2012 (4) TMI 781 - AT - Income Tax

Summary

Issues Involved: Appeal against order of Commissioner of Income Tax (Appeals)-II, Ludhiana u/s 143(3) of the Income-tax Act for assessment year 2006-07 regarding disallowance of CENVAT credit and interest amount.

Grounds of Appeal:
1. Challenge to disallowance of &8377; 35,94,577/- as irrecoverable CENVAT credit.
2. Challenge to disallowance of &8377; 17,064/- from interest account.

Facts:
The assessee claimed &8377; 35,94,577/- as business expenditure for writing off irrecoverable CENVAT credit due to closure of manufacturing unit. Assessing Officer disallowed the claim stating it did not fall under allowable deductions. CIT (Appeals) upheld the disallowance.

Assessee's Contention:
Assessee argued that the CENVAT credit write-off was a legitimate business expense under section 37 of the Act as it was reflected in the Balance Sheet.

Revenue's Argument:
Revenue contended that the write-off was merely a profit reduction entry and not a valid business expenditure for the year. They argued it was not related to the business operations.

Judgment:
The Tribunal observed that the CENVAT credit was accumulated over years due to higher excise duty on raw material compared to finished products. After closing the manufacturing unit, the unadjusted credit became irrecoverable. The Tribunal held that under section 37(1) of the Act, the write-off was allowable as business expenditure since it met the conditions of being wholly and exclusively for business purposes. The claim was allowed, and the appeal was partly allowed.

Conclusion:
The Tribunal directed the Assessing Officer to allow the write-off of &8377; 35,94,577/- as business expenditure related to the closure of manufacturing activities. The second ground of appeal was dismissed as not pressed.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.