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TMI Blog2009 (5) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of........" These qualifying words are very important to bring into play the provisions of s. 43B particularly to make additions/disallowances - Decided in favor of the assessee - - - - - Dated:- 26-5-2009 - Member(s) : M. K. CHATURVEDI., ABDUL RAZACK., P. S. KALSIAN. ORDER-ABDUL RAZACK, J.M.: August, 1997 The assessee in this appeal relating to the asst. yr. 1990-91 has assailed the order of the Commissioner of Income-tax (Appeals) [for short "CIT(A)"] on three grounds, (1) on jurisdiction, (2) on disallowance of customs duty under s. 43B and (3) on the investment allowance claim remanded to the AO by the CIT(A) with certain directions. At the time of hearing, the assessee's counsel submitted that the assessee is not pressing grounds relating to the jurisdiction of the AO as well as the investment allowance claim, and that he will be advancing arguments on the dispute in relation to the customs duty addition made by the AO in terms of s. 43B of the Act. Before we adjudicate the dispute on the customs duty addition under s. 43B, the facts require to be narrated. 2. The assessee is a limited company and according to the amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The computation statement for the period ended on 31st March, 1990 relevant to the asst. yr. 1990-91, which is year under appeal is placed at p. 7 of the paper book No. 2. From this statement also, it is seen that the customs duty payable on accrual basis is not deducted, while arriving at the loss figure of Rs. 35,39,838. The details of opening stock, purchases, closing stock and raw material consumed is discernible from p. 17 of the first paper book and we extract below the relevant portion from the said page: Rs. "Opening stock 8,29,77,253 Add: Purchases 27,46,62,599 Customs duty 15,82,96,112 Carriage inwards 1,48,64,323 ------------ 53,08,00,287 Less: Closing stock 16,11,90,883 ------------ 36,96,09,404 Less: Excise duty set off 5,64,25,969 ------------ Raw material consumed 31,31,83,435 ------------ The AO while processing the return filed was of the opinion inter alia that the balance sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing year. The assessee company was, therefore, unsuccessful before the CIT(A) in the first appeal. It is on account of this reason that the matter stands before us for readjudication. 3. The assessee's counsel Sri Devanathan, vehemently argued that the AO has not understood the accounts in a proper legal perspective and has unnecessarily resorted to the disallowance/addition taking the aid of s. 43B of the Act. According to Shri Devanathan, s. 43B can only be invoked for making addition/disallowance if any assessee claims by way of deduction or allowance any tax, duty, cess, etc., as provided in s. 43B, if the same is not paid within the close of the accounting period at least before the due date for the filing of the return as per Explanation introduced in s. 43B at a later time by the legislature. Since the taxable profits have not been reduced by the assessee company because of non-deduction of the balance customs duty provision, the provisions of s. 43B were wholly out and the AO unjustly made the disallowance/addition of the balance customs duty. To convince us, our attention was drawn to the P L a/c finding place at p. 18 of the printed final accounts for the period en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the legal opinion at pp. 177 to 180 of the first paper book. Xerox copies of various judgments which would come to the aid of the assessee in the dispute are also placed in the first paper book from pp. 59 to 173. In the end, the assessee's counsel pleaded for reversal of the order of the CIT(A) with a direction to the AO to delete the addition of Rs. 1,24,97,664 made under s. 43B representing balance customs duty payable on the imported goods. 4. The Departmental Representative, on the other hand, repelled the contentions raised by the assessee's counsel and relied upon the reasoning given by the CIT(A) in the impugned order as well as the case brought out by the AO for invoking the provisions of s. 43B and making the impugned addition/disallowance of Rs. 1,24,97,664. The Departmental Representative wanted dismissal of the assessee's appeal. 5. We have heard the representative appearing for the assessee as well as for the Revenue in this appeal. The orders passed by both the lower tax authorities have been studied with reference to the relevant documents finding place in the paper books filed by the assessee's counsel and to which our attention was drawn. We have also exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in cl. (a) or cl. (b) of this section is allowed in computing the income referred to in S. 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him." 8. In this connection it will be useful to refer to the Finance Minister's Speech in connection with the presentation of the Budget for the year 1983-84, relevant portion of which reads 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. ESI scheme, for long period of time. For the purpose of their income-tax assessments, they nonetheless claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices/propose to that irrespective of the method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Board's circular explaining the impact of s. 43B, one thing emerges very clear that if an assessee claims any deduction or allowance from its profits in arriving at its taxable income without making payment of the statutory liability or the various expenditures mentioned in that provision without actually making the payment within the accounting period or as per the new Explanation within the due date for filing of the return, then, he will not be entitled to have the benefit of such allowance and the same will be added back again. 