Allowability of service tax written off to PL Account when input credit not allowed under Cenvat Credit Rules. ITAT deleted the addition
ABCAUS Case Law Citation:
ABCAUS 3085 (2019) (07) ITAT
Important Case Laws Cited/relied upon by the parties:
T. R. F. Ltd. vs. CIT: 323 ITR 397
The Revenue was aggrieved by the order of the CIT(A) in deleting the disallowance in respect of service tax recoverable’ by accepting the self-serving claim of the assessee without fulfillling the conditions laid down under rule 46A of Income Tax Rules ( the Rule ).
The assessee was taking credit of service tax paid by it on input services under Cenvat Credit Rules, 2004. In such scenario, the expense was booked by the net amount, i.e. net off service tax. The amount of service tax was booked in the service tax recoverable account and was adjusted through the liability of payment of service tax.
During the relevant year, the assessee had charged service tax amount which could not be claimed as set off against the output service tax by debiting the same to P&L account. The said amount was not debited as expenditure in earlier years since the same was recorded as recoverable against output service tax liability.
The Assessing Officer (AO), however, for the relevant assessment year, disallowed the claim of the appellant on the grounds that no evidence in respect of the claim was submitted by the appellant during the course of assessment proceedings.
Before the CIT(A), the assessee submitted that subsequent to a service tax audit of the appellant conducted by the service tax department, the Cenvat credit taken by the appellant was not allowed on certain nature of input services. Â
It was further submitted that it had booked the expenses net of service tax amount as the appellant was assuming that it was entitled to avail Cenvat credit. However, had the appellant known earlier that such credits would be denied at a later stage , the appellant may have booked all expenses gross of service tax and would have not taken any credit in the books of accounts.
The further submitted that pursuant to such audit the appellant reconsidered it’s claim of Cenvat credit for the subsequent year and ad suo motu written off the input credit claimed on such services, to its profit & loss account. According to the assessee, once that decision was taken and a claim to that effect was made that year, it became the year in which such claim was admissible.
To support its case, the assessee drew an analogy to the provisions of section 36(1)(vii) of the Act governing deduction of bad debts which under the amended provisions allow deduction in the year in which debt is written off in the books of accounts. The assessee also buttressed his contention relying on the CBDT Circular No. 12 of 2016 on admissibility of claim of deduction of bad debt under section 36(1)(vii) of the Act.
The appellant also relied upon the judgment of the Hon’ble Supreme Court wherein it was held that the claim of bad debts was allowable to the assessee if the same had been written as irrecoverable by the assessee and it was not necessary to establish that the debt had actually became bad.
The CIT(A) in view of the submissions of the assessee was pleased to delete the disallowance.
The Tribunal from the submission of the assessee made before the CIT(A) observed that the service tax portion was availed by the assessee as service tax recoverable for utilization towards output service tax. This amount was not included in the P&L account and claimed earlier. Rather, took into balance sheet under the head ‘service tax recoverable’.
The Tribunal did not agree with the findings of the Assessing Officer that the disallowance was made as the assessee had not produced any evidence. The Tribunal stated that since, the deduction had been claimed for the first time in the relevant year and hence was allowable.
Accordingly, the appeal of the Revenue on this ground was dismissed.
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