Case Law Details

Case Name : The Deputy Commissioner of Income Tax Vs. Infinium Motors Pvt. Ltd. (ITAT Ahmedabad)
Appeal Number : ITA No. 3009/Ahd/2014
Date of Judgement/Order : 29/12/2017
Related Assessment Year : 2008-09
Courts : All ITAT (5330) ITAT Ahmedabad (380)

DCIT Vs. Infinium Motors Pvt. Ltd. (ITAT Ahmedabad)

There is no dispute that the assessee had paid the impugned excise duty on motor cars purchased for its hiring business. It reduced the relevant excise duty on the said purchases from the total cost of the motor cars. This followed its depreciation claim on the consequential reduced cost thereof. The assessee thereafter treated the above excise duty amount as an advance in its balance sheet’s asset side. The Revenue is fair enough in not disputing the fact that it is already entitled to claim 50% of the above excise duty as CENVAT credit. The assessee has admittedly set off its service tax payable to the extent of 50% of the above excise duty. It thereafter has carried forward the remaining amount in the next year. We take into account all these facts to opine that there is no income element embedded therein since the assessee is not entitled to get the same refunded from the government since the same has to be utilized only against the service tax payable. We therefore express our agreement with learned CIT(A)’s conclusion that the above excise duty cannot be added in closing stock value since the assessee runs its cars on hire. We accordingly find no reason to accept Revenue’s sole substantive grievance. The CIT(A)’s finding under challenge stand confirmed.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This Revenue’s appeal for assessment year 2008-09 arises against the CIT(A)-VIII, Ahmedabad’s order dated 25.08.2014 in case no. CIT(A)- VIII/DCIT/Cir.4/15/13-14, reversing Assessing Officer’s action making addition of Rs. 1,07,19,753/- in respect of unutilized CENVAT credit, in proceedings u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961; in short “the Act”.

Heard both the parties. Case file perused.

2. We notice at the outset that the CIT(A)’s findings under challenge elaborately discuss the relevant facts, above sole issue in question as well as Assessing Officer’s reasoning in relation to the impugned unutilized CENVAT credit as under:

“2.3 Decision:

I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made an addition of the unutilised CENVAT credit shown in the balance sheet of the appellant. It was held by the AO that it cannot be treated as advance given to the Government on account of excise payable. The appellant on the other hand has explained that the CENVAT balance was not a subsidy or incentive. The balance was on account of Excise Duty charged by the car manufacturer in the sale invoice. The appellant has purchased certain motor cars for carrying out business of Cab Operator and the value of vehicles has been reduced by the appellant by the Excise Duty paid on purchase and has been transferred to a separate account. The appellant was entitled, as per the CENVAT credit rules, to utilize maximum of 50% of Excise Duty. The appellant during the year had transferred 50% of that to the Excise Duty account and same has been utilised against the service tax payable by the appellant on account of letting out cars. The appellant has therefore, explained that the unutilized credit balance in the CENVAT account was fully explained.

On a careful consideration of the entire facts of the case, it is noted that appellant is running the business of letting out cars for hire and it is paying service tax on such charges. It is claiming the benefit of unutilized CENVAT credit as per the Excise Rules for claiming the CENVAT credit. The CENVAT balance which is lying unutilized in the account is there on account of the capital assets purchased by it for the purpose of business. The appellant has clearly demonstrated that the utilization of credit is as per the Rules. The appellant has neither claimed unutilized CENVAT credit as expenditure not debited to profit and loss account. It is further observed that the capitalised value of cars used for the purpose of letting out has also been reduced by the CENVAT credit transferred by it to a separate account and accordingly no depreciation on the CENVAT portion has been claimed by the appellant. The observations of the AO that the credit of MOD VAT / CENVAT is an incentive is not justified. The appellant cannot claim the refund on this account if due to some circumstances the business has to be closed. The view has been upheld by Hon’ble Supreme Court in the case of Indo Nippon Chemicals Ltd. [261 ITR 275]. It has been held by the Hon’ble Supreme Court that MOD VAT credit was an irreversible credit available to manufacturers and would not amount to income which was liable to be taxed under the Act. Therefore, the MOD VAT / CENVAT credit balance available with the assessee is neither income nor any incentive or subsidy which can be considered as income of the appellant. The observation of the AO regarding inclusion of unutilised CENVAT credit in the closing stock would be applicable in case of a person engaged in manufacturing and/or purchase and sale of goods. These facts are not applicable in the case of the appellant as the appellant is not in the business of manufacturing and sale of goods. It is in the business of running the cars on hire and therefore, there is no question of maintaining closing stock. The appellant has also explained clearly that it has not included the excise duty component in valuation of the depreciable assets. Accordingly, the judgements in the case of Chowringhee Sales Bureau Pvt. Ltd. 87 ITR 542 and Sinclair Murray & Co. Pvt. Ltd. 97 ITR 615 are not applicable in the case of the appellant and are accordingly respectfully distinguished.

In view of above discussion, I am of the considered opinion that no addition on this account can be made to the income of the appellant. The addition made is accordingly directed to be deleted.

The ground of appeal is accordingly allowed.”

3. Learned Departmental Representative vehemently contends that the CIT(A) has erred in law as well as on facts in deleting the above CENVAT credit addition in question. We find no merit in Revenue’s instant argument. There is no dispute that the assessee had paid the impugned excise duty on motor cars purchased for its hiring business. It reduced the relevant excise duty on the said purchases from the total cost of the motor cars. This followed its depreciation claim on the consequential reduced cost thereof. The assessee thereafter treated the above excise duty amount as an advance in its balance sheet’s asset side. The Revenue is fair enough in not disputing the fact that it is already entitled to claim 50% of the above excise duty as CENVAT credit. The assessee has admittedly set off its service tax payable to the extent of 50% of the above excise duty. It thereafter has carried forward the remaining amount in the next year. We take into account all these facts to opine that there is no income element embedded therein since the assessee is not entitled to get the same refunded from the government since the same has to be utilized only against the service tax payable. We therefore express our agreement with learned CIT(A)’s conclusion that the above excise duty cannot be added in closing stock value since the assessee runs its cars on hire. We accordingly find no reason to accept Revenue’s sole substantive grievance. The CIT(A)’s finding under challenge stand confirmed.

4. This Revenue’s appeal is accordingly dismissed.

[Pronounced in the open Court on this the 29th day of December, 2017.]

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