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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V. MAHADEOKAR
"ी िस"ाथ" नौिटयाल, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम%। ] ] BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / Year : 2018-19 Power and Instrumentation The ACIT बनाम/ (Gujarat) Ltd. Circle-3(3)(1) v/s. 12, Sunshin Industrial Estate Ahmedabad – 390 014 Rakhial, Ahmedabad – 380 023 "थायी लेखा सं./PAN: AACCP 4292 Q (अपीलाथ&/ Appellant) ('( यथ&/ Respondent) Assessee by : Shri Chetan Agarwal, AR Revenue by : Shri Atul Pandey, Sr.DR सुनवाई की तारीख/Date of Hearing : 26/11/2024 घोषणा की तारीख /Date of Pronouncement: 06/12/2024 आदेश/O R D E R
PER MAKARAND V. MAHADEOKAR, AM:
This appeal by the assessee is directed against the order dated 07/05/2024 passed by the Commissioner of Income Tax (Appeals) [hereinafter referred to as "CIT(A)"] passed under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act"], upholding the order of rectification dated 23-11-2021 under Section 154 of the Act for the Assessment Year (AY) 2018-19 passed by the Assistant Commissioner of Income Tax, Circle 3(1)(1), Ahmedabad [hereinafter referred to as "AO"].
. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 Facts of the case:
The assessee is engaged in the business of electrical contracting, trading in electrical equipment, and providing industrial and commercial electrical services across India. The assessee filed its return of income for A.Y. 2018-19, declaring total income of Rs.3,10,65,024/- on 31/10/2018. The return was processed under Section 143(1), a demand of Rs.1,08,57,395/- was raised. The assessee observed the error in computation of tax liability and credit on account of TDS. Therefore, the assessee filed an application for rectification u/s 154. The AO, on scrutiny, gave credit of TDS and passed order u/s 154 r.w.s. 143(1) of the Act.
The assessee preferred an appeal before the CIT(A) contending that the AO erroneously denied the benefit of the concessional tax rate of 25% under the Finance Act, 2017. The CIT(A) concluded that the Finance Act, 2017, provides a concessional tax rate of 25% for domestic companies if their turnover or gross receipts for Financial Year (FY) 2015-16 do not exceed Rs.50 Cr. The CIT(A) determined the turnover for FY 2015-16 based on the assessee’s audited financial statements, which reported a turnover of Rs.51,18,86,268/-, inclusive of inter-branch transfers of Rs.1,41,39,000/- The assessee contended that the turnover of inter-branch transfer should be excluded as such transfers are not actual sales. The assessee submitted a certificate from the Chartered Accountant who also was statutory auditor as per Companies Act, 2013. The assessee also submitted the details of Purchase and Sale giving particulars of inter branch sale and purchase amounting to Rs.1,41,39,000/- to the CIT(A). The CIT(A) concluded that the branch . Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 transfers are also part of the turnover. The CIT(A) upheld the order of the AO and dismissed the appeal of the assessee.
Aggrieved by the order of the CIT(A), the assessee is in appeal before us with following grounds of appeal: 1. LD. CIT(A) ERRED IN LAW AS WELL AS ON FACT IN UPHOLDING ORDER U/S.154 PASSED BY LD.AO.
2. LD. CIT(A) ERRED IN LAW AS WELL AS ON FACT IN UPHOLDING ‘TURNOVER OF APPELLANT AT RS.51,18,86,268 FOR THE PURPOSE OF TAX COMPUTATION, WHICH FACTULLY INCULDES BRANCH TRANSFER OF RS. 1,41,39,000 RESULTING INTO ACTUAL TURNOVER OF RS. 49,77,47,420.
