Krebs Biochemicals & Industries Ltd. Vs DCIT (Telangana High Court)
Telangana HC Directs Fresh Section 43B Examination Based on VAT-205 Orders, Orders Section 80HHC Recalculation as AO had acted contrary to the Supreme Court’s ruling in Shital Fibers Ltd.
The Telangana High Court disposed of three appeals relating to Assessment Years 2002-03, 2003-04 and 2004-05 involving a common dispute concerning deferred sales tax liability under Section 43B and computation of deductions under Sections 80HHC and 80IB of the Income-tax Act, 1961. The assessee, engaged in the manufacture and export of bulk drugs, had claimed deductions under Sections 80HHC and 80IB. During scrutiny assessments under Section 143(3), the Assessing Officer disallowed the deferred sales tax liability under Section 43B and consequently restricted deductions under Sections 80HHC and 80IB. The Commissioner of Income Tax (Appeals) and the ITAT affirmed the assessments.
Before the High Court, the assessee did not press the substantial question relating to deduction under Section 80IB in respect of export incentives and confined its arguments to (i) disallowance of deferred sales tax liability under Section 43B and (ii) reduction of deduction under Section 80IB while computing deduction under Section 80HHC. The assessee submitted that the authorities had rejected its Section 43B claim solely for want of evidence showing conversion of deferred sales tax liability into a Government loan. It relied upon Eligibility Certificates, Form VAT-205 adjustment orders issued by the Commercial Tax Officer during 2016, 2017 and 2022, Section 16C of the Andhra Pradesh General Sales Tax Act, 1957, and CBDT Circular No. 496 dated 25.09.1987. It contended that the adjustment orders, although issued after completion of assessment and appellate proceedings, established recognition of the deferred sales tax liability under the Government deferment scheme and warranted remand. The Revenue contended that these documents had not been produced before the authorities below and that the assessee had failed to establish conversion of the deferred liability into a Government loan.
