NEC TECHNOLOGIES INDIA P.LTD (FORMERLY KNOWN AS NEC INDIA PVT. LTD.),NEW DELHI vs. ADDI. CIT, SPECIAL RANGE-6, NEW DELHI

That the order passed by the Joint Commissioner of Income Tax, Special Ranged (Ld. CIT(A) AO') us 143(3) read with section 144C(13) of the Income Tax Act, 1961 ('Act) in the name of "NEC Technologies India Pvt. Ltd. (Formerly NEC India Pvt. Ltd.), the amalgamating entity, which had ceased to exist in the eyes of law, is beyond jurisdiction, illegal and bad in law 2. That on the facts and circumstances of the case and in law, the impugned order is barred by limitation, bad in law and therefore, liable to be quashed.

That the Ld. A.O. erred on facts and in law in issuing notices u/s. 274 read with Sec 271(1)(c), of the I.T Act 1961 (Act for short) alleging furnishing of inaccurate particulars of income by the appellant and the same is invalid & illegal. 3. The ld. Senior counsel of assessee submitted that the assessee does not want to press ground no. 1, 2 & 4 hence the same are dismissed as not pressed. Ground no. 3 of assessee 4. The ld. Senior counsel placing reliance on the order of ITAT Chandigarh bench in the case of Mohan Spg. Mills vs. ACIT reported as [2012] 54 SOT 524 (Chd.) submitted that the write off of Cenvat credit, which could not utilized by assessee against excise duty payable on manufactured items due to closure of business, was allowable as business expenditure. He further submitted that the authorities below have grossly erred in disallowing advances (i.e. Input Cenvat Credit) to the tune of Rs. 91,81,394/- which the Appellant was constrained to write off during the year under consideration as per the direction of service tax department; therefore the same may kindly be allowed to the assessee.

Replying to the above the ld. CIT(DR) supporting the assessment order and drawing our attention toward para 5.3 submitted that the any amount written off should have been offered in revenue in the earlier years u/s. 36 of the Act. However, in this case advances written off were not offered as revenue in any earlier year and the identical claim for AY 2012-13 had been dismissed by the Assessing Officer and ld. CIT(A) for that year has upheld the addition therefore the Assessing Officer was right in disallowing the claim of assessee therefore, ground of assessee may kindly be dismissed. 6. On careful consideration of above submissions, we note that the basis taken by the Assessing Officer for disallowing the claim of assessee is that the advances i.e. Input Cenvat Credit written off were not offered as revenue in the earlier year. The Assessing Officer further alleged that for AY 2012-13 the Assessing Officer made similar addition of advances written off and the ld. CIT(A) uphold the addition therefore the same is not allowable. However, the ld. CIT(DR) did not show or place any such order against the assessee on being specifically asked for. 7. On careful consideration of above submissions, we are of the view that the Assessing Officer disallowed the claim on the ground that the same does not fall as an allowable expense u/s. 36 or 37 of the Act. Under the provision of section 37(1) of the Act, deduction of an item or expenditure is allowable where four conditions are simultaneously fulfilled viz. i. The expenditure should not be in the nature described u/s. 30 to 36 of the Act; ii. The expenditure must have been laid out wholly and [3] exclusively for the purpose of business of assessee; iii. The expenditure must not be personal in nature and iv. The expenditure must not be capital in nature.

In the facts of the instant case, During AY 2015-16 Assessee Company has written off advances amounting to Rs 9,081,394/-. The amounts were earlier parked in Input service tax receivable account pertaining to revenue expenditure in the nature of rental, clearing and forwarding charges, security expenses etc. however, on service tax audit, such amounts were reversed due to technical points i.e. held as common inputs and not direct cost and therefore reversed under a formulae prescribed under the service tax law. However, there is no questioning on the nature and bonafide of these payments. As is evident, the input cost is revenue in nature and accordingly service tax paid on such revenue costs is also eligible to be claimed as revenue expenditure. Further, the matter is covered as the Assessee Company has been given relief by Hon'ble DRP panel where adjustment of "Advances written off' is reversed. The ld. CIT(DR) have not controverted above factual position. Therefore we are inclined to hold that the input cost is revenue in nature and accordingly service tax paid on such revenue cost is also eligible to claim as revenue expenditure u/s. 37(1) of the Act. Our conclusion further gets support from the order of co-ordinate bench of ITAT Chandigarh in the case Mohan Spg. Mills vs. ACIT (supra). It is also relevant to mention that the co- ordinate bench of ITAT Hyderabad in the case of NCS Distilleries P. Ltd. vs. ITO held that the amount of advance in the course of business which become irrecoverable is deductable or allowable as business expenditure/loss. Accordingly, ground no. 3 of assessee is allowed.

In the result, the appeal of the assessee partly allowed.