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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: DR. MANISH BORAD, HON’BLE & SHRI SONJOY SARMA, HON’BLE
O R D E R
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The present appeals are directed at the instance of the revenue against the order of the learned Commissioner of Income Tax (Appeal), Kolkata [hereinafter the “ld. CIT(A)”] evenly dt. 25/09/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Years 2011-12 and 2012-13.
The Registry has pointed out that there is a delay of 34 days and 11 days in filing of these appeals by the Department for Assessment Year 2011-12 and 2012-13 respectively. After hearing the ld. D/R we are convinced that it was prevented by sufficient cause from filing these appeals on time. Though the Department has not filed any petition/application for condonation, the Hon’ble Apex Court in the case of Sesh Nath Singh & Ors. v. Baidyabati · Sheoraphuli Cooperative Bank 2 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. Ltd. in CIVIL APPEAL NO. 9198 OF 2019, judgment dt. 22/03/2021, has categorically held that Section 5 of the Limitation Act, 1963 does not speak of any application. The Section enables the Court to admit an application or appeal if the applicant or the appellant, as the case may be, satisfies the Court that he had sufficient cause for not making the application and/or preferring the appeal, within the time prescribed. Although, it is the general practice to make a formal application under Section 5 of the Limitation Act, 1963, in order to enable the Court or Tribunal to weigh the sufficiency of the cause for the inability of the appellant/applicant to approach the Court/Tribunal within the time prescribed by limitation, there is no bar to exercise by the Court/Tribunal of its discretion to condone delay, in the absence of a formal application. Accordingly, we condone the delay and admit these appeals for adjudication.
The assessee has raised the following grounds of appeal for Assessment Year 2011-12:- “1. Whether on the facts and circumstances of the case, and on merit the Ld. CIT(A) has erred in law and on facts in holding that the reopening proceeding is based on change of opinion.
2. Whether on the facts and circumstances of the case Ld. CIT(A) is correct in deleting of addition of Rs.4,55,48,227/- made on account of receipt of refund of VAT by the assessee which is revenue income and not going into provisions of Section 28(vi) of the IT Act, 1961.” The assessee has raised the following grounds of appeal for Assessment Year 2012-13:-
3 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. “1. Whether on the facts and circumstances of the case, and on merit the Ld. CIT(A) has erred in law and on facts in holding that the reopening proceeding is based on change of opinion.
2. Whether on the facts and circumstances of the case Ld. CIT(A) is correct in deleting of addition of Rs.1,51,85,245/- made on account of receipt of refund of VAT by the assessee which is revenue income and not going into provisions of Section 28(vi) of the IT Act, 1961.”
As the issues raised in both these appeals are common, they were heard together and are being disposed off by way of this common order. 4.1. We first take up the revenue’s appeal for Assessment Year 2011- 12. As the facts involved in the revenue’s appeal are identical except for variance in quantum, the decision to be rendered by us for Assessment Year 2011-12, shall apply mutatis mutandis on the revenue’s appeal for Assessment Year 2012-13.
Brief facts of the case are that the assessee is a limited company engaged in the business of manufacturing of plastics and PVC. Its manufacturing unit are set-up at Silvassa, Dadra & Nagar Haveli and are exempt from payment of VAT on sale of goods outside the Union Territory as the per the Certificate of exemption from Sales Tax under Administration’s Notification No. DNH/CST/35 dated 05/02/2003 which is valid for a period of 15 years from 31/03/2004 to 31/12/2017. Assessee filed its return of income declaring total income of Rs.21,82,92,402/-. Assessment was completed u/s 143(3) of the Act on 29/03/2014. Thereafter based on the examination of the assessment records, notice u/s 148 of the Act was issued on 19/07/2016 i.e., within 4 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. four years from the end of the assessment year. After recording the reasons, the assessee filed the objection requesting to drop the proceedings. The ld. Assessing Officer was not satisfied and he carried out the re-assessment proceedings. The ld. Assessing Officer noticed that the assessee had received refund of VAT amounting to Rs. 4,55,48,227/- but the same has not been reflected as income in the profit and loss account and accordingly added the same. 5.1. Aggrieved the assessee preferred appeal before the ld. CIT(A) challenging the reopening as well as the addition made on account of VAT refund. The ld. CIT(A) after examining the details, submission of the assessee, firstly came to the conclusion that reopening was based merely on change of opinion since relevant details were already examined and scrutiny by the revenue authorities. The ld. CIT(A) also observed that in the audit report the details of receipt of VAT refund were duly mentioned and thereafter, such reopening is not valid. On merits ld. CIT(A), observed that the assessee company which is enjoying the benefit of exemption of VAT does not claim the VAT paid on purchases of goods and services as an expenditure and shows it as an advance and whenever a refund is received, the same is reduced from the advance account. He thus held that the assessee has not claimed the VAT as expenditure then the refund of such VAT cannot be treated as income. For arriving at this decision, ld. CIT(A) relied on the judgment of Hon’ble Apex Court in the case of Chowringhee Sales Bureau (P) vs. CIT (1979) 87 ITR 542 (SC). 6. Aggrieved, the revenue is now in appeal before this Tribunal.
