ITAT Excludes Inter-Branch Transfers from Turnover, Grants Concessional Tax Rate to Power and Instrumentation Ltd. [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) excluded inter-branch transfers from turnover grants concessional tax rate to Power and Instrumentation Ltd.

The main issue in this case was whether inter-branch transfers should be included in the turnover for tax purposes and whether the company was eligible for a concessional tax rate of 25% under the Finance Act, 2017.

The assessee, engaged in electrical contracting and trading, for the assessment year 2018-19, declared its income at Rs. 3.10 crores. However, a demand of Rs. 1.08 crores arose due to an error in tax computation. Although the company filed a rectification request under Section 154 of the Income Tax Act, 1961, the authorities maintained a tax rate of 30% instead of the concessional 25%. The concessional rate was applicable only if the company’s turnover in the financial year 2015-16 did not exceed Rs. 50 crores.

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The issue here was the inclusion of inter-branch transfers, amounting to Rs.1.41 crores, in the company’s turnover.

The company submitted  that these transfers, representing internal stock movements between branches, did not generate revenue and should not be considered part of the turnover. The company presented a Chartered Accountant’s certificate, reconciliation statements, and other evidence. The Commissioner of Income Tax ( Appeals ) [CIT(A)] upheld the inclusion of these transfers in the turnover.

ITAT was of the opinion that inter-branch transfers, being internal transactions, do not qualify as turnover for income tax purposes. The tribunal held that while such transfers might be relevant for indirect tax purposes, such as under VAT, they cannot be equated with revenue from external customers in the context of income tax.

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The ITAT, comprising Siddhartha Nautiyal ( Judicial Member ) and Makarand V. Mahadeokar ( accountant member ) held that, after excluding the inter-branch transfers, the company’s turnover for the financial year 2015-16 stood at Rs. 49.77 crores, below the Rs. 50 crore threshold. This made the company eligible for the concessional tax rate of 25%.

 ITAT set aside the orders of the Assessing Officer and CIT(A), directed to recalculate the tax liability based on the corrected turnover.

To Read the full text of the Order CLICK HERE

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