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TMI Blog2021 (2) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the AO that it is not an item of profit loss account. Even it is to be treated as profit loss account item, it was never treated as income at any point in time - Assessee has accounted input services exclusive of service tax and treated service tax component as input tax credit pending adjustment. Further, when the application filed by the assessee for refund was rejected by the Department, the assessee has written off said input tax credit and debited in to profit loss account. Therefore, the second observation of the AO would also fails. Said expenditure relatable to previous financial year and hence, partakes the nature of prior period item which is not eligible to be claimed as an expenditure for the current financial year - Coming to the third observation of the AO, the AO observed that even if it is deductible as expenditure but said expenditure is relatable to earlier financial year and partakes the nature of prior period item which cannot be allowed as deduction. We do not find any merit in the observation of the AO for the reason that although part of input tax credit pertains to earlier financial year but the same has been carried forward to subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh Periasamy, JCIT ORDER PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-13, Chennai, dated 17.11.2017 and pertains to assessment year 2010-11. 2. The assessee has raised the following grounds of appeal:- The order of the Commissioner of Income Tax (Appeals) [ CIT (A) ] is contrary to law, facts and circumstances of the case. 2. Disallowance of service tax written off 2.1 The CIT (A) erred in confirming the disallowance made by the AO for the refund of input service tax written off amounting to ₹ 51,65,869. 2.2 The CIT (A) failed to appreciate that the Appellant is operating in Special Economic Zone (SEZ) and as such it is exempt from service tax. 2.3 The CIT (A) ought to have appreciated that since the Appellant is not liable to service tax, the Appellant is eligible to claim the input service tax charged by the suppliers as refund from the Service Tax department. 2.4 The CIT (A) failed to consider the fact that the Service Tax department rejected the refund claim of the eligible input credit and as such the Appellant has written off the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are exempt from tax on account of SEZ benefits, the assessee has carried forward unutilized input tax credit to subsequent years and made a claim before the Service Tax Department for refund. Further, when the Service Tax Department has rejected refund claim made by the assessee for reasons best known to them, the assessee has reversed input tax credit and debited into profit loss account and claimed as expenditure deductible u/s.37(1) of the Act. 4. The AO, however was not convinced with the explanation furnished by the assessee. According to him, Service Tax credit being rejected, cannot impact the profit loss account. The AO further was of the opinion that even it is to be treated as a profit loss account item, it was never treated as income at any point in time for it to be written off. The AO further was of the opinion that, if the same is treated as claim of deferred expenditure, the same pertains to earlier years and is therefore a prior period item which is not eligible to be claimed as an item of expenditure. Therefore, rejected the claim of the assessee and made addition towards Service Tax written off amounting to ₹ 51,65,869/-. 5. Being aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below. There is no dispute with regard to the fact that the assessee has written off input Service Tax during the impugned financial year relevant to assessment year 2010-11. But, the dispute is with regard to deductibility of input service tax. The AO has disputed deduction claimed by the assessee on three grounds. The first and foremost objection of the AO was that input service tax written off was not an item of expenditure deductible u/s.37(1) of the Act, because the assessee has not rooted said expenditure through profit loss account. The second observation of the ld.AO is even it is to be treated as profit loss account item, it was never treated as income at any point in time. The third observation of the AO was that said expenditure relatable to previous financial year and hence, partakes the nature of prior period item which is not eligible to be claimed as an expenditure for the current financial year. We have gone through the reasons given by the AO for denying the deduction claimed towards Service Tax written off account and find that none of the reasons given by the AO is in accordance with law, because service tax paid on input services is an item of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has debited into the profit loss account. Therefore, on this count also the observation made by the AO fails. Further, it is well settled principle of law by the decision of various courts and Tribunals that input tax credit / CENVAT is deductible u/s.37(1) of the Act, when such input tax credit is reversed or written off in the books of account. The Hon ble Gujarat High Court in the case of CIT vs. Kaypee Mechanical India (P) Ltd., (2014) 223 taxmann 346 has held that Service Tax paid out of pocket is an item of expenses deductible u/s.37(1) of the Act. The ITAT, Ahmedabad in the case of Girdhar Fibres P. Ltd vs. ACIT in ITA No.2027/Ahd/2009 has held that input CENVAT incurred but not adjusted against output CENVAT is deductible as item of expenditure when such input credit is written off in the books of account. 9. In this view of matter and considering facts and circumstances of this case and also by following the ratios laid down by various Courts and Tribunals, we are of the considered view that input service tax credit is deductible u/s.37(1) of the Act when such input tax credit is written off in the books of account. But, facts with regard to refund claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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