2016 (6) TMI 982 - HC - Income Tax

Deduction u/s 43B - non payment of excise duty in cash - adjustment of refund from Central Excise and Customs - Held that - Department had adjusted the refund claim of the assessee of ₹ 3.71 crores towards its excise duty liability. That being the position, it cannot be said that excise duty of ₹ 3.71 crores was not actually paid over. The claim would not be hit by section 43B of the Act. - Decided against revenue

Summary

Issues:
- Deduction under section 43B on account of adjustment of refund from Central Excise and Customs
- Treatment of demand of Central Excise and Customs as actual liability in books of account

Analysis:
1. The central issue in this case revolves around the deduction of ?3.71 crores claimed by the assessee towards the payment of excise duty liability. The department had adjusted the assessee's refund claim against the excise duty liability. The Revenue contended that such a claim would be impacted by section 43B of the Income-tax Act, 1961.

2. The CIT(Appeals) found that the adjustment of the refund towards the excise duty liability could be considered as actual payment. It was noted that the demand raised by the department was not a penalty but a routine tax demand. The Tribunal upheld the view of the CIT(Appeals) and dismissed the Revenue's appeal, emphasizing that the demand was discharged to the extent of the refund adjustment. The Tribunal highlighted that the liability accrued over the accounting period due to demand notices issued by the excise department, and the obligation to pay excise duty arose at that stage.

3. The Tribunal referred to precedents, including the decision in CIT vs. Bharat Carbon and Ribbon Manufacturing Co. Pvt. Ltd., to support the allowance of the deduction under section 43B. It was emphasized that the liability, even if not accounted for in the books, was deductible under the mercantile system of accounting once it had accrued. The Tribunal further cited the case of Glaxo Smithline Consumer Healthcare Ltd. to explain that section 43B enables deductions on the payment of duties and taxes, overriding the method of accounting consistently followed.

4. Ultimately, the Tribunal concluded that as the department had adjusted the refund claim towards the excise duty liability, it could not be argued that the excise duty was not actually paid. Therefore, the claim for deduction was not impacted by section 43B of the Act, leading to the dismissal of the Tax Appeal.

This detailed analysis of the judgment highlights the interpretation and application of section 43B in the context of the adjustment of refunds and excise duty liabilities, emphasizing the principles of accounting and legal precedents in reaching the decision.