5 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd.
The ld. D/R vehemently argued supporting the order of the ld. Assessing Officer. On the other hand, the ld. Counsel for the assessee apart from placing reliance on the finding of the ld. CIT(A) also submitted that the reopening was merely on the basis of change of opinion as all the information and details of the reasons recorded for reopening have already been examined during the course of assessment proceedings and there was no new material or any information. As far as the merits of the case are concerned, he reiterated that the assessee does not book the VAT paid as an expenditure and, therefore, the VAT refund is not shown as income but is reduced from the advance VAT paid by the assessee.
We have heard rival contentions and perused the material placed before us and the judgment referred by the ld. CIT(A). So far as the validity of the re-assessment proceedings are concerned, the reasons recorded for reopening reads as follows:- “Original return of income was filed on 29/09/2011, showing total income of Rs.14,20,97,900/-. Assessment completed under section 153A/143(3) of the Income Tax Act, 1961 on a total income of Rs.22,27,34,573/- on 29.03.2014. It is revealed that during the relevant F.Y. 2010-11 the assessee had received the refund of value added tax to the tune of Rs. 4,56,48,227/-, however the same was not shown as income in return of income filed u/s 139 or u/s 153A for the year under consideration. The assessee was required to include the refund of VAT in the taxable income, but same was not done. Therefore I am convinced that the assessee suppressed its income & reduce tax liabilities. I have, therefore, reason to believe that income has escaped assessment in the hands of the assessee for the A. Y. 2011-12. 6 I.T.A. Nos. 815 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. Accordingly the approval is sought from the Pr. Commissioner of Income Tax, Central-1, Kolkata to issue notice u/s 148 for the assessment year 2011-12."
Now, the above reason is only with regard to the taxability of refund of VAT. We notice that the assessee is a limited company and books of accounts are duly audited and have also passed through scrutiny proceedings u/s 153A/143(3) of the Act vide order dated on 29/04/2015. It is also brought to our notice that when any assessment proceedings is carried out of a concern which is subjected to tax audit u/s 44AB of the Act, the Assessing Officer has to go through the audit report and also take note of the remarks and observations of the auditor. In the case before us, the receipt of refund of VAT was mentioned in the tax audit report. Thus, it is not a case of concealment of particulars of income or furnishing of inaccurate particulars of income. It is a case of information received from any other source which already stood incorporated in the income tax return. We find that all the details were already furnished by the assesse during the course of first round of assessment proceedings and the ld. Assessing Officer based on examination of such details completed the assessment. But later, on the basis of very same information has changed the opinion and issued a notice for reopening. Such reopening cannot be held to be valid. We observe that the ld. CIT(A) has examined this aspect in detail and has rightly held the reopening of assessment as invalid observing as follows:- “I have duly considered appellant's objections on technical issues and also carefully perused the facts on records. It is evident that search & 7 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. seizure action u/s. 132(1) of the IT. Act, 1961 was conducted at the premises of the assessee on 06-09-2011. Consequently, notice U/S.153A was issued and assessment U/S.153A read with section 143(3) was completed on 29-03-2014 in assessee's case. It is worthwhile to mention that current assessment year is not a 'Completed Assessment' year and as such A.O. could have looked into all the issues during the assessment proceedings as if it was a normal assessment. Information relating to receipt of refund of VAT was mentioned in the Tax Audit Report and while conducting scrutiny proceedings, -it was expected from the A.O. that he must have carefully looked into the return of income, balance sheet, P & L A/c, Tax Audit Report and all the details filed during the course of assessment proceedings. A.O. has not made out any case of concealment of relevant information or non-furnishing of Audit Report in the assessment proceedings. As A. O. has done the scrutiny assessment, he must have gone through the information regarding receipt of VAT amount. Appellant has further mentioned that it had submitted the details regarding refund of VAT during the assessment proceedings and details and explanation were provided to the A. O. in this regard. Thus, it is apparent that A. O. had already looked into this issue during original assessment proceedings. Thus, re-opening on the same set of facts definitely implies change of opinion. This is not permissible as per settled principle. Appellant has cited a number of judgements where reopening has been quashed/not held valid when reopening has been done on the basis of change of opinion. In view of the facts discussed above and after considering the case laws cited by the appellant, I am satisfied that the reopening of the assessment proceedings was not valid when no new facts had come to notice of the A.O. and issue for which reopening was done was already looked into during original assessment proceedings.”
