NCS Distilleries Pvt.Ltd., Hyderabad V. ITO, Ward-16(2), Hyderabad

ITA 699/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7676 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 04-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D BALAJI
• Keywords: Business expenditure; Cost of acquisition
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICAL MEMBER ITA.NO.699/HYD/2012 ASSESSMENT YEAR 2008-2009 M/S. NCS DISTILLERIES P. LTD., HYDERABAD. PAN AABCN1081E VS. THE INCOME TAX OFFICER WARD 16 (2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. D. BALAJI FOR REVENUE : MR. R. MOHAN REDDY DATE OF HEARING : 04.08.2014 DATE OF PRONOUNCEMENT : 16.09.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE O RDER OF THE LD. CIT(A)-V, HYDERABAD DATED 28.02.2012. TH E ISSUE IN THIS APPEAL IS WITH REFERENCE TO CENVAT CREDIT WRITTEN OFF BY ASSESSEE IN THE P & L ACCOUNT. 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSI NESS OF RECTIFIED SPIRIT. IT CLAIMED AN AMOUNT OF RS.1,20,6 2,472 IN THE P & L ACCOUNT AS WRITE-OFF OF THE OUTSTANDING UNUTILIZE D CENVAT CREDIT AVAILABLE IN ITS BOOKS OF ACCOUNTS. ASSESSIN G OFFICER IN THE COURSE OF SCRUTINY OF THE ASSESSMENT DID NOT ALLOW DEDUCTION BY STATING AS UNDER : 2 ITA.NO.699/HYD/2012 M/S. NCS DISTILLERIES P. LTD., HYDERABAD. 3. THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF RS.1,20,62,472/- TOWARDS CENVAT RECEIVABLE WRITTEN OFF AND MADE IT A CHARGE ON THE PROFIT AND LOSS ACCOUNT. SI NCE THE AMOUNT INVOLVED IS A STATUTORY AMOUNT, VIDE SHOW CA USE DT.13.12.2010, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMOUNT WRITTEN OFF SHOULD NOT BE DISALLOWED. WITH R EGARD TO THIS, THE ASSESSEE VIDE ITS LETTER DATED 16.12.2010 SUBMI TTED AS UNDER : IT IS TRUE THAT WE HAVE WRITTEN OFF A SUM OF RS.12 0.62 LACS TOWARDS CENVAT RECEIVABLES. WE HAVE WRITTEN OFF THI S 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 REQUE ST YOU TO CONSIDER OUR WRITING OFF THESE CENVAT RECEIVABLES I S IN ORDER. THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGAR D HAVE BEEN EXAMINED. THE SUBMISSION OF THE ASSESSEE THAT THE A MOUNT IS WRITTEN OFF SINCE IT IS NOT INCLUDED IN THE PURCHAS E 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 A ND ALSO IN THE INVENTORY IN TERMS OF PROVISIONS OF SECTION 145A. T HIS 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 AVAILED SET OFF DURING THE YEAR SO AS TO WRITE IT O FF. UNDER THE CIRCUMSTANCES, THE WRITING OFF OF CENVAT CREDIT DOE S NOT APPEAR TO BE IN ORDER, AND THEREFORE, THE DEDUCTION CLAIMED U NDER CENVAT WRITTEN OFF IS DISALLOWED. 