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2009 (5) TMI 594 - AT - Income TaxDisallowance - custom duty and investment allowance reserve - Since the assessee did not pay the customs duty and did not get the imported goods released from the customs authority from the port, entries were made in its accounts debiting customs duty account and showing it correspondingly in the closing stock on hand - Supreme Court in the landmark judgment in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971 -TMI - 6262 - SUPREME Court) have held that an assessee following the mercantile system of accounting was entitled to claim as and by way of deduction/allowance from its profits taxi statutory liabilities though disputed in appeals - Since the profits are not reduced at all by the customs duty liability/expenditure, the AO clearly erred in taking the aid of s. 43B and adding the balance customs duty of Rs. 1,24,97,664 - Both the lower tax authorities have failed to note the very essential words of s. 43B which says that notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of........ These qualifying words are very important to bring into play the provisions of s. 43B particularly to make additions/disallowances - Decided in favor of the assessee
Issues Involved:
1. Jurisdiction of the AO. 2. Disallowance of customs duty under Section 43B. 3. Investment allowance claim remanded to the AO by the CIT(A). Detailed Analysis: 1. Jurisdiction of the AO: The assessee did not press the grounds relating to the jurisdiction of the AO. Therefore, this issue was not adjudicated by the Tribunal. 2. Disallowance of Customs Duty under Section 43B: The primary issue for adjudication was the disallowance of customs duty amounting to Rs. 1,24,97,664 under Section 43B of the Income Tax Act, 1961. Facts: - The assessee, a limited company, provided for customs duty payable on raw materials imported into India. - The customs duty provision as of 31st March 1990 was Rs. 4,59,10,736, out of which Rs. 3,34,13,072 was paid before filing the return, leaving a balance of Rs. 1,24,97,664. - The customs duty was debited to the raw material purchases account and included in the closing stock. AO's Stand: - The AO disallowed the balance customs duty of Rs. 1,24,97,664 under Section 43B, as it was not paid within the accounting period or before the due date for filing the return. Assessee's Argument: - The assessee argued that the customs duty was accounted for on an accrual basis as per the Companies Act and was included in the closing stock. - The customs duty was not claimed as a deduction in the P&L account, and therefore, Section 43B should not apply. Tribunal's Findings: - The Tribunal noted that the customs duty was included in both the purchases account and the closing stock, and thus, the profits were not reduced by the customs duty liability. - Section 43B applies only when a deduction is claimed from taxable income without making the corresponding payment. Since no such deduction was claimed, Section 43B was not applicable. - The Tribunal relied on various case laws, including the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. vs. CIT, which held that statutory liabilities could be claimed on an accrual basis. Conclusion: - The Tribunal held that the AO and CIT(A) erred in applying Section 43B and disallowing the customs duty of Rs. 1,24,97,664. The order of the CIT(A) was reversed, and the AO was directed to delete the addition. 3. Investment Allowance Claim: The assessee did not press the grounds relating to the investment allowance claim. Therefore, this issue was not adjudicated by the Tribunal. Separate Judgments: - The Judicial Member (JM) and the Accountant Member (AM) had differing views on the applicability of Section 43B. - The JM held that Section 43B was not applicable as the customs duty was not claimed as a deduction. - The AM held that the customs duty liability was accrued and included in the purchases account, and therefore, Section 43B should apply. - The matter was referred to a Third Member, who concurred with the JM, leading to the majority view that Section 43B was not applicable. Final Outcome: - The appeal of the assessee was allowed concerning the disallowance of customs duty under Section 43B. - The issues related to jurisdiction and investment allowance were not pressed and thus not adjudicated. - The appeals for subsequent years (1991-92 and 1992-93) followed the same reasoning and were partly allowed in favor of the assessee.
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