M/S. CASTRON TECHNOLOGIES LTD.,KOLKATA vs. DCIT, CIRCLE - 3(1), KOLKATA NOW, DCIT, CIRCLE-1(1), KOLKATA, KOLKATA

ORDER / आदेश Per Rajesh Kumar, AM: These are the appeals preferred by the assessee against the separate orders of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)”] even dated 18.07.2022 for the AY 2013-14, 2016-17, 2018-19 & 2019-20 respectively.

We observe from the above that the assessee has recovered VAT as per sales tax return to the tune of Rs. 597,539.26/- whereas VAT loss on account of consignment sales on which there was no VAT credit available was amounting to Rs. 12,65,358/-. We have also perused the Jharkhand VAT Act which provides that no input tax credit under sub-section (1) shall be claimed or to be allowed to a registered dealer in respect of goods consumed for manufacture of goods for Inter-State transfer of stock or for sale outside the State and thus it is only in accordance with the provisions of the Act the assessee has suffered VAT loss and claimed it in the profit and loss account. In our opinion the action of AO in rejecting the claim of the assessee is not correct as this is a business loss which has to be allowed to the assessee. The case of the assessee squarely covered by the Decision of Co-ordinate Bench of Chennai in the case of FIH India (P) Ltd. vs DCIT in [2021] 126 taxmann.com 111 (Chennai-Trib) wherein the Co-ordinate Bench has taken a view that input service tax as per the return of assessee is a business loss and has to be allowed u/s 37(1) of the act. The operative part is reproduced as under:

“8. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee has written off input Service Tax during the impugned financial year relevant to assessment year 2010-11. But, the dispute is with regard to deductibility of input service tax. The AO has disputed deduction claimed by the assessee on three grounds. The first and foremost objection of the AO was that input service tax written off was not an item of expenditure deductible u/s. 37(1) of the Act, because the assessee has not rooted said expenditure through profit & loss account. The second observation of the ld.AO is even it is to be treated as profit & loss account item, it was never treated as income at any point in time. The third observation of the AO was that said expenditure relatable to previous financial year and hence, partakes the nature of prior period item which is not eligible to be claimed as an expenditure for the current financial year. We have gone through the reasons given by the AO for denying the deduction claimed towards Service Tax written off account and find that none of the reasons given by the AO is in accordance with law, because service tax paid on input services is an item of expenditure deductible u/s. 37(1) of the Act. But, if assessee claims input tax credit on said Service Tax, then the same cannot be claimed as deduction in the profit & loss account once again. In this case, the AO has not disputed the fact that the assessee has not debited Service Tax component paid on input services into the profit & loss account. Therefore, we are of the considered view that there is no merit in the observation of the AO that it is not an item of profit & loss account. In so far as second observation of the AO that the assessee has never treated said service tax as an item of income, we find that the assessee has paid service tax on input services and hence the question of treating said service taxes as an item of income does not arise because any taxes paid on purchase of goods or services is part of cost of goods or services which can be either debited to profit & loss account when the assessee has not availed input tax credit or if assessee avails input tax credit then the Service

4 to 453/Kol/2022 Assessment Years: 2013-14, 2016-17, 2018-19 & 2019-20 M/s Castron Technologies Ltd. Tax component is taken out from the profit & loss account and treated as current assets pending adjustment against output taxes payable on goods or services. In this case, the assessee has accounted input services exclusive of service tax and treated service tax component as input tax credit pending adjustment. Further, when the application filed by the assessee for refund was rejected by the Department, the assessee has written off said input tax credit and debited in to profit & loss account. Therefore, the second observation of the AO would also fails. Coming to the third observation of the AO, the AO observed that even if it is deductible as expenditure but said expenditure is relatable to earlier financial year and partakes the nature of prior period item which cannot be allowed as deduction. We do not find any merit in the observation of the AO for the reason that although part of input tax credit pertains to earlier financial year but the same has been carried forward to subsequent financial year as per the provisions of law. Further, the same has been claimed as refund with respective department during the current financial year. Therefore, when the input service tax credit is carried forward from earlier financial year to the current financial year, it partakes the nature of taxes paid for the current financial year and hence deductible as and when the assessee has debited into the profit & loss account. Therefore, on this count also the observation made by the AO fails. Further, it is well settled principle of law by the decision of various courts and Tribunals that input tax credit/CENVAT is deductible u/s. 37(1) of the Act, when such input tax credit is reversed or written off in the books of account. The Hon'ble Gujarat High Court in the case of CIT v. Kaypee Mechanical India (P.) Ltd. [2014] 45 taxmann.com 363/223 Taxman 346 has held that Service Tax paid out of pocket is an item of expenses deductible u/s. 37(1) of the Act. The ITAT, Ahmedabad in the case of Girdhar Fibres (P.) Ltd. v. Asstt. CIT [IT Appeal No. 2027 (Ahd.) of 2009, dated 12-10-2012] has held that input CENVAT incurred but not adjusted against output CENVAT is deductible as item of expenditure when such input credit is written off in the books of account.” Accordingly following the above decision of the coordinate bench ,we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance. The ground nos 1 and 2 are allowed.