10. In the instant case, the assessee provided the customs duty payable amounting; to Rs. 4,59,10,736 to the raw material purchases account and since the imported goods were not released from the bonded warehouse, the same was shown as closing stock on hand as on the close of the accounting period and the value of the closing stock on hand (raw materials) was not at its cost price but inclusive of the customs duty payable which is an accrued liability on the assessee immediately upon importation of the goods. Thus, the purchases account was burdened with the customs duty liability and shown on the debit side of the trading account and since the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have been made while computing the income/loss of the assessee company. In our view, therefore, the impugned order of the CIT(A) is not in accordance with law and therefore, cannot be upheld and has to be reversed, which we hereby do. 11. The Allahabad High Court while rejecting reference under s. 256(2) by the CIT, in the case of CIT vs. S.B. Foundry (1990) 185 ITR 555 (All) held at as under: 'The appellate authority has found that the amount in dispute represented the sales-tax realisation of the last month of the previous year relevant to the assessment year in dispute. Under the provisions of sales-tax law, the amount was payable in the next month and the same was actually paid in the month of November, 1983. The addition is on the finding that the assessee had not claimed the disputed amount as deduction nor has it charged that amount to the P L a/c. On this factual position, the Tribunal held that there was no question of disallowing the amount taken to the balance sheet on the liabilities side and, in these circumstances, the question of any 'add back' from the P L a/c did not arise. The Tribunal, therefore, refused to interfere with the order of the AAC. No error in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since he failed to do so, we hereby order and direct the AO to delete the addition of Rs. 1,24,97,664 representing the balance customs duty payable on the imported goods lying in the bonded warehouse. 15. Since we are holding that s. 43B was not applicable for making the impugned addition, we are not embarking upon any discussion and refraining from giving any decision on the applicability of ss. 12, 15 and s. 68 of the Customs Act and the various case laws relied upon by the assessee's counsel. We think it will be redundant in view of our decision to analyse those provisions of Customs Act with reference to the case laws relied upon by the assessee's counsel. 16. No other point was urged or argued as recorded by us above. 17. In the result the assessee's appeal is allowed. P.S. KALSIAN, A.M: 30th Sept., 1997 Rs. "Opening stock 8,29,77,253 Add: Purchases 27,46,62,599 Customs duty 15,82,96,112 Carriage inwards 1,48,64,323 ------------ 53,08,00,287 Less: Closing stock 16,11,90,883 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of customs duty has not accrued. If the liability for customs duty has not accrued then why the assessee did not amend or rectify the entries in the books of accounts before the accounts were submitted to the shareholders in the annual general meeting held on 22nd Oct., 1990. In the case of Lalsingh Estate (P) Ltd. vs. CIT (1995) 124 CTR (Gau) 123 : (1995) 216 ITR 644 (Gau), the Hon'ble Gauhati High Court at p. 650, explained the doctrine of approbate and reprobate, in the following words: "...It is settled that the law does not permit a person to approbate and reprobate. No party can accept and reject the same instrument, that is to say, a person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say that it is void for the purpose of securing some other advantage [R.N. Gosain vs. Yashpal Dhir AIR 1993 SC 352]." The principle of approbate and reprobate is fully applicable to the case of the assessee. The assessee by its own conduct has treated the liability of customs duty on accrual basis in the books of accounts and has also enjoyed the advantage fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. We do not approve this approach and conduct of the assessee. We are, therefore, firmly of the opinion that the entire benefit of Rs. 1,24,05,255 towards purchase price and excise duty rebate/incentive is income as per law and correctly brought to tax by the AO." Similarly in the case of the assessee before us, it holds out to the entire outside world that the liability of Rs. 4,59,10,736 had arisen on 31st March, 1990, but for the purpose of assessment argues that liability has not arisen and provisions of s. 43B are not applicable, which goes against the system of accounting regularly followed by the assessee itself. Respectfully following the aforesaid decision of the Tribunal in the case of Chengalrayan Co-operative Sugar Mills Ltd., I am unable to agree with the conclusion of my learned Brother as well as the arguments of the assessee's counsel. 