2014 (9) TMI 1160 - AT - Income Tax

Write-off of the outstanding unutilized CENVAT Credit available disallowed - allowable business expenditure - Held that - As relying on M/s. Mohan Spinning Mills vs. ACIT 2013 (11) TMI 113 - ITAT CHANDIGARH and Girdhar Fibres P. Ltd. vs. ACIT 2012 (11) TMI 161 - ITAT AHMEDABAD expenditure was incurred but that expenditure could not be adjusted against the CENVAT Rules because on the finished goods i.e. texturised yarn only the basic duty is leviable. We therefore hold that the amount which is now written off being part of the business expenditure hence allowable under the provisions of the Act. - AO and ld.CIT(A) was not right in disallowing the claim. AO is directed to allow the amount as claimed subject to assessee furnishing the details of credit year wise and other excise registers/forms to establish that Cenvat credit was available to it before writing off the same. Accordingly grounds raised by the assessee are allowed.

Summary

Issues:
1. Disallowance of CENVAT credit written off by the assessee in the P & L Account.

Analysis:
The appeal was against the Order of the Ld. CIT(A)-V, Hyderabad regarding the disallowance of the CENVAT credit written off by the assessee in the P & L Account. The Assessing Officer did not allow the deduction, stating that the writing off of CENVAT credit does not appear to be in order. The assessee argued that the company incurred losses due to rate differentials between input and output excise duty, leading to unrealistic incomes in the P & L account, and claimed the outstanding CENVAT Credit as a deduction. The Ld. CIT(A) did not agree with this argument, citing that the amount could only be debited to the P & L account as a bad debt or a business expense of the current year. He rejected the claim as not being an expense of the year under consideration.

The Coordinate Bench at Chandigarh and Ahmedabad had previously opined on similar issues. In the case of M/s. Mohan Spinning Mills, it was held that the write-off of CENVAT credit was allowable as a business expenditure under section 37(1) of the Act when the manufacturing activities were closed down. Similarly, in the case of Girdhar Fibres Pvt. Ltd., the write-off was considered part of business expenditure and allowable under the provisions of the Act. The Tribunal noted these decisions and directed the Assessing Officer to allow the claim of the assessee, subject to providing necessary details to establish the availability of CENVAT credit before the write-off.

In conclusion, the Tribunal allowed the appeal of the assessee, holding that the disallowance of the claim for writing off CENVAT credit was not justified. The decision was based on previous judgments and the specific circumstances of the case, where the write-off was considered a legitimate business expenditure.