2013 (11) TMI 113 - AT - Income Tax

Disallowance of Cenvat Credit unutilized cenvat credit was written off on account of closer of factory - Held that - The assessee was paying higher rate of excise duty on the raw material purchased by it as against the rate of excise duty applicable on the manufactured items, consequently credit of excise duty was available with the assesse - the assessee closed down its manufacturing unit and consequently the benefit of the CENVAT credit remained un-adjusted - Once the manufacturing unit of the assessee is closed down, the benefit of CENVAT credit not availed of against the excise duty payable on manufactured items, cannot be utilized by the assessee and the write off of CENVAT credit, is allowable as an expenditure in the year under consideration on the closure of the business - The write off of CENVAT credit by the assessee in its books of account is allowable as business expenditure under the provisions of section 37(1) of the Act relatable to the year - The assesse is allowed to claim write off of Cenvat Credit Decided in favour of assesse.

Summary

Issues:
Appeal against disallowance of CENVAT credit and interest account disallowance.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) relating to the assessment year 2006-07 under section 143(3) of the Income-tax Act. The assessee contested the disallowance of Rs. 35,94,577/- written off as irrecoverable CENVAT credit and Rs. 17,064/- out of interest account. The Assessing Officer disallowed the CENVAT credit claim as it did not fall under sections 28 to 44 of the Act. The CIT (Appeals) upheld this decision, stating the expenditure was not incurred in the relevant year. The assessee argued that the CENVAT credit was written off as business expenditure under section 37 of the Act and reflected in the Balance Sheet.

The issue revolved around the deduction claimed for CENVAT credit amounting to Rs. 35,94,577. The assessee, engaged in manufacturing and trading of yarn, had accumulated CENVAT credit due to the difference in excise duty rates on raw material and finished products. Upon closing the manufacturing unit, the unadjusted CENVAT credit was written off as business expenditure. The question was whether this write-off was allowable as business expenditure. Section 37(1) of the Act allows deductions for expenditures laid out wholly and exclusively for business, not personal or capital in nature.

The Tribunal held that the write-off of CENVAT credit was allowable as business expenditure under section 37(1) of the Act. As the manufacturing unit was closed down, the unutilized CENVAT credit could be written off as an expenditure in the year of closure. The write-off was deemed allowable as it met the conditions of section 37(1). Consequently, the Assessing Officer was directed to allow the claim of Rs. 35,94,577. The second ground of appeal was dismissed as not pressed. Overall, the appeal was partly allowed in favor of the assessee.