2014 (9) TMI 826 - HC - Income Tax

Outstanding Excise duty u/s 43B - Bank guarantee paid by assessee - Whether the tribunal has rightly upheld the decision of the CIT(A) in deleting addition made u/s 43B on account of Central Excise liability appearing in the balance sheet Held that - The excise duty was levied on fabrics and the processing charges - furnishing of a bank guarantee for whole or part of the disputed excise duty pursuant to the order of the Court is not equivalent to payment of excise duty, that is, only securing the revenue and in terms of the conditions imposed by the order of the Court - The bank guarantee cannot be straightway encashed by the revenue and until pendency of the proceedings - This was therefore not equivalent to the payment - section 43B is entitled as certain deductions but only on actual payment - the view taken by the tribunal is in accordance with the legal position as set out in the judgment of the Supreme Court as also in consonance with the wording of section 43B Decided in favour of revenue.

Summary

Issues:
Claim for higher depreciation rate, applicability of section 43B of the Income Tax Act, 1961 on Central Excise liability, interpretation of Excise Duty collection, and processing charges.

Analysis:
1. The case involves a partnership firm engaged in dyeing, bleaching, and printing of art silk cloth, disputing the depreciation rate on machinery for the assessment years 1979-80 and 1980-81. The Income Tax Officer allowed depreciation at 10% instead of the claimed 15%, citing the nature of the firm's work and a pending reference before the court. The CIT directed the Officer to allow 15% depreciation, leading to an appeal by the revenue to the Appellate Tribunal.

2. The Appellate Tribunal considered the firm's reliance on previous judgments and the issue of bank guarantee for pending Central Excise duty payment. The revenue argued that the bank guarantee does not entitle the firm to claim depreciation until actual payment is made. The Tribunal referenced differing opinions in other cases and the Supreme Court's stance on bank guarantees not being equivalent to payment.

3. The firm maintained separate accounts for Central Excise amounts, arguing that the disputed amount was paid through fixed deposits and bank guarantees. However, the Assessing Officer, CIT (Appeals), and the Tribunal rejected this argument, upholding the applicability of section 43B of the Income Tax Act, 1961, which mandates deductions only on actual payment.

4. The High Court, after considering the Supreme Court's judgment in a similar case, affirmed that furnishing a bank guarantee does not equate to payment of excise duty until actual payment is made. The Court upheld the Tribunal's decision based on section 43B and ruled in favor of the revenue, denying the firm's claim for higher depreciation rate based on the bank guarantee.

5. The High Court answered the questions posed by both the revenue and the firm in favor of the revenue, concluding that the issues raised did not survive due to the Court's opinion. The reference was disposed of accordingly, emphasizing the importance of actual payment over bank guarantees in claiming deductions under the Income Tax Act.

This detailed analysis covers the key issues and legal interpretations presented in the judgment delivered by the High Court of Bombay.