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TMI Blog2017 (10) TMI 1559X X X X Extracts X X X X X X X X Extracts X X X X ..... of the year, since the same was not available for future utilization in the absence of clarity of statutory rules", afresh and after considering the details, assessee's explanation etc., rejected assessee's claim and added Rs. 1,83,04,644/-. Aggrieved against that order, the assessee filed an appeal before the CIT(A) and the CIT(A) allowed the assessee's appeal. Against the CIT (A) order, the Revenue filed the appeal in ITA 2927 /Mds/2016 . 3. The Revenue's grounds of appeal for the ay 2007-08 are extracted as under : "2. The learned CIT (A) is not justified in directing the Assessing Officer to delete the disallowance of service tax written of and charged to P&L account amounting to Rs. 1,83,04,644/- made by him in the assessment for AY 2007-08 in the assessee's case. 2.1 The learned CIT CA) having r lied on the decision of the Hon'ble ITAT, Hyderabad in the case of M/s Ne Distilleries P. Ltd. Vs ITO Ward 16(2) ought to have appreciated that t e facts of the case discussed in that decision are distinguishable from the facts of the present case, in as much as in the case of MI5 NCS Distilleries P. Ltd, the business were closed and divested off whereas in the present a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on the C&F commission. As a result of the withdrawal of duty on edible oil, the scope for availing credit from the PLA account diminished to a great extent. This was further compounded by the objection raised the Service Tax Department against availing of credit of service tax component on Advertisement & Insurance against service tax payable on C&F commission. The reason for this objection is that, the expenditure incurred on advertisement and insurance related almost entirely to its manufactured goods and therefore had no nexus to the appellant's C&F activity. 3. From 10-09-2004, CENVAT Credit Rules 2004(CCR), is applicable to both service tax credit and CENVAT credit. As per Rule 6(1) of CCR 2004, the CENVAT credit shall not be allowed on such quantity of input or input services which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2). Sub-Rule (2), mandates that, a manufacturer or provider of output services, manufacturing final products or providing output services, which are both chargeable to duty or tax as well as exempted goods or services, shall maintain separate accounts, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise Liability in FY 06-07 1,01,218 Sub - Total 24,35,708 Balance yet to be utilized 2,42,11,978 Less: Credit withdrawn as per the Adjudication Order & pending in appeal 49,00,197 Undisputed Credit u/r 6(v) 10,07,137 Sub - Total 59 07 334 Balance claimed in AY 2007-08 1,83,04,644 It can be seen from the Extract of the STA enclosed, that major portion of the service tax credit is from advertisement & insurance. In respect of these two items, the Service tax Department had already held that, the appellant's claim for taking credit against C&F service tax liability is against the provisions of CCR. The appellant's service tax liability is entirely on C&F services. With the withdrawal of duty on edible oil, payment of duty had diminished to a large extent. It can be noticed that in FY 2006-07, the appellant had paid only a sum of Rs. 1,01,218/- on the byproducts. Only in respect of services falling u/s 6(v), credit can be availed, against duty payable on byproducts and against service tax payable on C&F services. This is clearly as per the provisions of CCR and is also not disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that in the appeal, the decision is contested more on technical aspects, especially in the matter of the transitional credit of Rs. 39,09,242/- embedded in Rs. 49,00,194/-, and remaining as credit in the STA prior to CCR2004. In view of the clarity emerging on this issue coupled with the legal advice got from the appellant's legal advisor, during this FY 2006- 07, the claim was accordingly made. 6. The AO's understanding that the appellant had deviated from the system of accounting regularly followed by it is totally incorrect. As explained earlier, when there was no more benefit in deferring the expenditure, in view of the change in law and the perception of the Department on the appellant's understanding on the same, the appellant decided to claim the expenditure for the above assessment year. This was a bona fide decision taken after considering various factors discussed in the earlier paragraphs, including the opinion of the appellant's legal advisor. It is a settled law that business income has to be computed under ordinary principles of commercial accountancy, no doubt, in accordance with the provisions of Sections 28 to 44 of the IT Act. The decision to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount, vide show cause dt.13.12.2010, the assessee was asked to explain as to why the amount written off should not be disallowed. With regard to this, the assessee vide its letter dated 16.12.2010 submitted as under: It is true that we have written off a sum of Rs. 120.62 lacs towards Cenvat Receivables. We have written off this amount since we have not included this in purchase cost. Normally, Cenvat amount to be included In purchase cost or it should be accounted for future set off. We request you to consider our writing off these Cenvat receivables is in order." The submissions made by the assessee in this regard have been examined. The submission of the assessee that the amount is written off since it is not included in the purchase cost is not acceptable for the reason that if duty is included in the purchase cost, the same has to be included in the turnover and also in the inventory in terms of provisions of section 145A. This has a neutralizing effect. The amount under consideration is statutory amount due to the assessee which can be used to set off duty payable on the finished goods. The assessee has not demonstrated as to how the cenvat credit available cannot be av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012. (iii) ACIT vs. Rangoli Industries P. Ltd., ITA.No.1936/Ahd /2010 dated 11.01.201.3 6. Having heard the submissions of both the sides and considering the facts of the case as narrated before the authorities, it was observed that the aforesaid amount of the Excise Duty credit (CENVAT Credit) written off was allowable as deduction. On this issue, Coordinate Bench at Chandigarh in the case of M/s.Mohan Spinning Mills (supra) has opined as under :- "7. