Section 43B deduction turns on actual payment; excise ledger credit allowed, but unutilised MODVAT and sales tax balances were not.

Section 43B allows deduction only for actual payment of an assessee's own statutory liability. On that basis, the excise personal ledger balance was treated as deductible because it represented duty already deposited against an incurred excise liability. Unutilised MODVAT credit and sales tax recoverable balances were not deductible as mere credit balances or contractual adjustments, although earlier-year credit adjusted in the year could qualify subject to verification. The article also notes that remand on raw-material consumption was unnecessary where technical working and excise settlement were already on record, rejection of books was unjustified without more, and software expenditure on abandoned application software was revenue in nature.

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Issues: (i) Whether the balance lying in the excise personal ledger account was deductible under section 43B of the Income-tax Act, 1961; (ii) whether unutilised MODVAT credit and sales tax recoverable balances were allowable as deductions under section 43B; (iii) whether the remand on raw-material consumption and the rejection of books of account were justified; and (iv) whether software expenditure was revenue expenditure.

Issue (i): Whether the balance lying in the excise personal ledger account was deductible under section 43B of the Income-tax Act, 1961.

Analysis: Section 43B permits deduction only on actual payment of a sum payable by way of tax, duty, cess or fee by the assessee. The balance in the excise personal ledger account represented duty already deposited against an incurred excise liability on manufactured goods lying in stock, and the prior decision in the assessee's own case for earlier assessment years had treated such payment as covered by section 43B. The statutory scheme and the explanation to section 43B supported the view that the payment related to an incurred duty liability.

Conclusion: The issue was answered in favour of the assessee.

Issue (ii): Whether unutilised MODVAT credit and sales tax recoverable balances were allowable as deductions under section 43B.

Analysis: Unutilised MODVAT credit standing as a current asset was not an amount paid by the assessee towards its own statutory liability; the primary excise liability remained that of the manufacturer of the inputs, and in the assessee's hands the payment was contractual in nature. The same reasoning applied to the sales tax recoverable account. However, to the extent earlier-year credit had been adjusted in the year in question, deduction was permissible subject to verification, because such adjustment constituted actual payment for that year.

Conclusion: The issue was answered against the assessee in respect of unutilised balances, but the alternate claim for adjusted earlier-year credit was left open subject to verification and was accepted to that extent.

Issue (iii): Whether the remand on raw-material consumption and the rejection of books of account were justified.

Analysis: The record already contained a technical working and the disclosed settlement with the excise department, which covered the relevant methodology of consumption determination. There was no basis to remand the matter for a fresh exercise already substantially performed, and the absence of a separate stock register, by itself, did not justify rejection of the books of account or resort to best judgment assessment when physical verification and accounting records were otherwise available.

Conclusion: The issue was answered in favour of the assessee.

Issue (iv): Whether software expenditure was revenue expenditure.

Analysis: The expenditure was incurred on application software used in business operations and was written off when it was found unsuitable and abandoned. The amount had not been claimed in earlier years, and the nature of the software did not create an enduring capital asset in the relevant sense. The expenditure therefore had the character of revenue outlay.

Conclusion: The issue was answered in favour of the assessee.

Final Conclusion: The appeal succeeded substantially for the assessee on the excise ledger balance, raw-material consumption, rejection of books and software expenditure issues, while the challenge to unutilised MODVAT credit and sales-tax recoverable balances failed except to the limited extent of adjusted earlier-year credit subject to verification.

Ratio Decidendi: For deduction under section 43B, the amount must represent actual payment by the assessee of its own statutory liability in the relevant previous year; amounts that are merely unutilised credit balances or contractual adjustments are not deductible unless they are shown to have been actually paid or adjusted as such.

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