3. BEFORE THE LD. CIT(A), ASSESSEE ARGUED THAT THE COMPANY IS LOOSING MONEY/CREDIT ON ACCOUNT OF RATE DIFFERENTIAL BETWEEN INPUT AND OUTPUT EXCISE DUTY. AS THIS PHENO MENA IS GOING ON YEAR AFTER YEAR, THE INCOMES IN THE P & L ACCOUN T WERE SHOWN EXCESS AND BEING UNREALISTIC. THE CENVAT CREDIT REC EIVABLE WHICH COULD NOT BE SET OFF WAS CLAIMED AS DEDUCTION. IT W AS FURTHER SUBMITTED THAT ASSESSEE COMPANY HAS TWO DIVISIONS V IZ., DISTILLERIES AND PROPERTY. THE DISTILLERIES DIVISIO N WAS FINALLY DEMERGED AND ITS ASSETS AND LIABILITIES ARE TRANSFE RRED TO ANOTHER COMPANY W.E.F. 01.04.2008 IN A SCHEME OF ARRANGEMEN T APPROVED 3 ITA.NO.699/HYD/2012 M/S. NCS DISTILLERIES P. LTD., HYDERABAD. BY THE HONBLE HIGH COURT OF ANDHRA PRADESH. ACCORD INGLY, THE OUTSTANDING CENVAT CREDIT WAS WRITTEN-OFF IN THE BO OKS OF ACCOUNTS AS THE ASSESSEE-COMPANY WAS DIVESTED OF IT S DISTILLERIES BUSINESS AND IT HAS NO FACILITY TO CLAIM ANY FURTHE R CREDIT AS THE BUSINESS ITSELF WAS STOPPED. 4. LD. CIT(A), HOWEVER, DID NOT AGREE AND AFTER AN ALYZING THE CENVAT PROVISIONS CAME TO THE CONCLUSION THAT T HERE ARE ONLY TWO WAYS WHICH COULD BE DEBITED TO THE P & L ACCOUN T I.E., ONE AS A BAD DEBT AND THE OTHER AS A BUSINESS EXPENSE OF T HE CURRENT YEAR. HE DID NOT ALLOW IT AS A BAD DEBT ON THE REAS ON THAT IT IS NOT TREATED AS RECEIPT AT ALL AND ASSESSEE HAS NOT FURN ISHED YEAR-WISE DETAILS OF THE AMOUNTS. WITH REFERENCE TO LOSS/CLAI M UNDER SECTION 37(1), THE LD. CIT(A) WAS OF THE OPINION THAT THIS AMOUNT IS NOT AN EXPENSE OF THE YEAR AND SINCE THE AMOUNT IS NOT EXP ENSE OF THE YEAR, THE SAME CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. FOR THESE REASONS, HE REJECTED THE CLAIM. 5. BEFORE US, LD. COUNSEL SUBMITTED THAT ASSESSEE HAS WRITTEN-OFF THE AMOUNT IN THE BOOKS OF ACCOUNTS. TH EREFORE, LD. CIT(A) WAS WRONG IN NOT ALLOWING IT AS BAD DEBT. EV EN OTHERWISE, THE SAME IS ALLOWABLE AS BUSINESS LOSS. HE RELIED O N THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA P. LTD., 312 ITR 254. LEARNED FURTHE R A.R. RELIED ON THE FOLLOWING CASE LAWS : (I) M/S. MOHAN SPINNING MILLS VS. ACIT ITA.NO.1212/CHD /2011 DATED 25.04.2012 (II) GIRDHAR FIBRES P. LTD., VS. ACIT ITA.NO.2027/AHD /2009 DATED 12.10.2012. (III) ACIT VS. RANGOLI INDUSTRIES P. LTD., ITA.NO.1936/AH D /2010 DATED 11.01.2013 4 ITA.NO.699/HYD/2012 M/S. NCS DISTILLERIES P. LTD., HYDERABAD. 6. