2002 (7) TMI 70 - HC - Income Tax

Business Expenditure - Special Provision - Circular - Revenue has challenged the decision of the Tribunal on two counts, i.e., whether reopening of the assessment is valid and whether furnishing of bank guarantee by the assessee against customs duty amounts to actual payment of customs duty and is not hit by the provisions of section 43B of the Income-tax Act, 1961 - Whether the reopening was bad or illegal, we have to consider the provisions of section 147 as it stood in the relevant years. - In the result, reopening of the assessment in the assessment years 1984-85 and 1985-86 is bad and when the reopening of the assessment is bad, there is no need to go into the merits whether the tax was allowable on the basis of furnishing of a bank guarantee, therefore, we find no reason to interfere in the assessment years 1984-85 and 1985-86. So far as the assessment year 1987-88 is concerned, reopening has been held valid and we found that the furnishing of a bank guarantee is not tantamount to actual payment of the customs duty as required under section 43B, therefore, that has been hit by the provisions of section 43B of the Act, 1961, and the Tribunal has committed error in allowing the deduction of customs duty liability on the basis of a bank guarantee furnished by the assessee.

Summary

Issues:
1. Validity of reopening of assessment under section 147 of the Income-tax Act, 1961.
2. Whether furnishing of bank guarantee by the assessee against customs duty amounts to actual payment of customs duty and is not hit by the provisions of section 43B of the Income-tax Act, 1961.

Analysis:

Issue 1: Validity of Reopening of Assessment under Section 147

The case involved three appeals challenging the Tribunal's decision on the validity of reopening the assessment and the treatment of customs duty liability. The assessee imported newsprints and disputed the customs duty rate, leading to a Supreme Court order for a bank guarantee. The Assessing Officer initially allowed the deduction but later reopened the assessment disallowing the claim. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal disagreed, stating that the reopening was unjustified as material facts were disclosed. The High Court found that the notices for reopening were issued after the four-year limit, and the Assessing Officer could not change the opinion based on the same material disclosed earlier. Therefore, the reopening of the assessment for the relevant years was deemed illegal.

Issue 2: Treatment of Customs Duty Liability and Bank Guarantee

For the assessment year 1987-88, the reopening was held valid as it was within the four-year limit. The main issue was whether furnishing a bank guarantee equated to actual payment of customs duty, considering section 43B of the Income-tax Act, 1961. Section 43B mandates deductions only on actual payment, and the High Court clarified that a bank guarantee did not qualify as actual payment. The Court cited the non obstante clause in section 43B, emphasizing the requirement for actual payment. The Court rejected the argument that the tax effect was minimal, citing a Supreme Court decision and the validity of circulars issued by the Board. The Court noted that the circulars could bind the Income-tax Officer but not the appellate authority or the Tribunal. Ultimately, the High Court held that furnishing a bank guarantee did not meet the criteria for actual payment under section 43B, and the Tribunal erred in allowing the deduction based on the bank guarantee. Consequently, the appeal for the assessment year 1987-88 was allowed, while the appeals for the assessment years 1984-85 and 1985-86 were dismissed.

This detailed analysis of the legal judgment from the High Court of Rajasthan addresses the issues of reopening the assessment under section 147 and the treatment of customs duty liability concerning the furnishing of a bank guarantee. The judgment provides a comprehensive understanding of the legal reasoning and application of relevant provisions under the Income-tax Act, 1961, ensuring clarity on the decision-making process and legal interpretations involved in the case.