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Facts
The assessee, SLO Automobiles Private Limited, faced an addition of Rs. 1,24,22,756/- to its income by the Assessing Officer, confirmed by the CIT(A), on account of VAT liability treated as trading receipts. This arose after a survey by the Commercial Tax Department revealed suppressed sales and VAT liability, leading to a revised return and assessment under Section 143(3)/148.
Held
The Tribunal held that VAT liability is not income under Section 2(24) of the Act but a liability to be remitted to the government. It noted that the assessee had already remitted a significant portion of the VAT and that Section 43B was not applicable as the VAT assessment was not complete. Therefore, the addition was deleted.
Key Issues
The key legal issue was whether the VAT liability, arising from suppressed sales and subsequently paid, constituted 'income' under Section 2(24) of the Income Tax Act, and if Section 43B was applicable to such a liability.
Sections Cited
Section 2(24), Section 43B, Section 143(3), Section 148
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Income Tax Appellate Tribunal, DELHI BENCH ‘DB’ NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI YOGESH KUMAR U.S.
This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals), Dehradun [“Ld.CIT(A)”, for short], dated28.03.2016for Assessment Year 2011-12.
Grounds of appeal
are as under:-
1. That on the facts and circumstances of the case and in law, the Hon'ble CIT (Appeals) has erred in upholding the addition of Rs. 1,24,22,756/- made by the Ld. Assessing Officer [Ld. AO] on account of VAT liability and treating the same as trading receipts. inter alia because: a. The liability of VAT has arisen as a result of VAT order, post the survey conducted by the VAT authorities, and that the same has since been paid. b. The Appellant did not debit any amount towards sales tax to its profit and loss account during the relevant year.
2. That on the facts and circumstances of the case and in law, the Hon'ble CIT(Appeals) has erred in sustaining the total addition of Rs. 1,24,22,756/- as trading receipts and not allowing any expense therefrom, and, thereby bringing to tax the gross receipts in place of the profits and gains arising from them.
The appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing.
There is a delay of 197 days in filing the Appeal. Assessee filed an application to condone the delay contending that the Managing Director of the Assessee went into acute depression and due to the adverse health condition, he was unable to pursue the matter in filing the Appeal on time, which resulted in filing the present appeal belatedly.
We have heard both the parties on the application for condonation of delay. The Hon'ble Supreme Court time and again clarified that the delay in filing the Appeal with sufficient cause should be looked into in a liberal way and shall condone the delay. In the landmark decision in Collector, Land & Acquisition vs. Mst. Katiji& Others (1987) 167 ITR 471 (SC), the Hon'ble Supreme Court settled the law that the delay when supported by justifiable reasons, must make way for the cause of substantial justice. Considering the above facts and circumstances and for the reasons stated in the application for condonation of delay, we condone the delay of 197 days in filing the present Appeal.
Brief facts of the case are that, the Assessee filed return of income declaring income of Rs. 6,46,975/- after adjusting the loans of earlier years, NIL taxable income has been reported. During the course of survey conducted by the Commercial Tax Department on 07/08/2012 it came to the notice that the Assessee had suppressed sales and the figure of sales.
The said information has been shared with the Revenue by the Assessee vide letter dated 14/01/2012 with the copy marked to Commissioner of Income Tax, Dehradun by making a voluntary disclosure that, certain income had been omitted from being offered to tax in the tax return originally filed. The Assessee has also provided the details of sales omitted from being included in the original return filed by the Assessee and expressed its desire to submit revised accounts incorporating correct financial data. The Commercial Tax Department vide letter dated 07/08/2012, also informed the Revenue that the Assessee had suppressed its VAT liability and sales tax by under stating its sales and corresponding purchases.
Subsequently, A.O. issued notice u/s 148 of the Act to the Assessee on 16/01/2013 and an assessment order u/s 143(3) /148 of the Act came to be passed on 31/03/2014 by computing the income of the Assessee as under:-
Particulars Amount (in Rs.) Sales (as reported by the Assessee 19,94,28,137 in revised ITR) GP @ 3.38% (as per revised ITR) 67,40,671 Add: Other Income (as per original 63,94,480 ITR) Add: VAT Liability u/s 43B 1,24,22,576 Total income 2,55,57,907
Aggrieved by the assessment order dated 31/03/2014, the Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 28/03/2016,sustained the addition of Rs. 1,24,22,756/- made by the A.O. on account of VAT liability and treating the same as trading receipts.
Aggrieved by the order of the Ld. CIT(A) dated 28/03/2016, Assessee preferred the present Appeal on the grounds mentioned above.
The Ld. Counsel for the Assessee submitted that out of the liability of Rs. 1,24,22,576/- towards VAT, Rs. 70,00,000/- was paid before filing the revised return of income in response to notice u/s 148 of the Act and out of the remaining liability of Rs. 54,34,756/-, Rs. 50,00,000/- was paid on 28/03/2014 and balance of Rs. 4,34,756/- was remaining outstanding and submitted that the said fact is admitted fact as affirmed at page No. 9 of the assessment order. The Ld. Counsel also submitted that reliance made on the Judgment of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau Pvt. Ltd. reported in CIT 87 ITR 542 (S.C). was completely misplaced as the Ld. CIT(A) has not taken into consideration that the VAT liability that arose on recasting of books of the Appellant was subsequently paid by the Assessee. The Ld. Counsel also submitted that VAT liability is not an income within the meaning of Section 2(24) of the Act as it was not credited to the P & L Account. The Ld. Counsel relying on plethora of Judgments sought for allowing the Ground No. 1 & 2.
Per contra, the Ld. Department's Representative relying on the detailed finding of the A.O. as well as the Ld. CIT(A), submitted that the authorities below have relied on the ratio laid down by the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau Pvt. Ltd. Vs. CIT 87 ITR 542 (S.C). The Assessee who has collected the VAT as part and parcel of the sale receipts, not claimed as deduction in P &L Account because it had not been shown an income in P & L Account. However, since it was a trading receipt, the same has to be taxed in the hands of the Assessee as trading receipt as held by the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (supra), thus sought for dismissal of the Appeal.
We have heard both the parties and perused the material available on record. It is observed that the Ld. CIT(A) has treated the VAT liability of Rs. 1,24,22,756/- as part of the turnover of the Assessee which fact has not been controverted by the Assessee.However, as per the facts available on record, we observed that the Assessee has declared the Net Sales of Rs. 19,94,28,137/- (excluding the VAT Liability). The A.O. has estimated the income @ 3.3% of the revised ITR. Further, observed that the Assessee had not declared the VAT Liability u/s 43B of the Act and added the same as income of the Assessee.
We observe that the Gross Sales includes the VAT collected and it cannot be an income, but liability which has to be remitted to the Government account. In this case, we observe that the Assessee had declared the undisclosed sales after survey. From the accounts we noticed that the A.O. had already estimated the income and the VAT liability which is not yet due owing to the fact that the VAT assessment was not completed. Therefore, in this case the provision of Section 43B has no application. We noticed that the Assessee had already remitted Rs. 70 lakhs before filing the revised return of income and also paid Rs. 50 lakhs on 28/03/2014. Balance due was only Rs. 434,756/-. In view of the above, we are in agreement with the contention of the Ld. Assessee's Representative that the VAT liability will not fall under the definition of the income u/s 2(24) of the Act. Hence, we are inclined to allow the grounds raised by the Assessee. Accordingly, the grounds of Appeal of the Assessee is hereby allowed and the addition made by the A.O. which has been confirmed by the Ld. CIT(A) is hereby deleted.
In the result, Appeal of the Assessee is allowed.
Order pronounced in open Court on 14th January 2026.