In a recent ruling, the division bench of the ITAT, Pune held that VAT refund granted to the assessee is allowable as deduction under the provisions of the Income Tax Act, 1961.
The assessee, in the instant case is engaged in the business of manufacturing and job works of press tools, jigs fixtures, windmill parts, labour job and trading in shares. The assessee, filed income tax return for the relevant assessment year, claiming deduction in respect of VAT refund. The claim was disallowed by the AO by invoking section 41(1) of the Income Tax Act.
The assessee maintained that the amount refunded is due to excess payment of VAT on purchases. The assessee further submitted that it is maintaining books of account on net tax method, as per which the taxes collected are credited to duties and taxes group under various accounts and the amount paid through purchase bills eligible for set off are debited to this group. It was submitted that sales tax refund is not of the nature of receipt as specified within the provisions of section 28(ii)(a) to 28(iv). It was further submitted that refund received is not finally determined but a tentative amount released on the basis of bank guarantee.
The assessee also submitted that the Tribunal in an earlier case, concluded the case by following the decision of the Karnataka High Court in Mysore Thermo Electric (P) Ltd and the Apex Court decision in Polyflex (India) (P) Ltd and held that “section 41(1) of the Act would apply only if in the assessment for relevant year an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by the assessee. Since in the present case, in the assessment for any year no allowance or deduction of any expenditure in respect of the impugned VAT amount has been allowed, following the ratio of the aforesaid judgment of the Hon’ble Supreme Court the applicability of section 41(1) of the Act is not justified.” Accordingly, the appeal filed by the Revenue was dismissed.
Read the full text of the order below.
