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2010 (11) TMI 993 - HC - Income TaxClaim the deduction u/s. 43B - payment towards excise duty - The fact is that the assessee had made the payment towards excise duty albeit on the direction of the CESTAT as pre-deposit which therefore, would not seize to have the character of excise duty as held in the case of Bharat Carbon Ribbon Mfg. Co. (P) Ltd. 1999 (8) TMI 1 - SUPREME COURT . The ultimate decision in the appeal will have no bearing on the issue. Before us, the admitted position is that the said amount of ₹ 7.5 crores is made against as a part payment against the excise duty demand raised by the excise authorities and since it was a statutory liability on that part, therefore, the conditions stipulated in s. 43B are duly fulfilled and thus the assessee was entitled to claim the deduction thereof. We thus answer the question in favour of the assessee and against the Revenue and as a result thereof, this appeal is dismissed.
Issues:
1. Whether the Tribunal was correct in affirming the deletion of an addition of Rs. 7.5 crores by the CIT(A) as the penalty/pre-deposit paid by the assessee was not in the nature of excise duty? 2. Whether the payment made by the assessee as a pre-deposit on the direction of CESTAT for stay of orders had a direct nexus with the excise demand raised by the adjudicating authorities? Analysis: Issue 1: The appellant claimed a deduction of Rs. 7.5 crores for excise duty in the assessment year 2006-07. The AO disallowed this deduction under section 43B of the IT Act as the amount was deposited as a pre-deposit on the direction of CESTAT and not as actual excise duty payment. However, the CIT(A) allowed the deduction, and the Tribunal upheld this decision. The High Court referred to the principle established in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363(SC), emphasizing that the liability to pay tax accrues when subject to taxation, irrespective of disputes or appeals. The Court concluded that the payment of Rs. 7.5 crores, even as a pre-deposit, had a direct nexus with the excise duty demand and was a statutory liability, fulfilling the conditions of section 43B of the IT Act. Therefore, the assessee was entitled to claim the deduction, and the appeal was dismissed in favor of the assessee. Issue 2: The payment of Rs. 7.5 crores by the assessee as a pre-deposit was directly related to the excise demand raised against them by the excise authorities. Despite challenging the excise duty liability through appeals, the nature of the payment remained connected to the excise duty demand. The Court held that the character of the payment did not change, as it was made against a statutory liability, meeting the requirements of section 43B of the IT Act. The Court cited precedents like CIT vs. Kalinga Tubes Ltd. (1996) 131 CTR (SC) 98 and CIT vs. Bharat Carbon & Ribbon Mfg. Co. (P) Ltd. (1999) 155 CTR (SC) 497 to support this interpretation. Consequently, the Court ruled in favor of the assessee, allowing the deduction and dismissing the appeal against the Revenue.
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