The ITAT, Delhi bench has in its recent ruling in the case of Nagesh Knitwears Pvt. Ltd has held that CENVAT credit receivables which could not be set off are allowable as deduction under the Income Tax Act, 1961.
Facts of the Case:
- The assessee is in the business of manufacturing of woolen, cotton and blended hosiery knitwears declaring income of Rs. 2 ,57,28,240/-.
- During the assessment proceedings, the Assessing Officer noticed that the assessee had debited an amount of Rs. 8,45,000/- under the head sundry balances written off. The assessee has written off VAT recoverable of Rs. 1,48,130/- and AED recoverable of Rs. 7,84,058/-.
- The assessee was required to justify its claim regarding writing off the said dues from the government. The assessee submitted that the Central Excise duty had not been charged to the purchase account and since the same was recoverable from customers on sales and balance, if any, charged by the suppliers was considered as recoverable from the Government.
Ruling of ITAT:
ITAT observed that the writing off of unutilized CENVAT credit has been allowed by the revenue in the A.Y. 2010-11. According to the Tribunal, whenever the Excise Duty is written off at the time of surrender of excess registration certificate as the assessee would no longer be in a position to utilize the Excise Duty. The assessee pays CENVAT on purchase of raw material and claims benefit of set off against Excise Duty payable on manufactured items.
ITAT noted that the assessee increases the value of the purchases in respect of duty paid in the form of AED but the same could not be adjusted against the CENVAT rules because on the finished goods only the basic duties levied. Therefore, the difference of loss incurred on account of rate differential between input and output Excise Duty is allowed to be claimed as business expenditure. This is generally a regular practice in the manufacturing sector which is also followed by the assessee from year to year.
In view of the above deliberations the Tribunal bench comprising ITAT Vice-President A. D. Jain, and Dr. B. R. R. Kumar, Accountant Member held that the CENVAT credit receivables which could not be set off have been rightly claimed by the assessee as a deduction.
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