In DCIT v. M/s. Orient Paper & Industries Ltd, the Mumbai ITAT held that the purchase of sales tax exemption certificates is a revenue expenditure and therefore, is deductible from the total income of the assessee under the provisions of the Income Tax Act, 1961.
Assessee-Company engaged in the manufacturing of papers, cement, fans and other engineering products. In pursuance of sales tax scheme 1998 introduced by the Govt. of Maharashtra the assessee claimed credit of sales tax payments by way of purchase of sales tax exemption certificates. The original assessment order passed by the assessing officer was revised by the Commissioner under s. 263 of the Income Tax Act and disallowed the assessees’ claim towards purchase of sales tax exemption certificates. The Commissioner was of the view that the said purchase amount to capital expenditure, for which no deduction is allowable.
Before the first appellate authority, assessee contended that the said certificates are not subsidy from sales tax department. They further relied on the decision of the ITAT Mumbai Special Bench in the case of Reliance Industries Ltd (supra) wherein the Tribunal decided the issue whether the subsidy receipt is a revenue receipt or capital receipt. The first appellate authority allowed the contentions.
Aggrieved by the above order, the department approached the tribunal stating that the assessee purchased sales tax exemption certificates from other entities which expenditure is capital expenditure.
In view of the above mentioned decision of the Tribunal, the division bench upheld the order of CIT(A) and held that the purchase of sales tax exemption certificates of Rs. 1,62,74,997/- is a revenue expenditure.
Read the full text of the Order below.
