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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश / O R D E R
PER G.MANJUNATHA, AM: This appeal filed by the assessee is directed against
order passed by the learned Commissioner of Income Tax
(Appeals)-6, Chennai, dated 30.01.2018 and pertains to
assessment year 2011-12.
At the outset, learned AR for the assessee submitted
that the appeal filed by the assessee is time barred by 10 days
for which necessary petition for condonation of delay along
with affidavit explaining the reasons for the delay has been
filed. The AR further submitted that the assessee could not
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file appeal within the time allowed under the Act, due to the fact
of non-availability of counsel which caused delay of 10 days.
The delay in filing appeal is neither intentional nor willful, but
for the unavoidable reasons, therefore, he prayed that delay
may be condoned in the interest of advancement of
substantial justice.
The learned DR, on the other hand, strongly opposing
condonation of delay petition filed by the assessee submitted that the reasons given by the assessee do not come within the
ambit of reasonable and bonafide reasons, which can be
considered for condonation of delay and hence, appeal filed
by the assessee may be dismissed as not maintainable.
Having heard both sides and considered the petition filed
by the assessee for condonation of delay, we are of the
considered view that reasons given by the assessee for not
filing the appeal within the time allowed under the Act comes
under reasonable cause as provided under the Act for
condonation of delay and hence, delay in filing of appeal is condoned and appeals filed by the assessee is admitted for adjudication.
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The assessee has raised following grounds of appeal:-
“ 1. The order of the CIT (Appeals) is erroneous on the facts and in the law. On the facts and in the circumstances of the case he ought to have considered the appellant case on merit.
The Learned CIT (Appeals) failed to consider the submission made by the appellant reason why the following expenses disallowed by the assessing officer:
(a) Reversal of CENVAT credit on sale of scrap amounting to Rs.2,06,98,060/-. (b) Disallowance of withholding tax interest paid on borrowings of Rs.4,47,966/-.
The learned CIT (Appeals) in his order pointed out that appellant’s failure to submit supporting documents for reversal of CENVAT credit of Rs.2,06,98,060/- is not correct and proper. In fact, appellant had filed all the documents to the Respondent during the course of assessment proceedings as and when required.
The learned CIT (Appeals) is relied heavily on the inputs made by the respondent and not considered the appellant submission as well assessment order for the AY 2012-13, in which, the same assessing officer has allowed the reversal of CENVAT credit on the similar issue. (Refer Annexure — 1).
The learned CIT (Appeals) ought to have considered the fact that appellant submitted reply on 18/02/2015 with respect to reversal of CENVAT credit on scrap sales whereas respondent in his assessment order dated 21/03/2015 stated appellant not
ITA No. 1528/Chny/2018
any produced supporting documents. It is clear that the respondent so as to complete assessment on or before 31/03/2015 did not raise any question instead squarely blaming appellant to complete the assessment.
The learned CIT (Appeals) ought to have considered the fact that the subsisting loan agreements (Refer Annexure -2) requires interest to be paid “net of tax” to the lenders for availing credit/term loan and hence withholding tax being paid by the appellant.
The learned appellate authority ought to have considered the fact that the appellant has never admitted any disallowance of expenses during the assessment proceedings and also never admitted or agreed the addition made by the respondent.
The learned appellate authority has failed to appreciate the circumstances of the case and passed order hastily.
The learned CIT (Appeals) erred in understand that the respondent have completed the assessment hastily due to these reasons only the assessment order read as “ did not produced any supporting documents for reversal of CENVAT credit” and “assesses replied that it is an inadvertent mistake for withholding tax on interest paid”.
The learned CIT (Appeals) ought to have considered the fact that appellant never replied to the respondent regarding withhold tax payment is an inadvertent mistake and accepted the addition.”
