Assessee is a state owned undertaking which was engaged in trading and retail vending in liquor. Assessee collected sale price of liquor bottle inclusive of VAT and claimed VAT expenses as expenditure under section 37(1) of the Act.   Principal Commissioner invoked revisionary proceedings on ground that as per amended provisions of section 40(a)(iib) any amounts appropriated, directly or indirectly, from a State Government undertaking, by State Government, would not be allowed as deduction for purpose of computation of income of such undertakings under head ‘profits and gains of business or profession’ and therefore, VAT which was levied exclusively on State Government undertaking by State Government would come within provisions of section 40(a)(iib) of the Act. On appeal the Tribunal held that  since VAT was not exclusively levied on assessee but was only indirect tax collected from customers and remitted to Government and furthermore, assessee could not collect same at a rate higher than specified in Tamilnadu VAT Act, 2006, it could not be considered as surplus appropriation to State, and, thus, VAT payable by assessee would not attract provisions of section 40(a)(iib) and was to be allowed as expenditure. Revision order is quashed. (AY. 2014-15 )