VAT Payment would not amount to Fee u/s 40(a)(iib) of Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Chennai Bench recently in an appeal held that Value Adedd Tax payment would not amount to Fee under section40 (a) (iib) of Income Tax Act 1961.

AssesseeTamilnadu State Marketing Corporation Ltd is a State owned undertaking engaged in trading and retail vending in liquor. In the year 2014-2015, After theoriginal assessment was completed u/s.143 (3) of the act The AO scrutinizing the accounts of the assessee.On verifying the records of assesssee the PCIT,Chennaifind out assesseeclaimed VAT expenses of Rs.11,491.97 crores in the profit & loss account during the previous year 2013-14 relevant to this assessment year 2014-15 and  they revised the orderof AO under section 263of the act held that assessment framed as erroneous and prejudicial to the interest of Revenue on account of VAT paid by assessee in the assessment year 2014-15.

Thecontention of the AR as submitted by Shri. R.Vijayaraghavan,”the VAT expenditure amounting to Rs.11,491.97 crores was claimed by the assessee and it was  allowed in the assessment order passed by the AO but the PCIT disallow the claim, in term of the amended provisions of section 40(a)(iib) of the Act”

The observation of the PCIT was according to section 40 of the Act this  provision specified the amounts which shall not be deducted in computing the Income chargeable under the head “profits and gains of business or profession” hence the claim of the assesee, who is a  government undertaking  will not   allow. The DR Shri M. Rajan relied on the revision order passed by the PCIT.

After considering the contention of the both side the division bench of  ITAT compraising Sri. Shri Mahavir Singh, Vice Presidentand Shri Dr. Dipak P. Ripote, (Accountant Member) held that “VAT payment would not attract the provisions of section 40(a) (iib) of the Act and hence, is allowable u/s.37 r.w.s.43B of the Act, as claimed by the assessee”.

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