2002 (9) TMI 50 - HC - Income Tax

Whether, on the facts and circumstances of the case, the customs duty and excise duty actually paid and shown as current assets in the balance-sheet and not charged to the profit and loss account could be deducted under section 43B in computing the income of the assessee? - The fact that the duty paid was not charged to the profit and loss account by itself would not disentitle the assessee from claiming deduction under section 43B. It is open to the assessee to file an adjustment statement before the Assessing Officer. Learned counsel for the Revenue submitted that the duty paid is a legitimate charge on the gross profits when the gross profits has been properly ascertained by valuing the closing stock as also the opening stock including therein the duty paid on such stock. The question referred to us is answered in favour of the assessee.

Summary

Issues:
- Deductibility of customs duty and excise duty under section 43B in computing income.

Analysis:
The case involved a question regarding the deduction of customs duty and excise duty paid by the assessee under section 43B in computing income for the assessment year 1984-85. The assessee, engaged in manufacturing PVC pipes and fittings, had imported materials and paid import duty of Rs. 35,09,826. The balance of import duty on raw materials held as closing stock was shown in the balance-sheet as part of current assets. Similarly, excise duty on finished goods held as closing stock was also included in the inventory under current assets.

The Assessing Officer, Commissioner, and Tribunal had denied the assessee's claim for deduction under section 43B, stating that since the duty amounts were not separately shown in the profit and loss account, the deduction could not be allowed. However, the court referred to section 43B of the Act, which mandates deductions only on actual payment, regardless of the year in which the liability was incurred. The court emphasized that the assessee is entitled to deduction in the year of actual payment, irrespective of whether the duty amounts were separately shown in the profit and loss account.

The court clarified that section 43B does not require the duty amounts to be shown separately in the accounts before claiming a deduction. The inclusion of duty in the valuation of current assets does not disentitle the assessee from claiming the deduction. The court highlighted that the failure to charge duty to the profit and loss account does not affect the assessee's right to claim the deduction. The Revenue's argument that duty paid is a legitimate charge on gross profits was countered by the court, which emphasized the assessee's right to file an adjustment statement before the Assessing Officer.

Referring to a similar view taken by the Bombay High Court in a previous case, the court ruled in favor of the assessee, stating that the assessee had submitted the necessary adjustment statement to the Assessing Officer. Therefore, the court held that the customs duty and excise duty paid by the assessee on raw materials and finished goods were deductible under section 43B in the computation of income for the relevant assessment year.