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TMI Blog2016 (4) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... f Accounting and as held by the Apex Court in Kedarnath Jute Mills ( 1971 (8) TMI 10 - SUPREME Court), mere challenge to the demand by the seller may not by itself lead to the liability ceasing. Although, the seller of the goods may not be able to claim/obtain a deduction on the above account as the same has not been paid in terms of Section 43B of the Act. However, this does not in any way deprive the RespondentAssesse of the deduction of the amounts paid for purchase of goods. Thus, we are not able to accept the submission on behalf of the Revenue. Thus, the Respondent-Assessee would be entitled to deduct the aforesaid amount of ₹ 1.78 Crores as consideration paid for the goods in the subject Assessment Year. In any case, as observed by the Tribunal, if the Apex Court holds that no custom duty is payable and quashes the demand of the Customs Department, then the consideration payable for the goods would stand reduced by virtue of Section 41 of the Act, the very amount of ₹ 1.78 Crores or the extent to which the Apex Court sets aside the demand. Therefore, Respondent-Assessee would be liable to pay tax under Section 41 of the Act on remission as its liability to pay fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a part of the costs and the buyer would pay for the same. The inserted clause read as under : To avoid any misunderstanding and confusion at some later date, it is hereby stipulated that although the present stage, C.V.D. which comes to ₹ 36/per kg. is Auxiliary duty, not applicable in terms of Court Orders on the consignments being imported by the seller which the seller, in turn, has agreed to supply to the buyer, but in case at some later stage, any such liability occurs and any duty is required to be paid, the same too, will be the exclusive liability of the Buyer as the same will be nothing but a part of the cost and for this purpose, the buyer has undertaken to stand guarantee in any manner acceptable to the customs or the Bank to the effect that in case any such duty becomes payable at any stage, the same will be the exclusive liability of the buyer and not that of the seller by virtue of this Agreement. 3. Subsequent to the above agreement, there was an increase in the rate of customs duty payable on the imported goods required for execution of the two contracts by M/s. Ajay Woolen Mills and M/s. Sanjeev Woolen Mills. Consequently, customs duty become p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Counsel appearing for the Revenue in support of the appeal makes the following submissions : (a) The amount of ₹ 1.78 Crores being the customs duty which is payable as a part of consideration of goods, was not reflected in the bill of seller. Consequently, same was not offered to tax by the seller of the goods. Thus, the Respondent-Assessee could not claim an expenditure of ₹ 1.78 Crores to reduce to its profit which was chargeable to tax; (b) The amount of ₹ 1.78 Crores is not an ascertained liability but a contingent liability. This is for the reason that the seller of the goods has challenged the levy of customs duty and the issue was at the relevant time, pending before the Supreme Court which had granted a stay of the payment. It is therefore submitted that the liability had not accrued during the subject assessment year and, therefore, could not be allowed as a deduction; and (c) Reliance is placed on the decision of the Apex Court in Mcdowell and Co. Vs. ITO 154 ITR 148 to contend that it covers the issue completely in favour of the Revenue. Thus, the question as raised be answered in its favour. 8. As against the above, Mr. S. P. Goyal, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year. On the other hand, where the books of accounts are maintained on Mercantile system of Accounting, it is as explained by the Apex Court in Keshav Mills Vs. CIT 23 ITR 230 to be that system which brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which legal liability has been incurred before it is actually disbursed . Thus, a liability which has occurred during the year has to be taken into account even though it may be discharged / paid in the future. However, a liability that is not ascertained or that which is contingent is not an expenditure which is available for deduction even under Mercantile System of Accounting. It has to be an actual liability in the present duly ascertainable though payable in future for deduction to be allowed as expenditure. Thus, a disputed liability depending upon the facts of the case may not be considered to be a liability in the present though payable in the future. So far the liability to payment of tax is concerned, the Apex Court in Kedarnath Jute Mills Co. Ltd, v/s. CIT 82 ITR 363 has, inter alia, held that once a liability to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable. The remedy, if any of the Revenue to bring to tax the income of ₹ 1.78 Crores in the hands of the seller of the goods. There is nothing on record to indicate that the seller of the goods has not shown the aforesaid consideration in its return of income and offered it to tax. This submission on the part of Mr. Chhotrary, is not supported by the facts on record. In any case, the buyer of the goods cannot be made liable to tax on the consideration paid by him to the seller of goods only because the seller of goods has failed to take it into consideration as a part of his income while discharging its obligation to pay tax under the Act. Thus, there is no merit in the first submission made on behalf of the Revenue. 14. It is next submitted that the amount of ₹ 1.78 Crores payable by the Respondent-Assessee to the Appellant is a contingent liability as the seller of the goods was disputing the customs duty payable with the Customs Department and the Apex Court had also granted a stay of recovery of the dues of customs from the sellers of the goods. It cannot be disputed that the Customs Department had raised a demand of ₹ 1.78 Crores upon the seller of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the seller would stands reduced. 15. It was next contended on behalf of the Revenue that in any case, the decision in Mcdowell Company Ltd. (supra) would cover the issue in favour of the Revenue. It is submitted that the entire exercise undertaken by the Respondent-Assessee was only to avail deduction in respect of customs duty payable which the importer/seller of the goods would not get in the absence of making payment of duty of customs on import of the goods in view of Section 43B of the Act. It is submitted that this entire exercise has been done only to evade payment of tax. It is submitted that even in case of Mcdowell Company Ltd. (supra), such an exercise was not permitted. This submission fails to notice difference in facts in this case from the facts in Mcdowell Company Ltd. (supra). In any case, the Apex Court in UOI v/s. Azadi Bachao Andolan 2004 (10) SCC 1 an act which is otherwise valid in law, cannot be treated as nonest on the basis of subjective assessment by the Assessing Officer of the real motive of the Assessee. In this case, the plain bargain between the parties in respect of the price of goods is costs + ₹ 1 or ₹ 1.50 per kg. The ..... 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