ITC claimed on expenses used for furtherance of Business

[Shambhavi Nayak]

We during 21-22 had expenses like office renovation. Extension of storage, roofing of godown and some computers Name board and weighment cabin.

None of the above items was capitalized and ITC were claimed as all the expenses were related to furtherance of business.

Order passed to reverse the said ITC claimed as it was not declared as Capital Goods.

 

[YAGAY andSUN]

The impugned order proceeds on an erroneous legal premise by linking admissibility of ITC with capitalization in books, which is not contemplated under the Central Goods and Services Tax Act, 2017.

Under Section 16(1), ITC is allowable on goods or services used in the course or furtherance of business, subject to prescribed conditions. The provision does not mandate capitalization as a pre-condition for availing ITC.

The only relevant restriction arises under Section 17(5)(c) and (d), which block ITC in respect of works contract services and goods/services used for construction of immovable property (other than plant and machinery). Importantly, the Explanation to Section 17(5) provides that "construction" includes renovation, reconstruction, additions, etc., to the extent capitalized.

Thus, capitalization becomes relevant only for the limited purpose of invoking the restriction under Section 17(5). A plain reading implies that where such expenditure is not capitalized, the statutory bar may not apply. Therefore, denial of ITC solely on the ground that the expenses were not capitalized is legally untenable.

Without prejudice, the correct legal test is not accounting treatment but the nature of the asset:

• Items such as computers and detachable name boards qualify as movable goods and are eligible for ITC.

• Structures like roofing, storage extension, or civil renovation may fall within the ambit of immovable property and require examination under Section 17(5).

• A weighment cabin, if movable or pre-fabricated, would not attract the restriction.

It is settled law that eligibility of ITC must be determined based on statutory conditions and not merely on book treatment. Even otherwise, the phrase "to the extent capitalized" cannot be rendered otiose.

Accordingly, a blanket reversal of ITC without item-wise analysis of nature and usage is arbitrary and contrary to the scheme of the Act.

[Pinnacle Tax Advisor]

if the expense are operating expense in nature and you have not capitalized in books, you are eligible to claim ITC. if order has been passed to reverse the ITC, you may prefer appeal against impugned order within 3 months

[Shilpi Jain]

In case of repair/renovation, if expense is not capitalised and there is no other restriction on claiming such ITC u/s 17(5) this ITC can be claimed.

AI Summary

Input tax credit admissibility depends on nature of supplies, not capitalization; item-wise analysis required for construction-related exclusions. Availability of Input Tax Credit depends on statutory conditions and the nature and use of supplies, not on capitalization alone. The construction/works-contract restriction disallows ITC only to the extent expenditure is capitalised; therefore capitalization matters only for that specific bar. Item-wise analysis is required: movable items like computers and detachable nameboards typically qualify, while civil works such as roofing or storage extensions may be excluded if they amount to immovable property and are capitalised. Blanket reversals based solely on non-capitalization are legally unsound.