9.1. We find that above finding of ld. CIT(A) is further supported by the judgment following judgments:- “(a) CIT vs Feather Foam Enterprises P. Ltd. [2008] 296ITR 342 (Del) "Facts which could have been discovered by the Assessing Officer but were not discovered at the time of original assessment, will not constitute new information. Where no new material has come on record nor new information received, it would merely be a case of 8 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. fresh application of mind by the Assessing Officer to the same set of facts and in such a situation, it would be a case of mere change of opinion which does not provide justification to the Assessing Officer to initiate proceedings under section 147 of the Income- tax Act, 1961. When the primary facts necessary for the assessment are fully and truly disclosed to the Assessing Officer at the time of original assessment proceedings, the Assessing Officer is not entitled to commence proceedings under section 147 of the Act on a change of opinion. The Assessing Officer cannot sit as a court of appeal over the Assessing Officer making the original assessment and it is not open to the Assessing Officer ordering reassessment to substitute his own opinion for that of the Assessing Officer who made the original assessment. " (b) ITO v. Tech Span India Private Ltd ( 2018) 404 ITR 10 (Del HC) relied upon decision of the Hon 'ble Apex Court in the case of CIT vs Kelvinator of India Ltd and held as follows: "initiation of the re-assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings."
We thus fail to find any infirmity in the finding of the ld. CIT(A) that the reopening of the assessment proceedings is not valid as no new facts have come to the notice of the Assessing Officer and reopening is merely based on change of opinion. Similar are the facts for Assessment Year 2012-13 wherein also the first round of proceedings were completed on 29/03/2014 and the very same set of information was available with the Assessing Officer, therefore, the common legal issue 9 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. raised by the revenue in Ground No. 1 for both the Assessment Years are hereby dismissed. 11. As far as the merits of the case are concerned raised in Ground No. 2, that whether the ld. CIT(A) erred in holding that the refund of VAT is not liable to be taxed since the assessee has not claimed the payment as an expenditure. Though we have already dismissed the legal ground raised
by the revenue and held the re-assessment proceedings as bad in law but still for academic purposes we will take up the issue on merits also.
