2004 (2) TMI 280 - AT - Income Tax

Summary

Issues:
Deduction of Rs. 8,34,107 written off by the assessee on account of MODVAT receivable account due to general exemption of jute products from excise duty.

Analysis:
The assessee, engaged in manufacturing jute products, claimed a deduction of Rs. 8,34,107 written off on MODVAT receivable account following a general exemption on excise duty for jute goods. The dispute arose as the Assessing Officer (AO) denied the deduction, questioning the lack of reasons and supporting evidence for the write-off. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, stating that the assessee suffered a revenue loss due to the exemption, making it allowable as a deduction.

The Revenue challenged the decision, arguing that the assessee, under the MODVAT scheme, was entitled to exemption only up to the duty paid on raw material/capital goods, not total exemption like the notification provided. The Revenue contended that the CIT(A) erred in allowing the deduction. Conversely, the assessee's counsel argued that the general exemption caused a loss to the assessee, affecting their accounting treatment based on MODVAT guidelines and resulting in reduced claims for duty paid on inputs and machinery.

The Tribunal considered the competing contentions and the impact of the assessee's accounting entries over the years. While acknowledging that the assessee did not suffer a direct loss due to the exemption, the Tribunal recognized the accounting method followed by the assessee, which led to reduced deductions on inputs and machinery costs. Consequently, the Tribunal allowed a deduction of Rs. 2,29,496 for duty attributable to inputs carried forward from the preceding year and Rs. 6,04,651 for the excise duty component on capital goods. The Tribunal modified the CIT(A)'s order, directing the AO to implement the decision.

In conclusion, the appeal of the Revenue was partly allowed, with the Tribunal recognizing the unique circumstances and allowing deductions based on the accounting treatment and impact of the general exemption on the assessee's business operations.