2017 (2) TMI 123 - HC - Income Tax

Allowable expenditure on account of statutory liability under Section 43B - Held that - The assessee was accused of misdeclaration and consequential differential liability towards differential duty. If there was no such misdeclaration, the Revenue could not have contended that the amounts duly paid constituted allowable expenditure on account of statutory liability under Section 43B. That the Assessee did not do so but was quite rightly made to do so does not in any manner detract from its basic liability which it always had to satisfy. Therefore, the contentions of the Revenue are entirely misconceived and are rejected. The appeal does not involve any substantial question of law.

Summary

Issues:
1. Disallowance of ?70 lakhs paid by the assessee as a condition pursuant to the court order under Section 43B of the Income Tax Act, 1961.
2. Nature of the payment made by the assessee in response to the court order and its treatment under Section 37 of the 1961 Act.
3. Dispute regarding the liability of the assessee and the applicability of Section 43B for the amount paid.

Issue 1: The Revenue challenged the ITAT's order dismissing its appeal regarding the disallowance of ?70 lakhs paid by the assessee as a condition pursuant to a court order. The CIT(A) and ITAT held that the payment was compensatory in nature, covered by Section 43B, and liable under Section 37 of the 1961 Act. The ITAT emphasized that until the assessment was completed, the payment could not be considered a penalty. The court upheld the ITAT's decision, stating that the payment was an allowable expenditure under Section 43B, irrespective of the year in which the liability arose.

Issue 2: The assessee, engaged in import and export, was arrested for duty evasion, leading to a court order to deposit ?70 lakhs. The Revenue argued that the liability had not arisen as there was no adjudication order. However, the court found that the duty was subsequently assessed, a penalty was imposed, and the ?70 lakhs were appropriated towards the liability. The court rejected the Revenue's contention that the payment was towards penalty, emphasizing that it was part of the duty liability.

Issue 3: The Revenue contended that the payment was not payable without an adjudication order and relied on a Supreme Court judgment. The court disagreed, noting that the payment was towards a duty liability determined by the Principal Commissioner. The court distinguished the case cited by the Revenue, emphasizing that here, the assessee had a basic liability to satisfy, making the Revenue's contentions misconceived. The appeal was dismissed as it did not involve any substantial question of law.

In conclusion, the court upheld the ITAT's decision, emphasizing that the payment made by the assessee was compensatory in nature and allowable under Section 43B of the Income Tax Act, 1961. The court rejected the Revenue's arguments regarding the nature of the payment and the absence of an adjudication order, highlighting that the payment was towards a duty liability determined by the authorities.