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TMI Blog1987 (4) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... uty amounting to Rs. 1,24,31,024 in respect of imported components included in the closing stock and excise duty of Rs. 22,74,844 paid in respect of goods manufactured and remaining unsold so as to form part of the closing stock. On the basis the Trading and Profit and Loss Account prepared by the assessee showed a net profit of Rs. 57,45,485 and the assessee filed a return showing an income of Rs. 27,34,500. 4. Sec. 43B of the IT Act, 1961 was brought on the statute book by the Finance Act, 1983 w.e.f.1st April, 1984. The relevant portion of that provision is as below: "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-- (a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of customs duty and excise duty respectively describing them as deduction under s. 43B. The CIT took note of the assessment order and as of the view that the action of the ITO was erroneous and prejudicial to the Revenue. The ld. Commissioner observed that the assessee had been following a consistent method of stock valuation under which the element of excise and customs duties was included in the value of the closing stock and that s. 43B did not permit the revision for the value of closing stock by deducting therefrom the element of the aforesaid duties. According to him, when the actual amount paid by the assessee had already been debited in the Trading Profit and Loss Account, the whole of the said amounts stood allowed and the business profits were assessable under s. 28 and were to be computed under s. 145 in accordance with the method of accounting regularly employed by the assessee according to which the valuation of closing stock included the aforesaid duties proportionate to the extent of goods forming part of the closing stock. In his view therefore, the deduction of the aforesaid amounts was erroneous and, therefore, he passed the order as aforesaid. 5. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme etc., for long periods of time extending sometimes to several years. For the purpose of their ITassessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand, they dispute the liability and do not discharge the same. For some reason or the other undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by the assessee as an employer by way of contribution to any provident fund, or superannuation fund or gratuity fund or any other fund for the welfare of employees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him." (1983) 33 CTR (TLT) 74: (1983) 140 ITR (St) 160 The argument of the ld. counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 122 (SC). That was a case in which the assessee maintained accounts according to cash system of accounting. The assessee debited the cost of acquiring distribution rights of certain films but did not take into account the value of those rights as closing stock. The ITO added the value of closing stock for determining the assessee's income and this was upheld by the Hon'ble Supreme Court. The Hon'ble Supreme Court observed, "whatever method of book keeping is adopted in the case of a trading venture, for computing the true profits of the year the stock-in-trade must be taken into account. If the value of stock-in-trade is not taken into account, in the ultimate result the profit or loss resulting from trading is bound to get absorbed or reflected in the stock-in-trade unless the value of the stock-in-trade remains unchanged at the commencement of the year and the end of the year". In the case before us the assessee has valued its closing stock according to ordinary principles of commercial accounting and practice and also according to its own system of accounting coming from several years past. We find nothing either in the plain words of s. 43B or in the explanatory memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock. This is clear from the following observations: "At the time of hearing, Mr. J.P. Shah, the learned advocate appearing for the petitioner, submits that any sum payable by an assessee by way of tax or duty under any law for the time being in force is allowable and as per the mercantile method of accounting, it would be allowable at the time when it becomes due and/ or the assessee would be liable to pay the same and not on the actual payment of tax or duty, but as per the newly added provision of s. 43B of the Act, it would be allowable only in computing the income referred to in s. 28 of the previous year in which the sum is actually paid by the assessee irrespective of the previous year in which the liability to pay such tax was incurred by the assessee according to the method of accounting regularly employed. He, therefore, submits that the customs duty being paid in the year 1983 on the raw material imported during the year, though the raw material is consumed in the year 1984, the assessee would be entitled to get an allowable deduction for the asst. yr. 1984-85 (accounting year ending on 31st Dec., 1983) in computing the taxable income of the petitioner-assessee". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be accepted". The last facet of Mr. Shelat's arguments is that the expenditure on paying import and excise duty in respect of the closing stock does not pertain to the goods sold in the year. This argument runs counter to the mercantile method of accounting as well as to the specific language of s. 43B of the Act. It is not disputed that the said goods in the closing stock were either imported or manufactured in the accounting year 1983 and as per the principles of the mercantile method of accounting, the expenditure incurred by way of import duty as well as excise duty would be a permissible deduction in the year 1983 and particularly when the payment thereof is made under s. 43B of the Act. Under the circumstances, we do not find any merit in any of the contentions raised by Mr. Shelat and for the same reasons we accept the contentions raised by Mr. J.P. Shah appearing for the petitioner-assessee". The above observations will show that some how the Hon'ble High Court got the impression that the ITO wanted to disallow that portion of the customs and excise duties which pertain to the goods in the closing stock and the Hon'ble High Court held that in view of s. 43B this cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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