2015 (11) TMI 1830 - AT - Income Tax

Disallowance on account of service tax and insurance claim by holding that the assessee could not offer any valid explanation for such writing off during the year - assessee had written off service tax which is not available for set off against the CENVAT payable by the assessee and short insurance claim i.e claim not admitted and paid by the insurance company - HELD THAT - In the case of service tax, we note that ₹ 2,05,177/- were written off by the assessee because the set off of such service tax was not available against the central excise duty. In our opinion, the amount of service tax which is paid by the assessee on the expenditure incurred and for which no set of was available was rightly written off and the order of the ld. CIT (A) cannot be sustained on this point. Assessee has rightly written off the un-receivable insurance claim during the year which were either rejected or short accepted by the insurance company. More so when these expenses are not related to the prior period as the circumstances and facts under which these amounts were written off came to be finalized during the year. Assessee further pointed out that the similar expenditure were allowed by the Department in the earlier years. All these write offs are necessitated when their adjustments or recovery is not possible to be made in the in the normal course of business . In the case of CIT Vs Excel Fashion Pvt Ltd. 2007 (5) TMI 647 - DELHI HIGH COURT has upheld the order of Tribunal in which the tribunal allowed the irrecoverable Export Incentives as bad debt. Under these facts and circumstances order passed by CIT(A) can not be sustained and disallowance of service tax and the insurance claim ordered to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of expenses pertaining to prior periods.
2. Disallowance of service tax and insurance claim.

Analysis:

Issue 1: Disallowance of expenses pertaining to prior periods
The assessee, engaged in the production of Winding Wire and Enameled Wire, filed its return of income for the relevant year. The Assessing Officer disallowed expenses, including service tax and insurance claim, as prior expenses based on the tax audit report filed by the assessee. The CIT(A) upheld the disallowance, stating the assessee failed to provide a valid explanation for the write-offs during the year. However, the appellant argued that the service tax write-off was due to unavailability of credit against payment and that certain expenses were not directly connected to manufacturing. The Tribunal noted that the service tax and insurance claim write-offs were justified as they were not recoverable and were finalized during the year. Citing precedent, the Tribunal ruled in favor of the assessee, ordering the disallowance to be deleted.

Issue 2: Disallowance of service tax and insurance claim
The Tribunal examined the specifics of the service tax and insurance claim write-offs. It found that the service tax amount was written off due to unavailability of set-off against central excise duty, which was deemed appropriate. Similarly, the insurance claim write-off was justified as the claim was not admitted or paid by the insurance company. The Tribunal emphasized that these write-offs were necessary when recovery was not feasible in the normal course of business. Referring to a relevant court decision, the Tribunal concluded that the disallowance of service tax and insurance claim should be deleted. Consequently, the appeal filed by the assessee was allowed, and the order in their favor was pronounced in November 2015.