Principal Commissioner Of Incometax, Central 2 v. M/S.kaleesuwari Refinery Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 08.03.2021 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MS.JUSTICE R.N.MANJULA Tax Case Appeal No.282 of 2018 Principal Commissioner of IncomeTax, Central 2,No.108, Mahatma Gandhi Road,Chennai. ...Appellant Vs M/s.Kaleesuwari Refinery Pvt. Ltd.,No.53, Rajasekaran Street,Mylapore, Chennai - 600 004....RespondentPAN AAACK6087A APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 05.10.2017 passed by the Income TaxAppellate Tribunal, Madras 'A' Bench in I.T.A.No.2927/Mds/2016for the assessment year 2007-08. This Appeal preferred against the order of the IncomeTax Appellate, Tribunal Madras 'A' Bench dated 05/10/2017 in IANo.2927/mds/2016 in Assessment year 2007-2008 against theCommissioner of Income Tax appeals -18, 46, Mahatma Gandhi Road,Nungambakkam, Chennai 600 034, in IA No.728/2015-16 dated28/07/2016 GIA/PAN No. in Assessment year 2007-2008.against the Deputy Commissioner of Income Tax Central Circle -II(4), Investigating Wing New No.46/ old no.108 M.G.RoadNungambakkam Chennai 600 034, in PAN No. in Assessmentyear 2007-2008. For Appellant : Mr.T.R.Senthil Kumar, SSCassisted byMs.K.G.Usha Rani, JSCFor Respondent : Mr.G.Baskar JUDGMENT This appeal, filed by the Revenue under Section 260A of theIncome Tax Act, 1961 (for short, the Act), is directed against https://hcservices.ecourts.gov.in/hcservices/ the order dated 05.10.2017 made in I.T.A.No.2927/Mds/2016 on thefile of the Income Tax Appellate Tribunal, Madras 'A' Bench('the Tribunal' for brevity) for the assessment year 2007-08. 2. The appeal was admitted on 28.06.2018 on the followingsubstantial questions of law:"1. Whether the ITAT was justified inholding that the claim of Rs.1,83,04,644/-which is a part of opening balance inService Tax Set Off Account (STA) made bythe assessee as allowable expenditure underIncome Tax Act? and2. Whether Appellate Tribunal isjustified in law in giving relief to theassessee by placing reliance on the decisionof the ITAT, Hyderabad in the case ofM/s.NCS Distilleries P. Ltd Vs. I.T.O. byignoring that the facts in the present caseare different and distinguishable?" 3. We have heard Mr.T.R.Senthil Kumar, learned SeniorStanding Counsel assisted by Ms.K.G.Usha Rani, learned JuniorStanding Counsel appearing for the appellant – Revenue andMr.G.Baskar, learned counsel for the respondent. 4. The respondent is a manufacturer of edible oil and filedits return of income for the assessment year under considerationi.e. AY 2007-08 declaring a total income of Rs.17,56,15,534/-.During the course of scrutiny assessment proceedings underSection 143(3) read with Section 263 of the Act, the AssessingOfficer observed that a sum of Rs.1,83,04,644/- represents apart of balance in the account of "Service Tax set off account"as on 31.03.2007 and the same was charged to Profit & Lossaccount on the presumption that this amount will not be usefulfor future set off against Central Excise duty payable andService Tax payable as the Excise on edible oil was discontinuedwith effect from 01.03.2005. 5. The Assessing Officer, vide order dated 31.01.2014,disallowed the written off of service tax amount ofRs.1,83,04,644/- and charging the same to Profit & Loss accounton the ground that it was not in order. Aggrieved by the same,the assessee preferred appeal before the Commissioner of IncomeTax (Appeals) 18, Chennai [CIT(A)], whom, by order dated28.07.2016, allowed the appeal, by taking note of the earlierdecisions of the Tribunal. Aggrieved by the same, the Revenuefiled appeal before the Tribunal, which has been dismissed bythe impugned order. 6. On a perusal of the order passed by the CIT(A), though it https://hcservices.ecourts.gov.in/hcservices/ 5. The Assessing Officer, vide order dated 31.01.2014,disallowed the written off of service tax amount ofRs.1,83,04,644/- and charging the same to Profit & Loss accounton the ground that it was not in order. Aggrieved by the same,the assessee preferred appeal before the Commissioner of IncomeTax (Appeals) 18, Chennai [CIT(A)], whom, by order dated28.07.2016, allowed the appeal, by taking note of the earlierdecisions of the Tribunal. Aggrieved by the same, the Revenuefiled appeal before the Tribunal, which has been dismissed bythe impugned order. 6. On a perusal of the order passed by the CIT(A), though it https://hcservices.ecourts.gov.in/hcservices/ appears to be a non-speaking order, yet, the CIT(A) rightly tooknote of the decision of the Hyderabad Tribunal in the case ofM/s.NCS Distilleries P. Ltd. Vs. ITO, Ward 16(2) Hyderabad inITA.No.699/Hyd/2012. In the said decision, the Tribunal tooknote of an earlier decision of the Chandigarh Tribunal in thecaseofM/s.MohanSpinningMillsVs.ACITinITA.No.1212/Chd/2011 dated 25.04.2012 and also the decision ofthe Ahmadabad Tribunal in the case of ACIT Vs. RangoliIndustries P. Ltd. in ITA.No.1936/Ahd/2010 dated 11.01.2013. Theoperative portion of the order dated 11.01.2013 reads as follows:"6. Having heard the submissions of both thesides and considering the facts of the caseas narrated before the authorities, it wasobserved that the aforesaid amount of theExcise Duty credit (CENVAT Credit) writtenoff was allowable as deduction. on thisissue, Coordinate Bench at Chandigarh in thecase of M/s.Mohan Spinning Mills (supra) hasopined as under:-"7. We have heard the rival contentions andperused the record. The issue arising in thepresent appeal is in respect of the deductionclaimed on account of CENVAT amounting toRs.35,94,577. The assessee was engaged in thebusiness of manufacturing and trading of yarnand fibre. The yarn manufactured by