh High Court in the case of M/s Kamal Textile Vs. ITO 59 taxman 555 wherein it was held as under: 5. It was in the passing submitted that the provisions of section 143(1) (a)(i) are ultra vires being opposed to the natural justice. The argument is that before issuing the intimation which is demand under section 143(3), no opportunity is afforded to meet the adverse consequence, if any. The fallacy in the suggestion lies in omitting to see that the intimation is issued on the basis of the assessee’s own return. What is permissible to be adjusted are (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction allowance or relief, which is prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly, (iii) those claims which are on the basis of information available in the return, prima facie inadmissible, are to be disallowed. This only means that at that stage, as we have seen above, only errors apparent on the face of the record alone may be corrected. It may be further noticed that even this is permissible on the basis of the information accompanying the return. The assessing authority is not) permitted under this guise of making adjustment to adjudicate upon any debatable issue. We have, therefore, little hesitation in rejecting this contention.
12.11 In view of the above we hold that the issue whether to include excise duty as a part of the turnover while applying the tax rate is a debatable issue and the same cannot be resolved while processing the return of income under section 143(1) of the Act.
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12.12 In addition to the above, we also note that the ld. CIT-A while adjudicating the issue discussed above has not made any reference to the turnover for the financial year 2016-17 which was required to be considered for working out the applicable tax rate. As such the Ld. CIT(A) has adopted the turnover of the assessee for the year under consideration for working out the tax rate applicable to the assessee. The relevant extract of the order of the ld. CIT-A is reproduced as under:
5.6.1. As may be seen from the ITR 6 dated 05.07.2020, e filed for the A.Y.2019-20 by the Appellant, the total Revenue from operations is Rs.276,06,54,019/-[ more than 250 crores. The total Revenue from operations of Rs.276,06,54,019/-, consists of the following:
Sale of Goods Rs.264, 83,89,539/- Sale of services Rs.10,73,50,689/- Sale of Scraps Rs.49,13,791/-
As may be seen from ttR 6 dated 05.07.2020, e filed for the A.Y.2019-20 by the Appellant, n4 deduction u/s 80HHC has been claimed.
12.13 In view of the above and after considering the facts in totality, we are of considered opinion that the adjustment made by the revenue while processing the return of income under section 143(1) of the Act in the given facts and circumstances is not sustainable being an issue of debatable nature. Hence, we set aside the finding of the Ld. CIT(A) and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is hereby allowed.
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In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in court on 26th day of July, 2024 Sd/- Sd/- (GEORGE GEORGE K) (WASEEM AHMED) Vice President Accountant Member Bangalore, Dated, 26th July, 2024 vms Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore
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