6. It is incorrect to say that the assessee has not claimed deduction for the amount of customs duty on accrual basis. Under the proviso to s. 43B the assessee has obtained the benefit of deduction of customs duty liability of Rs. 3,34,13,072 out of the total provision of customs duty of Rs. 4,59,10,736 and the same has been al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that liability to pay customs duty of Rs. 4,59,10,736 has accrued to the assessee and the customs duty of Rs. 34,13,072 has been allowed deduction, the AO is justified in disallowing the balance of Rs. 1,24,96,664 under s. 43B, as the assessee has claimed deduction of this customs duty by including the same in the cost of raw material as well as cost of closing stock in accordance with the method of accounting followed by it. 7. In view of the facts discussed in the preceding paras, now it cannot be the case of the assessee that entries regarding accrual of liability for customs duty amounting to Rs. 4,59,10,736 are false, because if such a case has been made out by the assessee then the AO could have rejected the assessee's books of account and the AO also could not have allowed deduction of Rs. 3,34,13,072 (out of total liability of Rs. 4,59,10,736). When the books of accounts of the assessee have been accepted by the AO as correct and complete it was his statutory duty under s. 145(1) to calculate the income in accordance with the method of accounting followed by the assessee. The system of accounting adopted by the assessee is not only binding' on the AO but also on the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge to tax of income which has neither been actually received nor is statutorily deemed to have been received, it would be difficult to give any intelligible meaning to s. 13 at all. The books of account of an assessee are, provided the ITO takes the proper steps, always available to the IT authorities for the purpose of arriving at the true computation of the assessee's income, profits or gains, and it adds nothing to the duties, rights or powers of the ITO to say that he shall look at the account books regularly kept by the assessee and be guided by them, unless it is also implied that the assessee, so far as the 'method' of computation is concerned, shall also be bound by any system of accounting which he has himself regularly adopted. The section appears to me to mean nothing, where an assessee has adopted a mercantile or earnings method of accounting, if it does not mean that he is to be bound by that method of computing his profits and gains for the purpose of his liability to income-tax as well as merely for his domestic accounting purposes. It seems to me, therefore, to constitute a formidable difficulty in the way of the assessee in this case to explain what s. 13 does mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "The assessee cannot escape liability to tax by omitting to make an entry or making a wrong entry in the accounts. The date of taxability of income is the date when the appropriate entries are made or should be made in the accounts in accordance with the method of accounting regularly employed by the assessee. The substantive part of the section makes it clear that the income is to be computed in accordance with the method of accounting regularly employed. The ITO may include in the computation of income an amount which does not figure in the accounts but the inclusion of which is required by the assessee's method of accounting that is to say, the ITO may, without deviating from the assessee's method, make such adjustments in the P L a/c as are necessary for giving full and true effect to that method itself. Haying adopted regular method of accounting, the assessee cannot be allowed to change it or depart from it for a particular year or for part of the year or in respect of particular transactions." After considering the observations in the aforesaid Commentary by Kanga, the apex Court at p. 140 (158 ITR) held as under: "It is settled that the income of the assessee will h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4,59,10,736 and which has been allowed deduction out of the total income of the assessee and which has reduced its profit. Since deduction of Rs. 3,34,13,072 has been allowed by the AO under the provisions of s. 43B, the assessee is estopped from claiming that provisions of s. 43B are not applicable to the balance of Rs. 1,24,97,664 because, it has enjoyed the benefit of deduction in respect of customs duty liability of Rs. 3,34,13,072 under the proviso to s. 43B. If the provisions of s. 43B are not applicable to the customs duty liability of Rs. 4,59,10,736, then the customs duty of Rs. 3,34,13,072 could never have been allowed deduction because, this customs duty was not paid during the accounting year ended 31st March, 1990, relevant to the asst. yr. 1990-91, but was paid after the end of the accounting year. My learned Brother has not considered these facts. Deduction for customs duty of Rs. 3,34,13,072 out of the total customs duty liability of Rs. 4,59,10,736 is not to be considered as disjointed fact and cannot be ignored. Since the AO has computed the income in accordance with the method of accounting employed by the assessee in view of the provisions of s. 145(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. yr. 