2022 (3) TMI 898 - AT - Income Tax

Disallowance on account of Central Excise Duty (Basic Excise Duty BED recoverable and Additional Excise Duty AED recoverable) which was written off - HELD THAT - The writing off of unutilized CENVAT credit has been allowed by the revenue in the A.Y. 2010-11.The assessee is in the business of manufacturing of woolen, cotton and blended hosiery knitwears declared taxable income. Whenever the Excise Duty is written off at the time of surrender of excess registration certificate as the assessee would no longer be in a position to utilize the Excise Duty. The assessee pays CENVAT on purchase of raw material and claims benefit of set off against Excise Duty payable on manufactured items. The assessee increases the value of the purchases in respect of duty paid in the form of AED but the same could not be adjusted against the CENVAT rules because on the finished goods only the basic duties levied. Therefore, the difference of loss incurred on account of rate differential between input and output Excise Duty is allowed to be claimed as business expenditure. This is generally a regular practice in the manufacturing sector which is also followed by the assessee from year to year. CENVAT credit receivables which could not be set off has been rightly claimed by the assessee as deduction. Appeal of assessee allowed.

Summary

Issues:
Disallowance of Central Excise Duty written off

Analysis:
The appeal was filed against the order of the ld. CIT(A)-37, Delhi dated 28.02.2018. The assessee, engaged in manufacturing hosiery knitwears, declared income of ?2,57,28,240/- for the year under consideration. The Assessing Officer noted that the assessee had written off VAT recoverable of ?1,48,130/- and Additional Excise Duty (AED) recoverable of ?7,84,058/-. The assessee justified the write-off by stating that the Central Excise duty had not been charged to the purchase account and was considered recoverable from the Government. However, the Assessing Officer added back the Excise duty recoverable of ?7,84,058/- to the income, citing lack of evidence regarding non-recoverability from the Government.

The ld. CIT(A) upheld the addition, emphasizing the lack of evidence on non-recoverability from the Government. It was noted that even during the appellate proceedings, the onus to establish non-recoverability was not discharged. The CIT(A) referred to a previous case and highlighted the importance of evidence, such as the RG-23A Part-II register, in supporting claims for relief. The CIT(A) also pointed out that in the previous case, it was established that CENVAT credit pertained to input and the purchase cost of inputs had been debited net of CENVAT credit in the Profit & Loss account.

Upon review, it was found that the writing off of unutilized CENVAT credit had been allowed by the revenue in a previous assessment year. Despite this, the issue was examined, considering the nature of the business and the practice in the manufacturing sector. The assessee, following a regular practice, claimed the difference in loss incurred due to rate differentials between input and output Excise Duty as a business expenditure. The Tribunal observed that the CENVAT credit receivables, which could not be set off, were rightly claimed by the assessee as a deduction. Consequently, the appeal of the assessee was allowed, and the decision was pronounced in the open court on 17/03/2022.