3. LD. CIT(A) ERRED IN LAW AS WELL AS ON FACT IN UPHOLDING TAX RATE OF 30% INSTEAD OF 25% BASED ON ACTUAL TURNOVER OF RS. 49,77,47,420. 5. During the course of hearing before us the Authorized Representative (AR) of the assessee stated that the company has multiple branches in different parts of India and the company transfers goods from one branch to another branch. The AR further stated that the assessee by mistake included inter branch transfers in both total sale and purchase as reflected in the profit and loss account. The AR also stated that during the course of appellate proceedings the details of sales and purchases were given to the CIT(A) along with the certificate from the Chartered Accountant who was also an auditor of the assessee under Companies Act, 2013. Upon enquiry, the AR also stated that such inter-branch transfers are duly reported in the VAT returns of the company. The assessee submitted copies of VAT returns for records.
The Departmental Representative (DR) relied on the orders of lower authorities and reiterated that the inter-branch transfers are part of turnover.
. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19
We have heard the rival parties and perused the material available on records. The core issues to be decided in this appeal is whether the inter- branch transfers amounting to Rs.1,41,39,000/- should be included in the turnover for the purpose of determining the tax rate applicable under the Finance Act, 2017. 7.1. We find that under the Income Tax Act, 1961, while "turnover" is not explicitly defined, judicial precedents and accounting principles clarify that inter-branch transfers—being internal movements of goods or services within the same entity—are not part of turnover.
7.2. The assessee operates multiple branches across India and routinely transfers goods between these branches. These inter-branch transfers are internal movements of stock which do not generate external revenue and are thus typically excluded from the computation of turnover. According to generally accepted accounting principles and Accounting Standards, only revenue from external customers qualifies as turnover. Inter-branch transfers, which do not involve realizations, should be excluded unless otherwise required by specific tax regulations.
7.3. Under indirect tax laws (VAT in the present case), branch transfers are considered "supplies" and included in the aggregate turnover for compliance thresholds. However, such treatment under VAT does not automatically apply to income tax computations, as the concepts of "turnover" and "aggregate turnover" differ in these contexts.
. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 7.4. We also note that the assessee provided a Chartered Accountant's certificate and detailed reconciliation statements substantiating that the amount of Rs.1,41,39,000/- represents inter-branch transfers erroneously included in the turnover reported in the audited financial statements for FY 2015-16. 7.5. Based on the discussion above and evidence provided, inter-branch transfers amounting to Rs.1,41,39,000/- should not be included in the turnover for income tax purposes.
7.6. The concessional tax rate of 25% was introduced under the Finance Act, 2017, applicable to domestic companies for the Financial Year (FY) 2017-18 (Assessment Year 2018-19). The relevant provision states that a domestic company is eligible for the concessional tax rate if its turnover or gross receipts for the base year, FY 2015-16, does not exceed Rs. 50 crores.
7.7. In the present case, the turnover of the assessee, as per the audited financial statements for FY 2015-16, was reported at Rs.51,18,86,268/-. This turnover figure included Rs.1,41,39,000/-, representing inter-branch transfers. Excluding inter-branch transfers of Rs.1,41,39,000/-, the assessee’s revised turnover for FY 2015-16 is Rs.49,77,47,420/-, which is below the threshold of Rs.50 crores. Therefore, the assessee qualifies for the concessional tax rate of 25% under the Finance Act, 2017. The application of the higher tax rate of 30% by the lower authorities was based on an erroneous inclusion of inter-branch transfers in turnover, which does not align with statutory provisions, accounting principles, or judicial guidance. The AO and CIT(A) did not adequately consider the assessee's submissions and evidence.
. Power and Instrumentation (Gujarat) Ltd. vs.ACIT, Asst. Year : 2018-19 6 The CIT(A) dismissed the assessee's contentions without proper examination, relying solely on the figures in the audited financial statements.
7.8. In view of the above findings the orders of the AO and CIT(A) are set aside. The AO is directed to – - Exclude inter-branch transfers of Rs.1,41,39,000/- from the turnover for FY 2015-16 after verifying the reconciliation statements, CA certificate, and other supporting evidence provided by the assessee. - Apply the concessional tax rate of 25% for A.Y. 2018-19 as per the Finance Act, 2017, since the assessee's turnover is below Rs.50 crores. - Recalculate the tax liability for A.Y. 2018-19 based on the corrected turnover and tax rate. - Provide the assessee with a reasonable opportunity to present any additional evidence or explanations during the process.