1990-91 but after the end of the accounting year. (3) The assessee is prohibited by the doctrine of estoppel in claiming that it has not claimed deduction of customs duty when in fact the assessee has bee~ allowed deduction of Rs. 3,34,13,072 by the AO out of the total customs duty liability of Rs. 4,59,10,736. (4) The assessee cannot approbate and reprobate as it likes and suiting to its convenience. (5) The assessee as well as the AO is bound to apply the provisions of s. 145(1) and since the AO has computed the assessee's income strictly in accordance with the provisions of s. 145(1) and s. 43B, the assessee cannot argue that the customs duty liability of Rs. 1,24,96,664 is not to be disallowed when the payment of customs duty of Rs. 4,59,10,736 had arisen as on 31st March, 1990 relevant to the asst. yr. 1990-91. The facts in the decisions relied upon by my learned Brother were found to be distinguishable from the facts obtaining in the present assessee's case. In the cases relied upon by my learned Brother the doctrine of approbate and reprobate or doctrine of estoppel was not at all involved and considered. Similarly in those cases computation of income by the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,34,13,072) out of the profits and gains of business in accordance with the method of accounting followed by it? and, 2. If so, whether, the assessee is entitled to deduction of customs duty of Rs. 1,24,97,664 under s. 43B out of total customs duty of Rs. 4,59,10,736 which was payable by it on accrual basis but was not paid even before the due date for furnishing the return of income under s. 139(1) of the Act?" ABDUL RAZACK, J.M.: 22nd Oct., 1997 Learned Brother Shri P.S. Kalsian (A.M.) and I have differed in our views in the above-mentioned appeal, I request the Hon'ble 'President, Tribunal, Mumbai, to kindly refer the below given point for the opinion of the Third Member of the Tribunal as provided in s. 255(4) of the IT Act, 1961. Learned Brother Shri Kalsian (A.M.) has not agreed with me for reference of the below given point for Third Member's opinion and he has prepared a separate memo for referring the question prepared by him for Third Member's opinion under s. 255(4) of the IT Act. The same is given in a separate sheet and is being sent herewith along with our respective order and concerned records through the Registry officials: "Whether, on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act does not vest such power with the President or the Third Member. They have no right to enlarge restrict and modify and/ or formulate any question of law on their own on the difference of opinion referred by the Members of the Tribunal. The order of the Third Member relating to the asst. yr. 1990-91 was set aside with a direction to rehear the matter only on the difference of opinion referred by the Members of the Division Bench and pass order in accordance with law. 3. In conformity with the directions of the Hon'ble High Court, I have heard both the parties. The learned counsel for the assessee invited my attention on the P L a/c. It was submitted that the assessee had not debited or claimed by way of deduction from its profits, the amount of customs duty of Rs. 4,59,10,736. In the P L a/c gross receipts are shown at Rs. 46,10,07,183. Out of this, the assessee claimed as deduction Rs. 31,30,83,435 towards raw materials consumed. The details as given in Sch. 4 of the P L a/c at p. 26 are as under: "Stock as on 1-4-1989 8,29,77,253 Add: Purchases 27,46,62,599 Customs duty 15,82,96,112 Carriage inwards 1,48,64,323 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date for filing of the return of the income under s. 139(1) for the relevant assessment year. The date for filing of the return under s. 139(1) in this case was 31st Dec., 1990. The AO took into consideration the amount paid before that date and made the addition as under: "Provision made in the accounts Rs. 4,59,10,736 Less: Paid actually before due date for filing of the return of income Rs. 3,34,13,072 ---------------- Balance disallowable Rs. 1,24,97,664" ---------------- 7. There is no dispute on the point of accrual of liability. The assessee admits that the liability accrued during the year. The assessee itself had included the total customs duty provision amounting to Rs. 4,59,10,736 in the cost of raw material. The fact that the element of customs duty !Vas made part of closing stock, was not considered by the learned AM. The value of closing stock was increased to that extent. As such it cannot be said that the assessee did make claim of the customs duty for income-tax purposes. 8. Sec. 43B can only be invoked when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f customs duty under s. 43B of the IT Act, 1961. 