2017 (3) TMI 1224 - AT - Income Tax

Addition made u/s. 43B - Customs duty liability - Held that - We notice that the Ld CIT(A) had taken the view in AY 2004-05 that the provisions of sec. 43B would not be applicable to the Customs duty liability, but the Tribunal had set aside the same. However, in the instant year, the Ld CIT(A) has confirmed the addition by holding that the provisions of sec. 43B shall be applicable to the assessee. We notice that the co-ordinate bench has taken the view that the customs duty liability adjusted against export obligations is liable to be allowed as deduction under first proviso to sec. 43B of the Act. We further notice that the view so taken by the co-ordinate bench has been followed by another co-ordinate bench in the assessee s own case relating to AY 2005-06. In view of the above, consistent with the view taken by the co-ordinate benches in other years, we hold that the assessee is entitled to deduction u/s 43B of the Act in respect of customs duty liability adjusted against export obligation. In the instant case, there is no dispute that the entire amount of customs duty liability has been adjusted against export obligation before the due date for filing return of income. Accordingly we reverse the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition. - Decided in favour of assessee

Issues Involved:
1. Validity of reopening of assessment
2. Validity of addition under Section 43B of the Income Tax Act
3. Alternative contention regarding the addition made under Section 43B of the Income Tax Act

Detailed Analysis:

1. Validity of Addition under Section 43B of the Income Tax Act:
The primary issue pertains to the addition made under Section 43B of the Income Tax Act. The assessee procures crude oil through imports and is liable to pay customs duty on the imported crude oil. This duty can be adjusted against the fulfillment of export obligations. During the relevant year, the assessee provided for customs duty liability amounting to ?1,73,35,28,049/- and claimed this as a deduction under Section 43B. Initially, this deduction was allowed by the Assessing Officer (AO) during the assessment completed under Section 143(3). However, the AO later reopened the assessment, contending that the deduction under Section 43B is allowable only when the customs duty is actually paid before the due date for filing the return of income. Since the assessee adjusted the customs duty liability against export obligations without actual payment, the AO disallowed the deduction and added ?1,73.35 crores to the assessee's income. The CIT(A) upheld this addition, prompting the assessee to appeal.

The Tribunal noted that in a similar case for the assessment year 2004-05, it was held that the fulfillment of export obligations, which reduces the customs duty liability, qualifies as "payment" under the first proviso to Section 43B. The Tribunal reiterated that the customs duty liability, which arises upon the import of goods, is crystallized at that point, even if the payment is deferred under certain conditions. The Tribunal emphasized that the fulfillment of export obligations, which reduces the customs duty liability, should be considered as payment for the purposes of Section 43B. Consequently, the Tribunal directed the AO to delete the addition of ?1,73,35,28,049/-.

2. Validity of Reopening of Assessment:
The assessee challenged the reopening of the assessment, arguing that the original assessment was completed under Section 143(3) and that there was no new information or material to justify reopening. However, since the Tribunal decided the issue of deduction under Section 43B in favor of the assessee, it deemed the challenge to the reopening of the assessment as academic and did not provide a detailed ruling on this issue.

3. Alternative Contention Regarding the Addition Made Under Section 43B:
The assessee also raised alternative grounds concerning the deduction claimed under Section 43B. However, given that the Tribunal ruled in favor of the assessee on the primary issue of the deduction under Section 43B, these alternative grounds were rendered academic and were not addressed in detail.

Conclusion:
The appeal filed by the assessee was allowed. The Tribunal directed the AO to delete the addition of ?1,73,35,28,049/- made under Section 43B, affirming that the fulfillment of export obligations, which reduces customs duty liability, qualifies as payment under the first proviso to Section 43B. The issues regarding the reopening of the assessment and alternative grounds were deemed academic and were not adjudicated.

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