2016 (8) TMI 101 - HC - Income Tax

Unpaid sales tax liability - deduction in view of Section 43B - Held that - The issue raised herein viz. the sales tax collected by the assessee in the last quarter of the year was paid in the subsequent quarter before filing of the return, is to be allowed as a deduction in view of Section 43B of the Act, stands concluded against the Revenue by the decision of the Apex Court in Allied Motors (P.) Ltd. v/s. Commissioner of Income Tax 1997 (3) TMI 9 - SUPREME Court . - Decided in favour of the assessee Excise duty portion included in the closing stock - deduction in view of Section 43B - double deduction - Held that - There is no question of double deduction, as deduction under Section 43B of the Act is allowable only on actual payment. The actual payment of ₹ 877.38 lakhs has admittedly been done during the previous year relevant to the subject assessment year for which the deduction is claimed. There could be no occasion of making the same payment of ₹ 877.38 lakhs on duties/taxes in future. This is so as the payment has been made in the previous year relevant to the subject assessment year. Accordingly question covered by the decision of the Apex Court in Berger Paints India Ltd. (2004 (2) TMI 4 - SUPREME Court ). Accordingly, both the questions are answered in the negative i.e. in favour of the assessee

Summary

Issues:
1. Interpretation of Section 43B of the Income Tax Act regarding unpaid sales tax liability.
2. Admissibility of deduction for excise duty included in closing inventory under Section 43B.
3. Determination of double deduction for excise duty included in closing inventory.

Interpretation of Section 43B - Unpaid Sales Tax Liability:
The High Court addressed the issue of unpaid sales tax liability under Section 43B of the Income Tax Act. The Revenue contended that the sales tax collected by the assessee in the last quarter but paid in the subsequent quarter should be allowed as a deduction. However, the Court referred to the decision in Allied Motors case, where it was concluded that such payments are deductible. Consequently, the Court ruled in favor of the assessee against the Revenue on this matter.

Admissibility of Excise Duty Deduction:
Regarding the deduction claim for excise duty included in the closing inventory, the assessee relied on a Gujarat High Court decision. The Tribunal, however, disallowed the deduction, citing the possibility of double deduction since the excise duty was part of the closing stock cost. The Court analyzed previous judgments and highlighted that excise duty paid could be deducted under Section 43B, even if included in the closing stock cost. The Court emphasized that actual payment is the criteria for deduction under Section 43B, not the inclusion in closing stock cost. Hence, the Court ruled in favor of the assessee and against the Revenue on this issue.

Double Deduction Concerns:
The Revenue argued against allowing the excise duty deduction by claiming it would lead to a double deduction due to the cost price valuation method of closing stock. However, the Court rejected this argument, stating that Section 43B permits deduction only upon actual payment. As the excise duty was paid during the relevant assessment year, the Court found no basis for the double deduction claim. The Court referred to previous judgments, including the Apex Court's decision in Berger Paints India Ltd., to support the allowance of the excise duty deduction. Consequently, the Court ruled in favor of the assessee and against the Revenue on this issue as well.

In conclusion, the High Court answered the questions posed by the Tribunal in favor of the assessee and against the Revenue on all counts. The Court's detailed analysis of Section 43B and relevant case law provided a comprehensive understanding of the issues at hand, resulting in a favorable judgment for the assessee.