2000 (3) TMI 163 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of additions made under Section 43B of the IT Act.
2. Applicability of Section 43B to the assessee's case.
3. Constructive payment through Fixed Deposit Receipts (FDR) and its sufficiency under Section 43B.
4. Interpretation of statutory provisions in light of legislative intent.

Detailed Analysis:

1. Deletion of Additions Made Under Section 43B:
The Revenue filed appeals against the CIT(A)'s order which deleted the disallowance of deductions under Section 43B for the assessment years 1985-86 and 1986-87. The CIT(A) had deleted the additions of Rs. 7,81,682 and Rs. 30,21,160 for these respective years, which were made by the AO under Section 43B. The grounds of appeal by the Revenue are identically worded for both years, focusing on the issue of deduction under Section 43B.

2. Applicability of Section 43B to the Assessee's Case:
The assessee-firm, engaged in dyeing, bleaching, and finishing grey cloth, paid excise duty on its own cloth and job work charges from dealers. However, the dispute arose regarding excise duty on the value of cloth of merchant manufacturers, which the assessee recovered but did not pay to the excise authorities, claiming no manufacturing was involved. The Supreme Court provisionally restrained the excise authority from recovering the disputed excise duty, requiring the assessee to furnish a bank guarantee.

3. Constructive Payment through Fixed Deposit Receipts (FDR):
The assessee deposited the disputed excise duty amounts in fixed deposit accounts with Bank of Baroda to furnish the required bank guarantee. The AO disallowed these amounts under Section 43B, as payments were not made to the excise authorities. However, the CIT(A) held that the provisions of Section 43B were not applicable, as the assessee acted in a fiduciary capacity, and the excise duty collected was not utilized for business purposes but deposited in FDRs.

4. Interpretation of Statutory Provisions in Light of Legislative Intent:
Section 43B was introduced to curb the practice of taxpayers not discharging statutory liabilities while claiming deductions on an accrual basis. The Tribunal noted that the assessee's litigation with excise authorities was bona fide, and the amounts were deposited in FDRs as per the Supreme Court's directions, indicating no control over the money for business purposes. The Tribunal emphasized that Section 43B should be construed reasonably, considering its object and purpose. The deposit of excise duty receipts in FDRs and providing bank guarantees were deemed to constitute 'actual payment' under Section 43B, as the assessee lost control over the money.

Conclusion:
The Tribunal concluded that the CIT(A)'s deletion of additions for both assessment years was justified, as the provisions of Section 43B were not applicable. The appeals of the Revenue were dismissed, affirming that the assessee's actions aligned with the legislative intent behind Section 43B.