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND CONSIDERING THE FACTS OF THE CASE AS NARRATED BEFOR E THE AUTHORITIES, IT WAS OBSERVED THAT THE AFORESAID AMOUNT OF THE EX CISE DUTY CREDIT (CENVAT CREDIT) WRITTEN OFF WAS ALLOWABLE A S DEDUCTION. ON THIS ISSUE, COORDINATE BENCH AT CHANDIGARH IN THE C ASE OF M/S.MOHAN SPINNING MILLS (SUPRA) HAS OPINED AS UNDE R :- '7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RESPE CT OF THE DEDUCTION CLAIMED ON ACCOUNT OF CENVAT AMOUNTING TO RS.35,94,577. THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF MANUFACTURING AND TRADING OF YARN AND FIBRE. THE YA RN 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 YAR N/FIBRE. IN TURN, ASSESSEE WAS LIABLE TO PAY DUTY ON ITS MANUFA CTURED ITEMS. THE RATE OF EXCISE DUTY PAYABLE ON THE RAW M ATERIAL WAS HIGHER AND THE ASSESSEE WAS DEPOSITING THE EXCISE D UTY IN PLA ACCOUNT WHICH IN TURN WAS ADJUSTABLE AGAINST THE EX CISE DUTY PAYABLE ON THE FINISHED PRODUCTS. THE EXCISE DUTY P AYABLE ON THE FINISHED PRODUCTS WAS ON THE LOWER SIDE AND CON SEQUENTLY OVER THE PERIOD OF YEARS THE ASSESSEE HAD CREDIT OF EXCISE DUTY RESULTING IN ACCUMULATION OF CENVAT.' '10. VARIOUS TESTS HAVE BEEN LAID DOWN BY VARIOUS H IGH COURTS AND THE APEX COURT IN RELATION TO THE ALLOWABILITY OF EXPENDITURE UNDER SECTION 37(1) OF THE ACT WHILE COMPUTING THE INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD PAID CENVAT ON PURCH ASE OF RAW MATERIAL WHICH WAS DEPOSITED IN ITS PLA ACCOUNT FOR CLAIMING THE BENEFIT OF SET OFF AGAINST THE EXCISE DUTY PAYABLE ON THE MANUFACTURED ITEMS I.E. BRANDED YEARN. THE ASSE SSEE WAS PAYING HIGHER RATE OF EXCISE DUTY ON THE RAW MATERI AL PURCHASED BY IT AS AGAINST THE RATE OF EXCISE DUTY APPLICABLE ON THE MANUFACTURED ITEMS, CONSEQUENTLY CREDIT OF EXCISE D UTY WAS AVAILABLE WITH THE ASSESSEE. THE SAID EXCISE DUTY P AID FROM YEAR TO YEAR WAS NOT CLAIMED AS AN EXPENDITURE BUT WAS CARRIED FORWARD FROM YEAR TO YEAR TO BE ADJUSTED AGAINST TH E EXCISE DUTY PAYABLE BY THE ASSESSEE ON ITS MANUFACTURED ITEMS. HOWEVER, DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CL OSED DOWN ITS MANUFACTURING UNIT AND CONSEQUENTLY THE BENEFIT OF THE CENVAT CREDIT REMAINED UN- ADJUSTED. ONCE THE MANUF ACTURING UNIT OF THE ASSESSEE IS CLOSED DOWN, ADMITTEDLY THE BENEFIT OF 5 ITA.NO.699/HYD/2012 M/S. NCS DISTILLERIES P. LTD., HYDERABAD. CENVAT CREDIT NOT AVAILED OF AGAINST THE EXCISE DUT Y PAYABLE ON MANUFACTURED ITEMS, CANNOT BE UTILIZED BY THE ASSES SEE AND THE SAID WRITE OFF OF CENVAT CREDIT, IS ALLOWABLE AS AN EXPENDITURE IN THE YEAR UNDER CONSIDERATION ON THE CLOSURE OF T HE BUSINESS. THE WRITE OFF OF CENVAT CREDIT BY THE ASSESSEE IN I TS BOOKS OF ACCOUNT IS THUS ALLOWABLE AS BUSINESS EXPENDITURE U NDER THE PROVISIONS OF SECTION 37(1) OF THE ACT RELATABLE TO THE YEAR, IN WHICH THE MANUFACTURING ACTIVITIES ARE CLOSED DOWN BY THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFI CER TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF WRITE OFF O F CENVAT CREDIT OF RS.35,94,577/-. GROUND NO.1 RAISED BY THE ASSESS EE IS THUS ALLOWED.' 