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Brief facts of the case are that the M/s. Hyundai Steel
India Pvt.Ltd. is engaged in the business of processing, trading
and supply of all types of automotive steel grades. The
assessee had filed its return of income for the assessment year
2011-12 on 17.11.2011 admitting total income of
Rs.62,76,80,047/-. The case was taken up for scrutiny and
during the course of assessment proceedings, the Assessing
Officer noticed that the assessee has claimed Rs.2,06,98,060/-
towards reversal of excise duty on scrap written off and debited under the head ‘rent, rates & taxes’ in the profit & loss account.
The assessee was called upon to explain reversal of CENVAT
credit on scrap written off with necessary evidences. In
response, the assessee submitted that as per CENVAT Credit
Rules, CENVAT credit pertaining to scrap cannot be utilized
and further, same needs to be reversed, therefore, the
assessee has reversed CENVAT credit on scrap written off and
debited into profit & loss account. The Assessing Officer,
however, was not convinced with the explanation furnished by
the assessee and according to A.O., the assessee did not produce any supporting documents and also explained how
they have arrived at figure of Rs.2,06,98,060/-. Therefore,
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disallowed claim of the assessee and added back to the total
income of the assessee. Similarly, the Assessing Officer has
made addition towards withholding tax debited to rates & taxes
account u/s.40(a)(ii) of the Income Tax Act, 1961, on the
ground that any tax, duty and cess is not allowable deduction.
The assessee carried the matter in appeal before first appellate
authority, but could not succeed. The learned CIT(A) for the
reasons stated in his appellate order dated 30.01.2018 rejected
arguments of the assessee and sustained additions made by
the Assessing Officer. Aggrieved by the learned CIT(A) order,
the assessee is in appeal before us.
The first issue that came up for our consideration from
ground nos.1 to 5 of assessee appeal is additions towards
disallowance of rates & taxes being reversal of CENVAT credit
on scrap written off amounting to Rs.2,06,98,060/-. The facts
with regard to impugned dispute are that the assessee is in the
business of processing and trading in steel has generated
scrap. The assessee has made scrap sale of Rs.5,10,01,084/- .
However, remaining amount of scrap has been written off and
CENVAT credit related to said scrap written off has been
7 ITA No. 1528/Chny/2018
reversed as per CENVAT Credit Rues and debited to profit &
loss account. The Assessing Officer disallowed reversal of
CENVAT credit on scrap written off on the ground that the
assessee could not file necessary evidences and also failed to
explain how figure of Rs.2,06,98,060/- was arrived at.
The learned A.R for the assessee submitted that the
learned CIT(A) erred in not appreciating fact that the assessee
has reconciled reversal of CENVAT credit on scrap raw material
with necessary details and also explained to the Assessing
Officer with corresponding evidences, including CENVAT
Credit Rules. The learned A.R for the assessee further
submitted that the assessee in the process of manufacturing
steel products has generated huge scraps which has been
partially sold and partially written off in the books of account.
Further, as per CENVAT Credit Rules, the assessee cannot
avail input tax paid on purchase of raw materials, therefore,
same has been reversed and treated as part of cost of goods
and debited into profit & loss account. The Assessing Officer
without appreciating facts has simply disallowed reversal of
CENVAT credit.
8 ITA No. 1528/Chny/2018
The learned DR, on the other hand, supporting order of
the learned CIT(A) submitted that the assessee did not file any
evidence to prove reversal of CENVAT Credit. Therefore, the
Assessing Officer as well as learned CIT(A) has rightly
disallowed reversal of CENVAT credit and their orders should
be upheld.
We have heard both the parties, perused material
available on record and gone through orders of the authorities
below. There is no dispute with regard to legal position that
when unutilized CENVAT credit is available with the assessee
for any reason, including restriction if any, imposed under
CENVAT Credit Rules, same can be reversed and debited into
profit & loss account, because CENVAT credit availed by the
assessee on purchase of raw materials partakes nature of cost
of materials purchased/consumed. Therefore, when the
assessee has reversed CENVAT credit as per CENVAT Credit
Rules, then it needs to be debited into expenses account.
