Customs and excise duty paid but capitalised in closing stock: deduction allowed under s. 43B despite no P&L debit

Whether customs and excise duty actually paid but capitalised in closing stock/current assets, and not debited to the profit and loss account, is deductible under s. 43B was the dominant issue. The HC held that s. 43B mandates deduction in the year of actual payment irrespective of whether the related raw materials or finished goods remain in closing stock, and it does not require separate disclosure or P&L debit as a condition precedent. Inclusion of the duty element in stock valuation does not bar the claim; the assessee may furnish an adjustment statement to the AO to avoid distortion of profits. The reference was answered in favour of the assessee, allowing the deduction.

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Issues:
- Deductibility of customs duty and excise duty under section 43B in computing income.

Analysis:
The case involved a question regarding the deduction of customs duty and excise duty paid by the assessee under section 43B in computing income for the assessment year 1984-85. The assessee, engaged in manufacturing PVC pipes and fittings, had imported materials and paid import duty of Rs. 35,09,826. The balance of import duty on raw materials held as closing stock was shown in the balance-sheet as part of current assets. Similarly, excise duty on finished goods held as closing stock was also included in the inventory under current assets.

The Assessing Officer, Commissioner, and Tribunal had denied the assessee's claim for deduction under section 43B, stating that since the duty amounts were not separately shown in the profit and loss account, the deduction could not be allowed. However, the court referred to section 43B of the Act, which mandates deductions only on actual payment, regardless of the year in which the liability was incurred. The court emphasized that the assessee is entitled to deduction in the year of actual payment, irrespective of whether the duty amounts were separately shown in the profit and loss account.

The court clarified that section 43B does not require the duty amounts to be shown separately in the accounts before claiming a deduction. The inclusion of duty in the valuation of current assets does not disentitle the assessee from claiming the deduction. The court highlighted that the failure to charge duty to the profit and loss account does not affect the assessee's right to claim the deduction. The Revenue's argument that duty paid is a legitimate charge on gross profits was countered by the court, which emphasized the assessee's right to file an adjustment statement before the Assessing Officer.

Referring to a similar view taken by the Bombay High Court in a previous case, the court ruled in favor of the assessee, stating that the assessee had submitted the necessary adjustment statement to the Assessing Officer. Therefore, the court held that the customs duty and excise duty paid by the assessee on raw materials and finished goods were deductible under section 43B in the computation of income for the relevant assessment year.

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