Unutilized MODVAT credit appearing in Balance-sheet doesn’t constitute income of an assessee:

Assessee had availed MODVAT credit paid at the time purchase of capital assets being plant and machineries. Part of such CENVAT credit was utilised by the assessee against sale of finished goods. AO found that the assessee had reduced the cost of plant and machineries to the extent of MODVAT credit for the purpose of claiming depreciation. AO was of the view that MODVAT received on purchase of plant and machineries, being capital in nature, cannot be allowed to be set-off against revenue receipts. According to AO, it was a kind of subsidy and incentive given by the Govt. and hence, it was to be treated as assessee’s income. Hon’ble ITAT held that the differential amount of MODVAT credit (after adjustment of current year’s utilization) appearing on asset side of Balance-sheet is a pre-paid expenditure and not chargeable to P&L account. It doesn’t constitute income of an assessee. Accordingly, CIT(A)’s order deleting the said addition was upheld by the Hon’ble ITAT.

[DCIT Vs. M/S. CAMPHOR & ALLIED PRODUCTS LTD. – ITA No.370/Ahd/2013]