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Chhattisgarh State Beverages Corporation Limited v. PCIT (2023) 221 TTJ 427(Raipur)(Trib)

S. 263 : Commissioner-Revision of orders prejudicial to revenue-Amounts not deductible-Since the provisions of section 40(a)(iib) does not contemplate tax and VAT does not fall within the ambit of “fee” or “charge”, section 40(a)(iib) cannot be attracted in respect of expenditure by way of VAT. Accordingly, the order of the Assessing Officer under section 143(3) allowing assessee’s claim for deduction of expenditure by way of VAT cannot be regarded as erroneous and prejudicial to the interest of the revenue in terms of section 263. [S. 40(a)(iib), 143(3)]

Assessee is a company wholly owned by the State Government of Chhattisgarh. The Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under section 263. During the course of revision proceedings, PCIT observed that the assessee had debited an amount under the head “VAT” in its Profit and Loss account for the impugned assessment year. It was observed by PCIT that the Assessing Officer in the course of assessment proceedings had without raising any query as regards the assessee’s entitlement for claim of deduction of the expenditure by way of VAT had summarily accepted the same. The PCIT was of the view that the expenditure by way of VAT claimed by the assessee clearly fell within the realm of disallowance contemplated in sub-clause (B) of clause (iib) of section 40(a) as per which any amount appropriated directly or indirectly under any head by whatever name called from a State Government undertaking by the State Government is not to be allowed as a deduction in computing the income chargeable under the head “Profits and Gains from business or profession”. Accordingly, the PCIT passed an order under section 263 wherein it was held that the order passed by the Assessing Officer under section 143(3) was erroneous in so far as it was prejudicial to the interest of the revenue in view of Explanation 2 of section 263. Consequently, the PCIT directed the Assessing Officer to give effect to his order passed under section 263 and disallow the assessee’s claim for deduction of VAT.

The Tribunal observed that the issue involved was squarely covered by the judgment of the Hon’ble Supreme Court in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. v. ACIT wherein it was held that “surcharge of tax” is a tax and section 40(a)(iib) does not contemplate “tax” and surcharge on sales tax is not a “fee” or a “charge”. Therefore, no disallowance under the said statutory provision was called for in the hands of the assessee.

Thus, the Tribunal had set aside the order passed by the PCIT under section 263 and had restore the order of the Assessing Officer passed under section 143(3) to the extent he had allowed the assessee’s claim for deduction of VAT. (AY. 2015-16 to 2017-18).