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in respect of the deduction claimed on account of CENVAT amounting to Rs. 35,94,577. The assessee was engaged in the business of manufacturing and trading of yarn and fibre. The yarn manufactured by the assessee was an excisable item. The assessee was paying excise duty on the raw material purchased i.e. acrylic yarn/fibre and polyester yarn/fibre. In turn, assessee was liable to pay duty on its manufactured items. The rate of excise duty payable on the raw material was higher and the assessee was depositing the excise duty in PLA account which in turn was adjustable against the excise duty payable on the finished products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d two amounts were part of the duty which was paid by the assessee at the time of purchase of raw-material, however, the assessee had maintained exclusive system of accounting, therefore the duty paid was not debited as a part of the purchases but a separate account was maintained and carried to the balance-sheet. The AED and NCCD were applicable on POY, i.e. raw-material. When the finished goods, i.e. texturised yarn is manufactured, the excise is levied in the form of basic duty. The assessee has adopted exclusive method of accounting, therefore debited the net purchases and those were separately recorded in the books of accounts. We find force in this argument of the assessee because while maintaining the exclusive method of accounting the assessee had a choice to increase the value of the purchases in respect of the duty paid in the form of AED & NCCD. In other words, an expenditure was incurred but that expenditure could not be adjusted against the CENVAT Rules because on the finished goods, i.e. texturised yarn only the basic duty is leviable. We, therefore, hold that the amount which is now written off being part of the business expenditure, hence allowable under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs. 1,83,04,644/-, in para 4, supra, which has been upheld by the different benches of the Tribunal , as is extracted and discussed by the Hon'ble ITAT (Hyderabad 'A' Bench) , supra. As the facts of this case and the facts of the cases in which the Hon'ble ITAT, Hyderabad had relied and rendered the decision are identical with the assessee, the order of the CIT(A) is held as justified and hence the grounds of Revenue's appeal are dismissed. 9. Thus, the Revenue's appeal in ITA No. 2927 Mds/2016 for assessment years 2007-08 is dismissed. Revenue's appeal in ITA No2928 /Mds/2016 for assessment year 2011-12: 10. In the assessment made for assessment year 2011-12, the AO disallowed three items of expenditures as under : (i) Disallowance u/s 14A Rs. 7,49,214/- (ii) Disallowance u/s 40(a)(ia)/40a(i) Demurrage Rs. 85,11,844/- (iii)Disallowance u/s 40(a)(ia) Payment to Port Trust - Rs. 38,27,366/- Aggrieved against that order, the assessee filed an appeal before the CIT (A) and the CIT (A) partly allowed the assessee's appeal. Against the CIT (A) order, the Revenue filed the appeal in ITA 2928 /Mds/2016 .Its grounds of appeal are extracted as under : "1. The order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above expenses attracts TDS provisions and in the absence of TDS on the same by the assessee, ought to have confirmed the said disallowances made by the Assessing Officer. 5. For this grounds and for any other grounds including amendment that may be raised during the course of the appeal proceedings, the order of learned CIT (Appeals) may be set aside and that of the Assessing Officer be restored." 11. The first issue is the disallowance u/s 14A: The assessee admitted income from dividend which is exempt under the Act. However it had not made any disallowance u/s 14A. During the course of scrutiny assessment, the assessee was asked to furnish its clarification in this regard. The A.R. contended that no specific expenditure was incurred attributable to earning the dividend and therefore disallowance u/s 14A would not arise. The AO has not accepted this contention for the reason that obviously the assessee has used its office establishment as well as its staff, thus incurring some expenditure for earning this dividend income. These investments would require monitoring by the directors or senior professionals, which would certainly result in hidden cost to the company out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges totalling to Rs. 39,44,658/- to 2 foreign companies as under: Payment to Amount (a) M/s Golden Agri International Pte Ltd, Singapore 17,47,531 (b) M/s Noble Resources, Switzerland 21,97,127 On these payments, the assessee has not deducted TDS .When the assessee was required to explain as to why these expenditure should not be disallowed u/s.40a(i) , it contended that since they are reimbursements made to those parties in respect of demurrage paid by the shippers, they will not attract the provisions of section 40a(i). The AO has not accepted the assessee's contention, as it is held in the decision of CIT v Orient (GOA) P Ltd (Bom) 325 ITR 554 that demurrage paid by Indian Company to foreign company without TDS attracts disallowance u/s.40a(i). Accordingly, the AO disallowed them u/s 40a(i) / 40a(ia) . 12.1 The CIT (A) after considering the assessee's submissions in this regard held that the appellant itself has not paid the demurrage charges and it only made reimbursement of the expenditure incurred by the foreign companies. In the case law relied on by the AO viz., CIT v. Orient (Goa) P Ltd. (Bom) 325 ITR 554, it has been held that demurrage paid by Indian Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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