DCIT Vs Religare Arts Initiative Ltd (ITAT Delhi)
ITAT Delhi held that unadjusted cenvat credit left on closure on manufacturing unit, which cannot be utilised further, is allowable as business expenditure under section 37(1) of the Income Tax Act
Facts- The case of the assessee was selected for scrutiny. AO completed the assessment u/s. 143(3) of the Income Tax Act disallowing Rs. 1,15,27,945/- out of rental expenses claimed; Rs. 8,01,799/- out of reimbursement/support services; Rs. 1,81,03,975/- being service tax credit written off and disallowance of Rs. 60,16,402/- out of finance cost.
CIT(A) deleted disallowance out of rental expenses, reimbursement/support services, write off of Cenvat Credit and finance cost. Being dissatisfied, revenue has preferred the present appeal.
Conclusion- Held that the impugned disallowance has been made by the Ld. AO due to inadvertent submission of the old rent agreement by the assessee before him. However, revised rent agreement was produced before the Ld. CIT(A) who after allowing opportunity to the Ld. AO to offer his comments gave relief to the assessee, interalia that the revised rent agreement cannot be treated as an afterthought and that the expenditure was incurred wholly and exclusively for the purposes of assessee’s business. We concur with the findings of the Ld. CIT(A) and decline to interfere.
Held that it is not in dispute that the statutory auditors of the assessee company have duly certified the impugned write off in the company’s audited financial statements which is on record of the Ld. AO. Therefore, it cannot be said that it is not verifiable. The explanation of the assessee for write off has not been accepted by the Ld. AO without any cogent and valid reasons. The judicial consensus is that write off of CENVAT Credit is an allowable deduction under section 37(1) of the Act in the year it has been debited to the books of account.
Hon’ble Chandigarh Bench of Tribunal in the case of Mohan Spg. Mills vs. ACIT has held that unadjusted cenvat credit left on closure on manufacturing unit, which cannot be utilised further, is allowable as business expenditure under section 37(1) of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The appeal filed by the Revenue is directed against the order dated 17.09.2018 of the Ld. Commissioner of Income Tax,(Appeals)-7, New Delhi (“CIT(A)”) pertaining to Assessment Year (“AY”) 2013-14.
2. The Revenue has raised the following grounds:-
“1. That on facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 8,01,799/-/ on account of reimburse-ment/support charges, without determining the fair market value of the services rendered and what is claimed by the assessee.
2. That on facts and circumstances of the case, the LD. CIT(A) has erred in allowing the additional evidence submitted by the assessee without calling for the counter comments of the assessing officer under Rule 46A of the IT. Act, 1961.
3. On the casts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the above addition without making proper enquiries and test of reasonableness and excessive claim of the assessee u/s 40A(2)(b) of the I.T. Act.
4. ‘On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,15,27,945/- on account of rental expens-es aggregating to Rs. 1,15,27,945/-
5. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,81,03,975/- on account of write off of CENVAT tax credit aggregation to Rs. 1,81,03,975/-.
6. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 60,16,402/- on account of finance cost ag-gregating to Rs. 60,16,402/-.”
3. Briefly stated, the assessee is a company engaged in the business of buying and selling, trading, stocking, exporting-importing, auctioning, promoting, exhibiting, hiring and dealing in art including painting, sculpture, antique, artistic value or any other intrinsic value and to pro-mote art and related services like gallery space, valuation, authentication, collection building and custo-dial services to the client. It e-filed its return for AY 2013-14 on 27.09.2013 declaring loss of Rs. 7,63,56,892/-. Its case was selected for scrutiny. Statutory notice(s) along with questionnaire were served upon the assessee in response to which necessary details and explanations were submitted be-fore the Ld. Assessing Officer (“AO”). The Ld. AO completed the assessment on total loss of Rs. 3,99,66,777/- on 28.03.2016 under section 143(3) of the Income Tax Act, 1961 (the “Act”) resulting in disallowance of Rs. 1,15,27,945/- out of rental expenses claimed; disallowance of Rs. 8,01,799/- out of reimbursement/support services; disallowance of Rs. 1,81,03,975/- being service tax credit written off and disallowance of Rs. 60,16,402/- out of finance cost.
4. Aggrieved, the assessee filed appeal before the Ld. CIT(A) who deleted the disallowance out of rental expenses claimed by observing in para 4.2 to 4.9 of his order as un-der:
“4.2 I have carefully considered the assessment order and written submissions furnished by the Ld. AR. During the course of assessment proceedings, the AO sought justification on rental expenses aggregating to Rs.1,81,56,536. The Appellant vide sub-mission dated 03.03.2016 submitted that the aforesaid amount of Rs 1,81,56.536/ comprises of (a) Rent expenses of Rs.1,79,50,486/- (b) Rates and Taxes of Rs.2,06,050/-. Vide the said submission, it was further submitted before the AO that it had sub-leased office space ad- measuring 26,494 sq. ft. from REL Infra Facilities Ltd. The Appellant for substantiating the rental expense incurred by it, furnished copies of lease agreement entered into with REL Infra and amendments (‘addendums’) made thereto. However, while framing the order, the AO determined the rental expense incurred by the Appellant at Rs.64,22,541/- as an allowable expense under section 37 of the Act and disallowed the balance amount of Rs. 1,15,27,945 being the difference between rent expense of Rs 1,79,50,486 debited by the Appel-lant x x x x x x x x x x xx
4.3 During the assessment year, the appellant was running an art gallery located at D3, P3B. District Centre, Saket, New Delhi – 110 017 ad measuring 26,494 sq. ft. which was taken on sub-lease from REL Infra vide the following lease agree-ment/addendum to the lease agreement
Table 2
