2023 (2) TMI 687 - AT - Income Tax

Deduction allowable u/s 43B - Certain deductions to be only on actual payment - assessee company has paid the custom duty and interest as per the order of Director General of Central Excise Intelligence - HELD THAT - In the case of Shankar Trading Co Pvt Ltd 2012 (1) TMI 91 - DELHI HIGH COURT the assessee company had paid interest on Sale tax. The AO had not allowed the said interest as deduction u/s 43B of the Act. However, the Hon ble Delhi High Court held that it is an allowable deduction u/s 43B of the Act. The facts of the Shankar trading Co P. Ltd (supra) and that of the assessee are identical. In the case of the assessee, the assessee has paid Interest on Customs Duty. In the case of the assessee the Interest on Customs Duty is automatic. Hence, the decision of Hon ble Delhi High Court is applicable in the case of the assessee. As held in the case of CIT Vs. Andhra Sugar Ltd 2015 (2) TMI 810 - ANDHRA PRADESH HIGH COURT that provisions of section 43B are applicable on Interest paid on Purchase duty. Thus we are of the considered opinion that the Interest paid by the assessee on Customs Duty is allowable as deduction u/s 43B - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of interest paid on delayed custom duty payment under section 37(1) of the Income Tax Act.
2. Applicability of section 43B on interest paid on delayed custom duty payment.

Detailed Analysis:

Issue 1: Disallowance of interest on delayed custom duty payment
The appellant filed an appeal against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of interest of Rs.3,37,96,354 paid on account of delayed payment of custom duty. The appellant contended that the interest was not in the nature of any offense or prohibited by law, thus not falling under explanation (1) to section 37(1) of the Act. The appellant also argued that the interest was covered under section 43B, contrary to the views of the Assessing Officer and the Commissioner. The appellant sought deduction of the total interest debited in the books while computing income. The Tribunal analyzed the facts of the case and the relevant legal provisions to determine the allowability of the interest as a deduction.

Issue 2: Applicability of section 43B on interest paid on delayed custom duty
During the assessment proceedings, it was observed that the appellant had paid interest on custom duty and claimed it as a deduction under section 43B of the Act. The Assessing Officer disallowed the deduction, stating it was not covered under section 43B. The Commissioner upheld the disallowance. The Tribunal examined the order of the Director General of Central Excise Intelligence directing the appellant to pay duty and interest due to failure in fulfilling export obligations. The Tribunal referred to the notification exempting duty payment under specific conditions and the direction to pay duty along with interest. The Tribunal emphasized that the interest paid was not penal in nature but a consequence of failing to fulfill obligations. Citing relevant case laws and legal provisions, the Tribunal concluded that the interest paid on custom duty was allowable as a deduction under section 43B of the Act.

In conclusion, the Tribunal allowed the appeal of the assessee, holding that the interest paid on custom duty was deductible under section 43B of the Income Tax Act. The detailed analysis of the facts, legal provisions, and precedents supported the decision, emphasizing the non-penal nature of the interest and its compliance with the provisions of section 43B.