“3. I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue had come up for consideration before this Bench in assessee's own case for A.Y. 2009-10 and the same was decided in favour of the assessee vide an order dated March 09, 2016 passed in for the following reasons given in paragraph no. 6:- "6. I have considered the rival submissions and also perused the relevant material available on record. As rightly contended by the ld. counsel for the assessee, it appears that the exact nature of amount in dispute paid by the assessee on account of reversal of VAT inputs has not been appreciated either by the Assessing Officer or by the ld. CIT(Appeals) in the right perspective. The input tax credit on account of VAT paid on purchases was actually claimed by the assessee in the F.Ys. 2006-07 and 2007-08 and since the relevant materials purchased by the assessee I . T. A . N o. 1 0 4 9 / KO L . / 2 0 1 5 Assessment year: 2010-2011 were used for manufacture of goods, which were transferred to its consignment agent without charging sales tax, the assessee was not entitled for the input tax credit. Such credits, however, were 6 to 453/Kol/2022 Assessment Years: 2013-14, 2016-17, 2018-19 & 2019-20 M/s Castron Technologies Ltd. wrongly claimed by the assessee against CST/VAT payable for the relevant years and only as a result of show-cause notice issued by the Assistant Commissioner, Commercial Taxes, the credit wrongly claimed was reversed by the assessee and the amount in question was paid against such reversal. The said payment made by the assessee thus was on account of CST/VAT actually payable for the F.Ys. 2006-07 and 2007- 08 and the same having been paid in the year under consideration. I agree with the contention of the ld. counsel for the assessee that the assessee was entitled for deduction of the same in the year under consideration as per section 43B of the Act. The method of accounting followed by the assessee to maintain a separate VAT account to make all credit and debit entries relating to VAT therein is not relevant to decide the allowability of the amount in question paid by the assessee on account of reversal of Input VAT Credit, inasmuch as the wrong claim of credit for inputs in the earlier years had resulted in short payment of CST/VAT payable by the assessee and the same having been paid during the year under consideration, the assessee, in my opinion, was entitled for deduction of such tax on payment basis under section 43B. I, therefore, delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow this appeal of the assessee".

As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2009-10, I respectfully follow the decision dated 09.03.2016 rendered by the Tribunal in A.Y. 2009-10 and delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by way of disallowance of assessee's claim for deduction on account of "Input VAT Reverse".

We have also examined the proofs of payments and accordingly we set aside the order of Ld. CIT(A) by following the above decision and direct the AO to delete the disallowance. The ground nos. 3 to 6 are allowed.

7 to 453/Kol/2022 Assessment Years: 2013-14, 2016-17, 2018-19 & 2019-20 M/s Castron Technologies Ltd. to the income of the assessee after allowing the deduction in respect of suo motto disallowance.

ITA No. 451/Kol/2022 for AY 2016-17

ITA No. 452/Kol/2022 for AY 2018-19

8 to 453/Kol/2022 Assessment Years: 2013-14, 2016-17, 2018-19 & 2019-20 M/s Castron Technologies Ltd. contribution towards PF /ESI u/s 2(24)(x) read with Section 36(1)(va) which was paid before the due date u/s 139(1) of the Act but after the due date mentioned in respective Act. The issue is covered against the assessee by the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT in [2022] 143 taxmann.com 178 (SC) dated 12.10.2022. Accordingly ground raised by the assessee is dismissed.

ITA No. 453/Kol/2022 for AY 2019-20

Order is pronounced in the open court on 28th March, 2023