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Issues Involved:
1. Whether the assessee is entitled to a deduction of Rs. 27,02,757 in respect of customs duty claimed by the Customs Department, though disputed by the assessee. 2. Whether the deletion of a sum of Rs. 52,930 by the CIT(A) was justified on the grounds that the assessee had disputed the demand before the appellate authority. Detailed Analysis of the Judgment: 1. Deduction of Rs. 27,02,757 in respect of customs duty: The appellant, a public limited company, claimed a deduction of Rs. 27,02,757 for customs duty under the mercantile system of accounting. The customs authorities issued notices under section 28(1) of the Customs Act, 1962, known as 'Less Charge Demand Notices,' proposing the recovery of this amount. The assessee objected to these notices within the permissible time, and no final demand notice under section 28(2) was issued. The assessee relied on various judicial precedents, including the Allahabad High Court's decisions in ITAT v. B. Hill & Co. (P.) Ltd. and CIT v. J.K. Synthetics Ltd., which allowed deductions for disputed liabilities under the mercantile system of accounting. However, the revenue argued that these precedents pertained to sales-tax and excise duty, which differ from customs duty payable at the time of clearance of goods. The tribunal distinguished between the 'event of tax' and the obligation to pay the tax. In the case of customs duty, the obligation arises only upon quantification by the customs authorities. The tribunal emphasized that under the Customs Act, the liability to pay customs duty accrues only when quantified or demanded by the authorities. Since the assessee had objected to the proposed action and no demand was created under section 28(2), the liability had not crystallized. Consequently, the tribunal held that the assessee was not entitled to the deduction of Rs. 27,02,757 during the relevant year, as the liability remained hypothetical and had not accrued. 2. Deletion of Rs. 52,930 by the CIT(A): The revenue challenged the deletion of a sum of Rs. 52,930 by the CIT(A), arguing that the assessee had disputed the demand before the appellate authority. The Central Excise authorities had created an additional demand for excise duty amounting to Rs. 52,930 during the calendar year 1980 on the clearance of 555 tractors in March 1979. The Assistant Collector, Central Excise, passed the order levying the additional demand on December 30, 1980. The tribunal held that the mere fact that the demand was disputed in appeal did not disqualify the assessee from claiming the deduction. The liability to pay arises when the demand is created by the customs authorities, and as long as the demand is not canceled, the liability subsists. The tribunal directed the Assessing Officer to verify whether the amount collected by the assessee as customs duty in the preceding year had been disclosed as part of trading receipts. If disclosed, the deduction would be allowable; otherwise, it would not be permitted. Conclusion: The tribunal dismissed the assessee's appeal for the deduction of Rs. 27,02,757, as the liability had not crystallized. However, it partially allowed the revenue's appeal, directing verification of the disclosure of the amount collected as customs duty before allowing the deduction of Rs. 52,930.
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