the essay of 13 March 2024 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p align="left"><font color="#663399"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MARCH 13, 2024</font></strong></font></p> <p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GST In Income tax</strong></font></p> <p align="center"><u><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By Vijay Kumar</font></strong></u></p> <p align="justify"><strong><font color="#CC0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">HOW to include GST while computing Income Tax?</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let's see a real case.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessee filed his return of income on 12.3.2022 declaring total income at Rs. 10,31,45,840/- under the normal provisions of the Income Tax Act. Return of the assessee was processed vide intimation dated 13.11.2022 in which an amount of Rs. 8,07,66,818/- towards Goods and Services Tax (GST) collected from customers was added back. For this proposed adjustment, assessee was informed vide notice dated 18.5.2022. The same was replied to by the assessee vide letter dated 19.5.2022. As the response of the assessee was not considered while passing the original intimation dated 13.11.2022, assessee filed an application u/s. 154 of the Act dated 30.11.2022 (order against the same is still awaited). Section 154 is for Rectification of Mistake. Assessee being aggrieved with this intimation, processed u/s. 143 (1) (A) and preferred an appeal before the Commissioner of Income Tax (Appeals), who in turn confirmed the action of the lower authority, CPC, Bengaluru. Assessee being further aggrieved preferred an appeal before the Income Tax Appellate Tribunal. <em>[ITA No. 3235/MUM/2023 (A.Y. 2021-22) in ITAT MUMBAI BENCH "C"] -<a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTgwNjIy"><strong> 2024-TIOL-383-ITAT-MUM</strong></a> </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section - 145A, Income Tax Act, 1961, </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">145A. For the purpose of determining the income chargeable under the head <em>"Profits and gains of business or profession"</em>, - </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">(ii)<font color="#FF0000"> the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess, or fee (by whatever name called)</font> actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section - 145, Income-tax Act, 1961, </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">(2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. SO 3079(E), dated 29-9-2016 for Income Computation and Disclosure Standards and Circular No. <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjI1Mzc=" target="_blank">10/2017</a></strong>, dated 23-3-2017, [Clarifications on Income Computation and Disclosure Standards (ICDS) were issued. Relevant extract: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Question 25: ICDS-I requires disclosure of significant accounting policies and other ICDS requires specific disclosures. Where is the taxpayer required to make such disclosures specified in ICDS? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Answer: Net effect on the income due to application of ICDS is to be disclosed in the Return of income. The disclosures required under ICDS shall be made in the tax audit report in Form 3CD. However, there shall not be any separate disclosure requirements for persons who are not liable to tax audit. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The ITAT observed, </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">5. Now, considering the provision of section 145A of the Act and Notification No. SO 3079(E), dated 29-9-2016 for Income Computation and Disclosure Standards and Circular No. <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjI1Mzc=" target="_blank">10/2017</a></strong>, dated 23-3-2017 [Clarifications on Income Computation and Disclosure Standards (ICDS) issued under section 145 of the Act, it is established position that the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee and by virtue of ICDS-I (As enumerated above, FAQ-25), Tax Auditor is simply required to report the factual position. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">6. We note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of Goods and Service Tax (GST) consistently. <font color="#FF0000">Thus, if the sales are enhanced by the amount of GST attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise</font>. Thus, in our considered view, the CPC, Bengaluru erred in enhancing the value of the closing stock without giving effect to the purchases. Considering GST in sales will work as contra entry and has to be considered in opening stock, purchase and closing stock also, which ultimately result in tax neutral exercise. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">7. It is observed that when the opening and closing stock of business are both undervalued (exclusive of any tax, duty, cess, or fee) and consequently same treatment is being given to sales and purchase also, it is perfectly plain that profits which is brought forward and transactions of current year also are tax neutral until unless proved by the revenue. As per the facts of this case, enhancing the value of sales without giving corresponding effect to the valuation of opening stock/closing stock and purchase is not proper. In view of the above, we are of the firm view that adjustment made by the CPC, Bengaluru is unwarranted and in violation of section 145A of the Act, hence the same is not sustainable. In the result ground raised by the assessee is allowed. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">8. In the result, appeal of the assessee is allowed. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal stated, </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFFF00" span="span">Thus, if the sales are enhanced by the amount of GST attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Perhaps it is assumed that GST paid on purchases and GST paid on sales are equal, which is not exactly correct. Normally the GST on sales will be higher than the GST on purchases; so, increasing the GST on purchases will not make it a tax neutral exercise. Well, that is not the issue here. </font></p> <p align="justify"><font color="#CC0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Should GST collected on sales be included in the income? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The GST collected has to be credited to the government and it is certainly not income for the assessee. If GST is collected and not paid to the Government, it could be income, but the GST Department will use all its powers to collect that unpaid tax. What has Income Tax to do with it? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But all these issues were long ago settled in the excise and service tax regime. Do we have to invent the wheel again in the GST era? Is the confusion in GST spreading to Income Tax? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Laksmi Machine Works -<strong> <a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=37&filename=legal/sc/2007/2007-TIOL-72-SC-IT.htm" target="_blank">2007-TIOL-72-SC-IT</a></strong></em>, the Supreme Could held, </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. excise duty and sales tax also cannot form part of the <em>"turnover".</em> </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will it not apply to GST? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">____________________________________________________________</font></p> <p align="justify"><strong><font color="#CC0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">SBI <em>deja vu </em></font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The recent story of SBI not able to submit details of electoral bonds brought to memory an incident that happened to me nine years ago. I wrote in TIOL-DDT 2600 - 19 05 2015 - Tuesday. </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Education Cess - the RTI Trail </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ON 7th March, I asked the Revenue Secretary </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">Sir, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">I would like to have the following information under the Right to Information Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">1. Amount of Education Cess collected under Direct Taxes from 2004-05 to 2014-15, each year separately. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">2. Amount of Education Cess collected under Indirect Taxes from 2004-05 to 2014-15, each year separately. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">3. Amount of Secondary and Higher Education Cess collected under Direct Taxes from 2006-07 to 2014-15. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">4. Amount of Secondary and Higher Education Cess collected under Indirect Taxes from 2006-07 to 2014-15. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">5. Details of how the amounts collected were spent/distributed/allocated year wise. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">As you are the Revenue Secretary, I assume that the information must be readily available with you. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 16th March, I was informed that my request has been transferred to CBDT and CBEC. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 17.03.2015, an Under Secretary in CBEC informed me that they do not have the information and my request has been transferred to the Director of Data Management (DDM). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 31st March, DDM informed me the education cess on Customs and Central Excise collected from 2006-07. They informed me that separate figures are not maintained for Service Tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 13.04.2015, the CBEC Under Secretary again informed me that information in points 2 & 4 is not held by him and the Director of Data Management might have it. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 15.04.2015, he again informed that with respect to point No. 8, Central Excise, Customs and Service Tax are the three taxes administered by CBEC and they don't have information on other taxes and he doesn't have information on Points 10 & 12. [Please note that my query did not have points 8, 10 and 12] </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 07.05.2015, the Deputy Director of Income Tax (Systems) informed that the data required as per point 1 & 3 is not available in the format asked for i.e year wise and collation of the same would require to disproportionately divert the resources of the Public Authority concerned. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I didn't want to further waste the nation's money in these babus working overtime to ensure that information is not provided. So, I didn't appeal. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They don't know how much they collected and they don't know where the money went… </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until next week</font></p> </body> </html>