NEW DRUG & CHEMICAL CO,MUMBAI vs. DCIT 14(2), MUMBAI

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ITA 153/MUM/2013Status: DisposedITAT Mumbai27 April 2016AY 2009-103 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the MVAT refund was not taxable as it was similar to an income tax refund. Regarding interest, it was found that the 18% rate paid to related parties was reasonable given market conditions, and no material was presented to suggest otherwise.

What were the facts?

The assessee's appeal concerned an addition of Rs. 2,51,810 on account of MVAT refund and a disallowance of interest paid to unsecured creditors. The assessee consistently accounted for VAT and CST as prescribed by ICAI, showing purchases and sales net of MVAT.

What were the issues?

Whether MVAT refund is taxable income and if interest paid to related parties at 18% is excessive or unreasonable.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 40A(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B”, BENCH MUMBAI

Before: SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM

Hearing: 05/04/2016Pronounced: 27/04/2016

O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)- Mumbai, dated for the assessment year 2009-2010, in the matter of order passed u/s.143(3) of the I.T.Act.

2.

First grievance of the assessee relates to addition of Rs.2,51,810/- on account of MVAT refund.

3.

We have considered rival contentions and found that assessee was consistently following the method of accounting prescribed by ICAI for accounting of VAT and CST. The assessee had shown less purchases in trading account to the extent of MVAT. Similarly sales were also shown without including the amount of MVAT so collected. Since MVAT was neither included in 2 purchases nor included in sales, there was no justification for taxing the MVAT refund. As defined under sub-section 25 of section 2 of the MVAT Act sales prices does not include tax paid or payable to the seller. Similarly sub-section 20 of section 2 of the MVAT Act purchase prices does not include tax paid or payable by a purchaser to a seller. Also as per the provisions of MVAT Act if the credit exceeds the tax payable on sale in period of return, the excess credit will be available for carried forward to the end of the financial year. If there is excess input tax credit at the end of the financial year then the same will be eligible for refund. It is similar to Income Tax refund due on account of excess of tax paid over the liability.

4.

In view of the above, we do not find any merit in the action of the AO for taxing the MVAT refund. In the interest of justice, we restore this issue back to the file of AO with a direction to verify the purchases and sales so as to ascertain that MVAT paid on purchases has neither been included in purchases nor MVAT received from customers on sales is included in the amount of sales. The AO is directed to delete the addition of refund of MVAT amount if he finds that purchase and sales are shown ‘net’ without inclusion of MVAT paid and received. We direct accordingly.

1.

4. The next grievance of the assessee relates to addition made on account of interest paid by assessee to the unsecured creditors on the plea that assessee has paid interest @18% to the some of the creditors who are relatives as defined u/s.40(A)(2)(b).

5.

We have considered rival contentions and perused the record. Under section 40(A)(2) addition can be made if the AO records a finding to the effect that the expenditure incurred by the assessee are excessive or unreasonable as compared to the fair market value of services of goods for which such payment

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