Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (2) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (2) TMI 462 - AT - Income TaxDisallowance of tax credit / service tax written off - disallowance made by the AO for the refund of input service tax written off - Prior period item - Appellant is operating in Special Economic Zone (SEZ) and as such it is exempt from service tax - First 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 - HELD 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 expenditure deductible u/s.37(1) of the Act. But, if assessee claims input tax credit on said Service Tax, then the same cannot be claimed as deduction in the profit & loss account once again. In this case, the AO has not disputed the fact that the assessee has not debited Service Tax component paid on input services into the profit & loss account. Therefore, we are of the considered view that there is no merit in the observation 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 subsequent financial year as per the provisions of law. Further, the same has been claimed as refund with respective department during the current financial year. When the input service tax credit is carried forward from earlier financial year to the current financial year, it partakes the nature of taxes paid for the current financial year and hence deductible as and when the assessee has debited into the profit & loss account. Therefore, on this count also the observation made by the AO fails. 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 (4) TMI 829 - GUJARAT HIGH COURT] has held that Service Tax paid out of pocket is an item of expenses deductible u/s.37(1) - ITAT, Ahmedabad in the case of Girdhar Fibres P. Ltd vs. ACIT [2012 (11) TMI 161 - ITAT, AHMEDABAD] 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. 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 made by the assessee and rejection of such refund claim by the concerned authorities for the impugned assessment year was not on record. Therefore, to ascertain the fact with regard to the claim of the assessee with regard to rejection of refund claimed, we set aside the issue to the file of the AO for the limited purpose of verification of claim of the assessee regarding rejection of refund claim. In case, the assessee is able to substantiate its claim with necessary evidence before the AO, then the AO is directed to delete addition made towards disallowance of Service Tax written off account. Appeal of assessee is treated as allowed for statistical purpose.
|