2002 (11) TMI 82 - HC - Income Tax

Customs duty deduction allowed in assessment year based on actual payment year under Income-tax Act

The High Court held that the deduction for customs duty paid in March 1987 should be allowed in the assessment year 1987-88, as per Section 43B of the ... Whether in view of the provisions contained in section 43B of the Act, the assessee can claim deduction for the sum paid against the customs duty in the previous years. In other words, whether the benefit for the sum paid against the customs duty can be claimed in the subsequent year or the benefit of such deduction can only be allowed in the year in which the actual payment is made. - For the purpose of claiming benefit of deduction of the sum paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant and is only to be taken into account. The year in which the assessee incurred the liability to pay such tax, duty, etc., has no relevance and cannot be linked with the matter of giving benefit of deduction under section 43B of the Act. In this view of the matter, the appeal deserves to be allowed. Issues Involved:1. Applicability of Section 43B of the Income-tax Act, 1961 for customs duty deduction.2. Year of deduction for customs duty paid in advance.Detailed Analysis:1. Applicability of Section 43B of the Income-tax Act, 1961 for Customs Duty DeductionThe core issue in this appeal is whether the assessee can claim a deduction for customs duty paid in a previous year under the provisions of Section 43B of the Income-tax Act, 1961. Section 43B stipulates that deductions for any sum payable by the assessee by way of tax, duty, cess, or fee under any law shall be allowed only in the year in which such sum is actually paid, irrespective of the year in which the liability was incurred. This provision aims to curb the practice of taxpayers claiming deductions on an accrual basis without actually discharging their liabilities.2. Year of Deduction for Customs Duty Paid in AdvanceThe facts reveal that the assessee paid a sum of Rs. 3,56,541 as customs duty in March 1987 for the import of brass scrap, with an additional duty of Rs. 69,148 paid on March 27, 1987. The goods were finally released in April 1987 after an additional payment of Rs. 20,530. The assessee claimed the deduction for the customs duty in the assessment year 1988-89, arguing that the duty was part of the value of the closing stock and shown under 'documents in hand' in the accounts for the year ending March 31, 1987.The Assessing Officer disallowed the deduction for the assessment year 1988-89, stating that under Section 43B, the deduction is permissible only in the year of actual payment, i.e., assessment year 1987-88. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld the assessee's claim, reasoning that the customs duty paid was shown in the balance sheet and the goods were delivered in April 1987.However, the High Court concluded that the deduction should be allowed only in the year of actual payment, as per Section 43B. The court emphasized that the year of payment is relevant for claiming the deduction, not the year in which the liability was incurred. The High Court cited the Supreme Court's judgment in Allied Motors (P.) Ltd. v. CIT, which interpreted Section 43B as targeting taxpayers who claimed deductions without discharging their liabilities.Conclusion:The High Court allowed the appeal, setting aside the orders of the Income-tax Appellate Tribunal and the Commissioner of Income-tax (Appeals). The court held that the deduction for customs duty paid in March 1987 should be allowed in the assessment year 1987-88, as per the clear provisions of Section 43B, and not in the assessment year 1988-89. The appeal was thus allowed, and the impugned orders were set aside without any order as to costs.