2021 (3) TMI 746 - HC - Income Tax

Allowable expenditure under Income Tax Act - opening balance in Service Tax Set Off Account (STA) made by the assessee - Tribunal deleted the addition - HELD THAT - CIT(A) took note of the decision in the case of Girdhar Fibres P. Ltd. Vs. ACIT 2012 (11) TMI 161 - ITAT, AHMEDABAD wherein, identical issue was decided in favour of the assessee. The Revenue seeks to distinguish the decision in the case of M/s.NCS Distilleries P. Ltd. 2014 (9) TMI 1160 - ITAT HYDERABAD by referring to certain factual aspects stating that in the said case, the unit had been closed down. However, the said contention sought to be given by the Revenue is not tenable, because the assessee could not have availed the set off on account of operation of law and from the assessment year 2007-08 onwards, Central Excise duty on edible oils were deleted. In the case of M/s. NCS Distilleries P. Ltd., it appears that the union was merged with other company and therefore, the credit remained unutilized. However, this is not a feature to distinguish the said decision. In fact, the Tribunal has taken into consideration as to how the CENVAT Scheme operates and granted relief to the assessee. The Tribunal has once again re-appreciated the factual position and found that the decision in M/s.NCS Distilleries P. Ltd., would fully apply to the case on hand - substantial questions of law are answered against the Revenue.

Summary

Issues:
1. Allowability of a claim of opening balance in Service Tax Set Off Account as expenditure under Income Tax Act.
2. Justification of Appellate Tribunal's decision based on a different case's precedent.

Issue 1: Allowability of Claim of Opening Balance in Service Tax Set Off Account:
The case involved an appeal by the Revenue under Section 260A of the Income Tax Act against an order related to the assessment year 2007-08. The dispute arose from the treatment of a sum of ?1,83,04,644 representing a part of the balance in the "Service Tax set off account" as allowable expenditure. The Assessing Officer disallowed the written-off service tax amount and charged it to the Profit & Loss account. However, the Commissioner of Income Tax (Appeals) allowed the appeal, citing earlier Tribunal decisions. The High Court analyzed the CIT(A)'s order, noting the decision of the Hyderabad Tribunal in a similar case and the allowability of the written-off amount as business expenditure under Section 37(1) of the Act. The Court upheld the Tribunal's decision, emphasizing that the write-off was allowable as an expenditure in the year of business closure.

Issue 2: Justification of Appellate Tribunal's Decision Based on a Different Case's Precedent:
The Appellate Tribunal relied on precedents from other cases, including M/s.NCS Distilleries P. Ltd. and Girdhar Fibres P. Ltd., to support its decision in favor of the assessee. The Revenue attempted to distinguish the M/s.NCS Distilleries P. Ltd. case by highlighting factual differences, such as the closure of the unit. However, the Court found this distinction untenable, as the set-off could not have been availed due to changes in Central Excise duty laws. The Court emphasized that the Tribunal correctly applied the CENVAT Scheme principles and granted relief to the assessee. Additionally, the Court referenced a related order by the Tribunal dismissing the Revenue's appeal, further supporting the assessee's position. Ultimately, the Court upheld the Tribunal's decision, finding no error and dismissing the appeal.

In conclusion, the High Court of Madras upheld the Tribunal's decision in favor of the assessee regarding the allowability of the claim of the opening balance in the Service Tax Set Off Account as business expenditure under the Income Tax Act for the assessment year 2007-08. The Court found the Tribunal's reliance on precedents and interpretation of the CENVAT Scheme principles to be appropriate, leading to the dismissal of the Revenue's appeal.