However, the assessee has to file necessary evidences to
prove reversal of CENVAT credit and also to explain how such
figure has been arrived. In this case, the Assessing Officer
9 ITA No. 1528/Chny/2018
claims that the assessee did not furnish necessary evidence,
whereas, the assessee claims that it has filed reconciliation
explaining reversal of CENVAT credit. The fact needs to be
verified. Hence, we set aside this issue to the file of the
Assessing Officer and direct the Assessing Officer to re-
examine claim of the assessee in light of our findings given
hereinabove. In case, the assessee is able to explain CENVAT
credit with necessary details, then the Assessing Officer is
directed to delete additions made towards disallowance of
reversal of CENVAT credit on scrap written off.
The next issue that came up for our consideration from
ground nos.6 to 10 of assessee appeal is disallowance of
withholding tax debited into rates & taxes account. The
Assessing Officer has disallowed withholding tax amounting to
Rs.4,47,966/-, included in rates & taxes account on the ground
that any tax, duty or cess is not allowable deduction u/s.40(a)(ii)
of the Act. It was the explanation of the assessee before the
Assessing Officer that the assessee had borrowed loan from
Standard Chartered Bank, United Kingdom and Citi Bank, NA
Bahrain and as per terms of loan agreement, the assessee is
10 ITA No. 1528/Chny/2018
required to pay interest to the lenders net of all applicable taxes
in India. In other words, the assessee is required to gross up
TDS applicable on interest payment to banks and remit to
Government account, but net interest should be paid to bank
without deduction of tax. The Assessing Officer has disallowed
claim of the assessee on the ground that the assessee could
not furnish necessary evidences.
We have heard both the parties, perused material
available on record and gone through orders of the authorities
below. It is an admitted fact that as per provisions of section
40(a)(ii) of the Act, that any tax, duty or cess paid by the
assessee is not allowable deduction, because the statute
restricts deduction for payment of taxes by the assessee. But, if
the assessee makes tax payment on behalf of deductee, as per
terms of agreement, and remit to Govt. account, then it
partakes nature of expenses to the assessee, because the
assessee needs to gross up payment made to the deductee
towards TDS applicable on said payment and paid to Central
Government account. In this case, as per terms of agreement
with lenders, the assessee should make interest payment net
11 ITA No. 1528/Chny/2018
of all applicable taxes in India. In other words, as per terms of
agreement between the parties, the assessee shall borne all
applicable taxes on interest payment to the lenders. As per
terms of agreement, the assessee has grossed up interest
payment towards TDS paid on said interest and remitted into
Govt. account and also debited withholding tax to the profit &
loss account. In our considered view, withholding tax paid by
the assessee to the Govt. account on behalf of the lenders in
terms of agreement between the assessee is nothing, but cost
of borrowings (interest to the assessee) and thus, the assessee
is entitled to claim deduction for said withholding tax u/s.37(1)
of the Income Tax Act, 1961. However, fact remains that
although, the assessee claims to have filed all details, but the
Assessing Officer observed that the assessee does not furnish
any evidence to substantiate its claim. Hence, we set aside this
issue also to the file of the Assessing Officer and direct the
Assessing Officer to examine claim of the assessee in light of
agreement between the parties. In case, claim of the assessee
is correct, then the Assessing Officer is directed to delete
addition made towards withholding tax u/s.40(a)(ii) of the Act.
12 ITA No. 1528/Chny/2018
In the result, appeal filed by the assessee is treated as
allowed for statistical purposes. Order pronounced in the open court on 12th April , 2022 Sd/- Sd/- (वी. दुगा� राव) (जी. मंजुनाथ) (V. Durga Rao) (G.Manjunatha) %या�यक सद'य /Judicial Member लेखा सद'य / Accountant Member चे%नई/Chennai, *दनांक/Dated 12th April, 2022 DS आदेश क� ��त,ल-प अ.े-षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु/त (अपील)/CIT(A) 4. आयकर आयु/त/CIT 5. -वभागीय ��त�न3ध/DR 6. गाड� फाईल/GF.