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| The Tax Publishers2021 TaxPub(DT) 0819 (Chen-Trib) : (2021) 188 ITD 0124 INCOME TAX ACT, 1961
Section 37(1)
When input service tax credit was 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 assessee had debited service tax component paid on input services to the profit & loss account and Gujarat High Court in the case of CIT v. Kaypee Mechanical India (P) Ltd. ((2014) 223 Taxman 346 (Guj) : 2014 TaxPub(DT) 2364 (Guj-HC) has held that Service Tax paid out of pocket is an item of expenses deductible under section 37(1), thus, input service tax credit was allowable under section 37(1).
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Business expenditure - Disallowance of tax credit/service tax written off - Revenue expenditure or not -
Assessee was engaged in the business of manufacturing, assembling and trading of parts and accessories for mobile phones. AO noticed that assessee had debited an amount towards Service Tax written off account. Therefore, AO called upon the assessee to explain as to why Service Tax written off should not be disallowed under section 37(1). Assessee submitted that he availed various input services during the financial year relevant to assessment years 2008-09 and 2009-10 and had followed an accounting method, whereby expenses have been debited to profit & loss account, excluding Service Tax. Further, when Service Tax Department had rejected refund claim made by assessee for reasons best known to them, assessee had reversed input tax credit and claimed same as expenditure deductible under section 37(1). AO, however, was not convinced with the explanation furnished by assessee. According to him, Service Tax credit being rejected, cannot impact the profit & loss account. Held: When input service tax credit was 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 assessee had debited service tax component paid on input services to the profit & loss account. It is well settled principle of law by decision of various courts and Tribunals that input tax credit/CENVAT is deductible under section 37(1), when such input tax credit was reversed or written off in the books of account. Gujarat High Court in the case of CIT v. Kaypee Mechanical India (P) Ltd. ((2014) 223 Taxman 346 (Guj) : 2014 TaxPub(DT) 2364 (Guj-HC) has held that Service Tax paid out of pocket is an item of expenses deductible under section 37(1)Thus, input service tax credit was allowable under section 37(1).
Followed:CIT v. Kaypee Mechanical India (P) Ltd. ((2014) 223 Taxman 346 : 2014 TaxPub(DT) 2364 (Guj-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2010-11
IN THE ITAT, CHENNAI BENCH
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