3. The brief facts of the case are that the assessee company is a public limited company incorporated under the Companies Act, 1956 engaged in manufacturing and selling of television sets and audio equipments. For the asst. yr. 1990-91, for which the year ended by 31st March, 1990 the assessee had filed a return on 31st Dec., 1990 disclosing a loss of Rs. 35,39,813. However, the assessee admitted the income of Rs. 6,53,087 under s. 115J of the IT Act. The said return was processed under s. 143(1)(a) on 20th Feb., 1992. While scrutinizing the accounts, the AO found that the assessee company had changed the system of accounting in respect of customs duty and bond interest. All along the assessee company had been accounting customs duty and bond interest in respect of materials lying at customs bonded warehouse at the time of removal of materials from the bonded warehouse. In the accounting year in question, the assessee had made provision on accrual basis in the accounts for Rs. 493.31 lakhs towards customs duty and bond interest in respect of materials lying at the customs bonded warehouse and the same has been included in the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference of opinion referred to by the Members of the Division Bench vide decision dt. 9th April. 2008 [reported as Dynavision Ltd. vs. ITAT Ors. (2008) 217 CTR (Mad) 153-Ed.]. The operating part of the Hon'ble High Court is as under: "We are in agreement with the view taken by the Allahabad High Court judgment. Following the Division Bench judgment of Madras High Court and also considering the view of the Allahabad High Court, we are of the view that the President has no right to go beyond the scope of reference. For the foregoing reasons and in the interest of justice, we set aside the order of the Third Member case in ITA No. 2943/Mad/1993 dt. 3rd Dec., 1999, 'A' Bench relating to the asst. yr. 1990-91 with a direction to rehear only on the difference of opinion referred to by the Members of the Division Bench and consider and pass orders in accordance with law. We are not expressing any opinion on merits of the case. In the present case, we find that the Third Member was no longer in service. Therefore, he is not in a position to hear the matter. In view of the peculiar situation, the President shall nominate the Member of the Tribunal to hear the matter and give his opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------ 36,96,09,404 Less: Excise duty 5,64,25,969 ------------ 31,31,83,435 ------------ 4. The figure of Rs. 31,31,83,435 was the deduction claimed in the P L a/c. The amount of Rs. 15,82,96,112 which was added under the head 'Customs duty' included a sum of Rs. 4,59,10,736 being provision for customs duty made in respect of goods lying in bonded warehouse. This amount was provided by the assessee to the raw material purchases account. Since the imported goods were not released from the bonded warehouse, it was shown as closing stock in hand. The value of the closing stock included the customs duty payable which was an accrued liability on the assessee consequent upon the importation of the goods. Thus, customs duty got reflected on the debit as well as credit side on the account as evidenced from the P L a/c which is at p. 18 of the printed final accounts of the assessee company. From this it is abundantly clear that the assessee has not reduced its profits by claiming deduction of the customs duty liability though the same rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is claimed nor charged made to the P L a/c, there is no question of disallowing the amount. Having regard to the facts, the AO was not justified in making the addition under s. 43B. 9. The learned AM adumbrated on the fact that the assessee debited the customs duty of Rs. 4,59,10,736 to purchase account on accrual basis. The fact that the element of the customs duty was made part of closing stock was not considered. The deduction of Rs. 3,34,13,072 being the amount actually paid before due date for filing of return was allowed by the AO as because it was wrongly assumed that s. 43B is applicable. The basic fact that entire amount was not claimed as deduction, was not considered by the AO. When the amount is not claimed there is no question of applying the prescription of s. 43B. As such, I concur with the decision of the learned JM." Therefore, the view of the learned JM has become the majority view and accordingly the issue raised by the assessee stands allowed in favour of the assessee. 7. Now this appeal is placed before us for the purpose of passing a consequential order. Since the ground Nos. 1 and 3 were not pressed by the counsel for the assessee and the ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad/1996, the assessee has raised the following effective grounds: (I) The CIT(A) erred in sustaining addition under s. 43B. Similar claims in respect of earlier years have not been accepted by the appellant and the matter is concluded by the decisions of the Tribunal. (II) The CIT(A) erred in sustaining addition under s. 80-I of the IT Act. (III) The CIT(A) erred in confirming the imposition of interest under s. 234B of the IT Act. 13. Issue No. 1: Regarding disallowance of customs duty under s. 43B of the IT Act: We have heard the learned Authorised Representative as well as the learned Departmental Representative and considered the relevant records. This issue is considered and decided in ITA No. 2943/Mad/1993 in favour of the assessee. Accordingly, this issue is decided in favour of the assessee. 14. Issue No. 2: Regarding disallowance of deduction under s. 80-I of the IT Act: We have heard the learned Authorised Representative as well as the learned Departmental Representative and considered the relevant records. The assessee claimed a deduction under s. 80-I on the interest and profit on service charges which as per the assessee formed an integral part of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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