theassessee was an excisable item. The assesseewas paying excise duty on the raw materialpurchased i.e. acrylic yarn/fibre andpolyester yarn/fibre. In turn, assessee wasliable to pay duty on its manufactured items.The rate of excise duty payable on the rawmaterial was higher and the assessee wasdepositing the excise duty in PLA accountwhich in turn was adjustable against theexcise duty payable on the finished products.The excise duty payable on the finishedproducts was on the lower side andconsequently over the period of years theassessee had credit of excise duty resultingin accumulation of CENVAT.""10. Various tests have been laid down byvarious High Courts and the Apex Court inrelation to the allowability of expenditureunder Section 37(1) of the Act whilecomputing the income from profits and gainsof business or profession. In the facts ofthe present case, the assessee had paidCENVAT on purchase of raw material which was deposited in its PLA account for claiming thebenefit of set off against the excise dutypayable on the manufactured items i.e.branded yearn. The assessee was paying higherrate of excise duty on the raw materialpurchased by it as against the rate of exciseduty applicable on the manufactured items,consequently credit of excise duty wasavailable with the assessee. The said exciseduty paid from year to year was not claimedas an expenditure but was carried forwardfrom year to year to be adjusted against theexcise duty payable by the assessee on itsmanufactured items. However, during the yearunder consideration the assessee closed downits manufacturing unit and consequently thebenefit of the CENVAT credit remained un-adjusted. Once the manufacturing unit of theassessee is closed down, admittedly thebenefit of CENVAT credit not availed ofagainst the excise duty payable onmanufactured items, cannot be utilized by theassessee and the said write off of CENVATcredit, is allowable as an expenditure in theyear under consideration on the closure ofthe business. The write off of CENVAT creditby the assessee in its books of account isthus allowable as business expenditure underthe provisions of section 37(1) of the Actrelatable to the year, in which themanufacturing activities are closed down bythe assessee.Accordingly, we direct the Assessing Officerto allow the claim of the assessee in respectof write off of CENVAT credit ofRs.35,94,577/-. Ground No.1 raised by theassessee is thus allowed." 7. The CIT(A) also took note of the decision in the case ofGirdhar Fibres P. Ltd. Vs. ACIT in ITA.No.2027/Ahd/2009 dated12.10.2012, wherein, identical issue was decided in favour ofthe assessee. The Revenue seeks to distinguish the decision inthe case of M/s.NCS Distilleries P. Ltd., by referring tocertain factual aspects stating that in the said case, the unithad been closed down. However, the said contention sought to begiven by the Revenue is not tenable, because the assessee couldnot have availed the set off on account of operation of law andfrom the assessment year 2007-08 onwards, Central Excise duty onedible oils were deleted. 8. In the case of M/s.NCS Distilleries P. Ltd., it appearsthat the union was merged with other company and therefore, thecredit remained unutilized. However, this is not a feature todistinguish the said decision. In fact, the Tribunal has takeninto consideration as to how the CENVAT Scheme operates andgranted relief to the assessee. The Tribunal has once again re-appreciated the factual position and found that the decision inM/s.NCS Distilleries P. Ltd., would fully apply to the case onhand. 9. The Service Tax Department issued show Cause notice dated14.06.2005 alleging wrongful availment of service tax credit oninput service and this show cause notice culminated in an Order-in-Original disallowing a credit of Rs.49,00,194/-. Challengingthe said disallowance, the assessee filed appeal before theCommissioner of Central Excise, Chennai, who dropped the demandto an extent of Rs.39,09,242/- Aggrieved by the same, theRevenue filed appeal before the CESTAT and the Tribunal, byFinal Order No.41520-41521 of 2017 dismissed the appeal filed bythe Revenue on 08.08.2017. The above order also fortifies thestand taken by the assessee before the authorities, particularlybefore the CIT(A) as well as the Tribunal. 10. For the above reasons, we find that there is no error inthe order passed by the Tribunal. Accordingly, the appeal failsand it is dismissed. Consequently, the substantial questions oflaw are answered against the Revenue. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar hvkTo1. The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai. 2. The Principal Commissioner of Income Tax, Central 2, No.108, Mahatma Gandhi Road, Chennai. 3.The Commissioner of Income Tax (Appeals)18.46, Mahatma Gandhi Road,Nungambakkam, Chennai -600 034 10. For the above reasons, we find that there is no error inthe order passed by the Tribunal. Accordingly, the appeal failsand it is dismissed. Consequently, the substantial questions oflaw are answered against the Revenue. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar hvkTo1. The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai. 2. The Principal Commissioner of Income Tax, Central 2, No.108, Mahatma Gandhi Road, Chennai. 3.The Commissioner of Income Tax (Appeals)18.46, Mahatma Gandhi Road,Nungambakkam, Chennai -600 034 4.The Deputy Commissioner of Income TaxCentral Circle II(4)Central Circle II(4) Investigating Wing, New No.46/Old No.108, MG Road Nungambakkam, Chennai.600 034 Nungambakkam, Chennai.600 034 +1 cc to M/s.T.R.Senthil kumar, Advocate Sr.No. 14409 +1 cc to M/s.G.Baskar, Advocate Sr.No. 14624 VSNII(CO)RMP(30/03/2021) TCA.No.282 of 2018