6.1. WE HAVE ALSO NOTED THAT THE COORDINATE BENCH 'A' AHMEDABAD IN THE CASE OF GIRDHAR FIBRES PVT.LTD. (S UPRA) HAS ALSO OPINED AS UNDER:- '9. WE HEARD BOTH THE SIDES. BEFORE US, FORM E.R.1, I.E. RETURN OF EXCISABLE GOODS AND AVAILMENT OF CENVAT CREDIT H AS BEEN PLACED. THE EXPLANATION OF THE ASSESSEE WAS THAT TH E IMPUGNED TWO AMOUNTS WERE PART OF THE DUTY WHICH WAS PAID BY THE ASSESSEE AT THE TIME OF PURCHASE OF RAW-MATERIAL, H OWEVER, THE ASSESSEE HAD MAINTAINED EXCLUSIVE SYSTEM OF ACCOUNT ING, THEREFORE THE DUTY PAID WAS NOT DEBITED AS A PART O F THE PURCHASES BUT A SEPARATE ACCOUNT WAS MAINTAINED AND CARRIED TO THE BALANCE-SHEET. THE AED AND NCCD WERE APPLICA BLE ON POY, I.E. RAW-MATERIAL. WHEN THE FINISHED GOODS, I. E. TEXTURISED YARN IS MANUFACTURED, THE EXCISE IS LEVIED IN THE F ORM 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 C HOICE TO INCREASE THE VALUE OF THE PURCHASES IN RESPECT OF T HE DUTY PAID IN THE FORM OF AED & NCCD. IN OTHER WORDS, AN EXPENDIT URE WAS INCURRED BUT THAT EXPENDITURE COULD NOT BE ADJUSTED AGAINST THE CENVAT RULES BECAUSE ON THE FINISHED GOODS, I.E. TE XTURISED YARN ONLY THE BASIC DUTY IS LEVIABLE. WE, THEREFORE , HOLD THAT THE AMOUNT WHICH IS NOW WRITTEN OFF BEING PART OF THE B USINESS EXPENDITURE, HENCE ALLOWABLE UNDER THE PROVISIONS O F THE ACT. IN THE RESULT, WE HEREBY REVERSE THE FINDINGS OF THE A UTHORITIES BELOW AND ALLOW THE GROUND RAISED BY THE ASSESSEE.' 6 ITA.NO.699/HYD/2012 M/S. NCS DISTILLERIES P. LTD., HYDERABAD. 7. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF A CIT VS. RANGOLI INDUSTRIES P. LTD., ITA.NO.1936/AHD /2010 D ATED 11.01.2013. IN THE LIGHT OF THE ABOVE DECISIONS ON IDENTICAL FACTS, SINCE A VIEW HAS ALREADY BEEN TAKEN IN FAVOUR OF TH E ASSESSEE ON THIS ISSUE, RESPECTFULLY FOLLOWING THAT, WE HEREBY HOLD THAT AO AND LD.CIT(A) WAS NOT RIGHT IN DISALLOWING THE CLAIM. A O IS DIRECTED TO ALLOW THE AMOUNT AS CLAIMED, SUBJECT TO ASSESSEE FU RNISHING THE DETAILS OF CREDIT YEAR WISE AND OTHER EXCISE REGIST ERS/FORMS TO ESTABLISH THAT CENVAT CREDIT WAS AVAILABLE TO IT, B EFORE WRITING OFF THE SAME. ACCORDINGLY, GROUNDS RAISED BY THE ASSESS EE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 16 TH SEPTEMBER, 2014 VBP/- COPY TO 1. M/S. NCS DISTILLERIES P. LTD., MINAR APARTMENTS, DECCAN TOWERS, BASHEERBAGH, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD 16 (2), HYDERABAD 3. COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABA D 4. COMMISSIONER OF INCOME TAX-IV, HYDERABAD 5. D.R. A BENCH, ITAT, HYDERABAD.