2022 (4) TMI 858 - AT - Income Tax

Disallowance of rates taxes being reversal of CENVAT credit on scrap written off - AO Disallowed reversal of CENVAT credit on scrap written off on the ground that the assessee could not file necessary evidences and also failed to explain how figure was arrived at - HELD THAT - There is no dispute with regard to legal position that when unutilized CENVAT credit is available with the assessee for any reason, including restriction if any, imposed under CENVAT Credit Rules, same can be reversed and debited into profit loss account, because CENVAT credit availed by the assessee on purchase of raw materials partakes nature of cost of materials purchased/consumed. Therefore, when the assessee has reversed CENVAT credit as per CENVAT Credit Rules, then it needs to be debited into expenses account. However, the assessee has to file necessary evidences to prove reversal of CENVAT credit and also to explain how such figure has been arrived. In this case, the Assessing Officer claims that the assessee did not furnish necessary evidence, whereas, the assessee claims that it has filed reconciliation explaining reversal of CENVAT credit. The fact needs to be verified. Hence, we set aside this issue to the file of the Assessing Officer and direct the Assessing Officer to reexamine claim of the assessee in light of our findings given hereinabove. In case, the assessee is able to explain CENVAT credit with necessary details, then the Assessing Officer is directed to delete additions made towards disallowance of reversal of CENVAT credit on scrap written off. Disallowance of withholding tax debited into rates taxes account - AO has disallowed withholding tax included in rates taxes account on the ground that any tax, duty or cess is not allowable deduction u/s.40(a)(ii) - HELD THAT - In this case, as per terms of agreement with lenders, the assessee should make interest payment net of all applicable taxes in India. In other words, as per terms of agreement between the parties, the assessee shall borne all applicable taxes on interest payment to the lenders. As per terms of agreement, the assessee has grossed up interest payment towards TDS paid on said interest and remitted into Govt. account and also debited withholding tax to the profit loss account. In our considered view, withholding tax paid by the assessee to the Govt. account on behalf of the lenders in terms of agreement between the assessee is nothing, but cost of borrowings (interest to the assessee) and thus, the assessee is entitled to claim deduction for said withholding tax u/s.37(1) - However, fact remains that although, the assessee claims to have filed all details, but the Assessing Officer observed that the assessee does not furnish any evidence to substantiate its claim. Hence, we set aside this issue also to the file of the Assessing Officer and direct the Assessing Officer to examine claim of the assessee in light of agreement between the parties. In case, claim of the assessee is correct, then the Assessing Officer is directed to delete addition made towards withholding tax u/s.40(a)(ii) of the Act. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues involved:
1. Condonation of delay in filing appeal
2. Disallowance of reversal of CENVAT credit on scrap written off
3. Disallowance of withholding tax debited into rates & taxes account

Condonation of delay in filing appeal:
The appeal was filed by the assessee against an order passed by the Commissioner of Income Tax (Appeals) and was initially considered time-barred by 10 days. The assessee filed a petition for condonation of delay, citing non-availability of counsel as the reason for the delay. The Department strongly opposed the condonation, claiming the reasons were not reasonable. The Tribunal, after hearing both sides, concluded that the reasons presented by the assessee were reasonable and condoned the delay, allowing the appeal for adjudication.

Disallowance of reversal of CENVAT credit on scrap written off:
The dispute revolved around the disallowance of reversal of CENVAT credit on scrap written off amounting to ?2,06,98,060. The Assessing Officer disallowed the claim, stating that the assessee failed to provide necessary evidence and explain the figure arrived at. The Tribunal noted that when unutilized CENVAT credit is available, it can be reversed and debited into the profit & loss account. The Tribunal directed the Assessing Officer to reexamine the claim, emphasizing the need for the assessee to provide necessary details to support the reversal of CENVAT credit.

Disallowance of withholding tax debited into rates & taxes account:
The Assessing Officer disallowed withholding tax amounting to ?4,47,966 included in rates & taxes account, citing that any tax, duty, or cess is not an allowable deduction. The assessee argued that as per loan agreements, they were required to pay interest net of all applicable taxes in India. The Tribunal observed that withholding tax paid by the assessee on behalf of lenders, as per the agreement, should be considered a cost of borrowings and allowed as a deduction under section 37(1) of the Income Tax Act. The Tribunal directed the Assessing Officer to reexamine the claim based on the agreement terms and delete the addition if the claim is found to be correct.

In conclusion, the appeal filed by the assessee was treated as allowed for statistical purposes, with the Tribunal providing detailed analysis and directions on the issues of CENVAT credit reversal and withholding tax disallowance.

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