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2011 (2) TMI 49 - AT - Income TaxAssessment - adjustment of MODVAT credit against the liability - Section 43B - it can be said that the adjustment was as good as the duty paid and it amounts to actual payment. The payment has been made before the due date of filing the return u/s 139(1). The first proviso contains a provision to the effect that nothing contained in this section shall be applicable in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139. In view thereof the provision contained in section 43B(a) becomes inapplicable to the facts of the case of the assessee. Revenue s appeal Appeal dismissed
Issues Involved:
1. Whether the CIT(Appeals) erred in deleting the addition made by the AO under section 43B read with section 43(2), disallowing the deduction claimed on account of adjustment of MODVAT credit against the liability. Detailed Analysis: Issue 1: Deletion of Addition Under Section 43B Read with Section 43(2) Assessment Proceedings and AO's Findings: - The assessee was asked to provide evidence of payment of excise duty on finished goods. The assessee submitted that the liability was adjusted through MODVAT credit in April and May 2005, which was claimed to be as good as the payment of excise duty. - The AO noted that the liability to pay excise duty arises even if goods are lying in the bonded warehouse per section 145A. The AO emphasized that the word "paid" in section 43(2) means actually paid or incurred according to the accounting method used for computing profits and gains. - The AO concluded that unexpired MODVAT credit available on the last date of the previous year does not amount to payment of excise duty under section 43B, leading to the addition of Rs. 33,01,199/- in the absence of actual payment. CIT(Appeals) Findings: - The CIT(Appeals) observed that the liability to pay central excise duty arises when goods are removed from the bonded warehouse. This liability can be discharged by actual payment or by adjustment from MODVAT credit. - Since the goods were not removed, the liability to pay excise duty did not arise in the current year but in the next year when it was settled by setting it off against the MODVAT credit available. - The CIT(Appeals) referred to the Special Bench decision in the case of CIT v. Glaxo Smithkline Healthcare Ltd., noting that the question before the bench was different and not applicable here. Consequently, the disallowance was deleted. Arguments Before ITAT: - The Revenue argued that MODVAT credit was not adjusted against the liability of central excise duty, thus it cannot be considered as actual payment. The liability accrues as soon as the goods are manufactured and must be accounted for in the valuation of closing stock under section 145A. Since the liability was not paid, no deduction can be allowed. - The assessee's counsel contended that the liability was adjusted in April-May 2005, which is as good as payment, and thus deductible as it was paid before the due date of filing the return under section 139(1). The counsel referred to the Supreme Court decision in Eicher Motors, arguing that MODVAT credit is as good as tax paid. ITAT's Analysis and Conclusion: - ITAT examined sections 145A, 43(2), and 43B. Section 145A requires inventory valuation to include any tax, duty, cess, or fee actually paid or incurred. Section 43(2) defines "paid" to mean actually paid or incurred according to the accounting method used. - Section 43B permits deduction of any sum payable by way of tax, duty, cess, or fee in the year it is actually paid, irrespective of the accounting method employed. - ITAT referred to the Special Bench decision and the Supreme Court decision in Eicher Motors, noting that MODVAT credit is as good as tax paid only when it is set off against the excise duty payable. - Since the MODVAT credit was actually adjusted in April-May 2005, it was as good as duty paid and amounts to actual payment. This adjustment was made before the due date of filing the return under section 139(1), making section 43B(a) inapplicable. - ITAT concluded that the CIT(Appeals) was correct in deleting the addition made by the AO. Final Judgment: - The appeal by the Revenue was dismissed. This order was pronounced in the open court on 18 February 2011.
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