12. We notice that for Assessment Year 2011-12 and 2012-13, assessee received VAT refund of Rs.4,55,48,227/- and Rs.1,51,85,245/-. In the audited financial statement, assessee has disclosed the alleged VAT refund under the head loans and advances and has reduced the alleged sum from the advance VAT paid by the assessee. Before moving further we need to understand the nature of transactions. The assessee is having its manufacturing unit at Silvassa, Dadra & Nagar Haveli and has been granted a certificate for exemption from payment of VAT for sale of goods outside the Union Territory bearing Administration’s Notification No. DNH/CST/35 dated 05/02/2003. This certificate is valid for 15 years i.e., from 31/03/2004 to 31/12/2017 and the year under appeal is covered in this period. So, the assessee is not liable to charge the VAT for the goods sold outside the Union Territory. However, the assessee has to pay the VAT for the goods purchased by it i.e., the raw material and related goods used for manufacturing of plastic and PVC. In every purchase, there is an element of VAT. The 10 I.T.A. Nos. 815 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. assessee is consistently adopting the accounting system of booking the purchase amount without including the VAT return and disclose such VAT paid under the head “Loan & Advances”. This practice is adopted because the assessee is entitled to claim refund of such VAT paid by it. Advance VAT is appearing in the balance sheet. It is an admitted fact that assessee claims refund of such VAT paid by it and for the same there is a separate procedure where the assessee has to file the details of Tax Identification No. (TIN)/Sales tax registration no. of the vendors along with the copies of purchase bills with the local VAT Authority. Such application of refund are examined and processed by the VAT authorities and after being satisfied that the VAT paid by the assessee to the vendors have been deposited with the Government by such vendors, the refund of VAT is worked out and is paid to the assessee. On receiving such payment, the assessee reduces it from the advance VAT account. We can understand this accounting treatment with the help of an example. For example, on purchase of goods worth Rs.1 Crore, the assessee pays Rs.10 lakhs as VAT. So Rs.1 Crore is booked as an expenditure and Rs. 10 lakhs is shown in the balance sheet as VAT advance. Thereafter on applying for the refund, the assessee finally receives refund of Rs.8 lakhs. Now, the assessee does not enter Rs.8 lakhs as income in the profit and loss account but reduces it from the VAT advance appearing at Rs.10 lakhs and thus, the VAT advance balance reduces to Rs. 2 lakhs. Now, in this procedure, the VAT refund is not required to be shown as income. However, in case, the VAT payment of Rs.10 lakhs 11 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. has been booked as a part of the purchases in the profit and loss account then the refund of Rs.8 lakhs should have been shown as income in the profit and loss account. 12.1. We find that the facts of the instant case has been thoroughly examined by the ld. CIT(A) and his finding in para 3.3. of the impugned order for Assessment Year 2012-13 reads as under:- “3.3 I have carefully considered the facts of the case and submission of the appellant. As per the scheme of the Govt, of Union Territory of Dadra & Nagar Ha to promote industrial activities for the said territory, incentives were given in the , of refund of VAT on purchase of raw materials to small and medium industries operating from the said territory. Initially the VAT on raw material was to paid by to industrial units operating from the said territory, which the Government had promise to refund on some future dates. Consequently, assessee had paid VAT on purchase of raw material but it had not claimed it as deduction. In fact, purchase net of VAT amount only were debited in the P & L A/c. Thus, VAT on purchase was not passed through the P & L A/c. This implies that VAT on purchase were never claimed as deduction in the relevant years. Rather, VAT on purchase were shown as assets (under the head loans & advances) in the balance sheet. As per the scheme of the Government of the Union Territory of Dadra & Nagar Haveli, assessee has received refund of VAT on purchase made in earlier years. Following the same accounting principle, as applied in the relevant years, assessee has not credited refund of VAT in the P & L A/c. and assessee is justified in doing so. A.O. has invoked provisions of section 41(1) of the I.T. Act. However, for invoking the said section, the first condition which should be satisfied is that amount in question have been claimed as expenditure/deduction/loss in earlier years and only then the cessation on such amount/liability would be considered as income in .the hands of the recipient. However, this is not so for appellant's case. Appellant has never claimed any deduction regarding payment of VAT on purchase of raw materials in the earlier years. As the first limb of section 41(1) is not justified in appellant's case, A.O. is not justified in invoking section 41(1) of the Act on amount of VAT refund and considering the same as income of the assessee in the current year. A.O's 12 & 816/Kol/2023 Assessment Year: 2011-12 & 2012-13 K Kalpana Industries India Ltd. reliance on the decision of Supreme Court in Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra) is also misplaced. Facts narrated in that case is entirely different from that of assessee's case. In the said judgement assessee had received refund of sales tax which it had claimed as deduction in the relevant years. However, in appellant's case, this is not so. Refund amount relates to VAT paid in earlier years on purchase of raw materials and no deduction was claimed for this amount. Under the circumstances, appellant has rightly pointed out that provisions of section 41(1) are not applicable in its case and their contentions are aptly supported by the decision of Hon'ble Supreme court in Polyflex (India) Pvt. Ltd. vs. CIT (Supra). In view of the discussion above, A.O. is directed to deleted the addition of Rs.1,51,85,245/-“