TaxTMI 
TaxTMI 
2012 (12) TMI 671
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....ral Excise and Salt Act, 1944 ("Excise Act"), in order to clear the goods, by paying duty. The duties are collected in the form of a regular payment into what is called the "Personal Ledger Account" in terms of Rule 173-G of the Central Excise Rules, which reads as follows: 3. The AO took the position that the amounts paid into, and remaining outstanding, at the end of the financial year, was to be disallowed by reason of Section 43-B. The matter ultimately reached the ITAT, which accepted the assessee's contentions. 4. The revenue is in appeal, contending that since the amount paid into the account was not in respect of manufactured goods, it could not be deducted. Mr. N.P Sahni argued that Section 43B permits deductions only on actual payment of the corresponding amounts. Section 43B contains a non-obstante clause and states that deduction of the prescribed sums is on actual payment only if those sums are "otherwise allowable under this Act". This condition postulates that an assessee cannot claim by way of expenditure, payments of taxes and duties only for the fact that the assessee has made the payments of those taxes and duties. In addition to the payment of such taxes and d....
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.... which the liability was incurred in the previous year. Therefore incurring of prior liability in a previous year is essential in claiming a deduction governed by the provisions of s. 43B. The additional requirement of making actual payment has not obliterated any other remaining requirements embodied in the law relating to deduction of expenses in computing income from business. 7. Learned counsel also relied on the second Explanation to Section 43B. It provides that, for the purposes of cl. (a), as in force at all material time, "any sum payable means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law." That the actual liability should be incurred during the previous year has been reiterated in the Explanation which rules out any other interpretation. Counsel relied on the rulings of the Andhra Pradesh High Court in Srikakollu Subba Rao & Co. & Ors. v. Union of India & Ors. [1988] 173 ITR 708 (AP) where that High Court held that in order to apply the provisions of Section 43B, not only should the liability to pay tax or duty be incurred in the accounting year but the amount....
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....as follows: "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payable by the assessee by way of tax, duty, cess or fee by whatever name called, under any law for the time being in force, or (b) to (f)... shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him : Provided........... Provided further........... Explanation 1........... Explanation 2 : For the purposes of Clause (a), as in force at all material times, 'any sum payable means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law." Rule 173G of the Central Excise Rules, states that: "173G. Procedure to be followed by the assessee - (1) Every assessee shall keep an account current with the Collector separately for each excisable goods falling under di....
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....tion of the said provision, and the mischief sought to be remedied through the insertion of the Explanation 2, it becomes abundantly clear that the said claim is allowable only in the year of payment. At this stage, it will be profitable to refer to the following observation of the Supreme Court in the case of K. P. Varghese v. ITO reported in MANU/SC/0300/1981 : AIR 1981 SC 1922 where it has been held: ...where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the Court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction. 12. It was never the intention of the legislature to deprive an Assessee of the benefit of deduction of tax, duty etc. actually paid by him during the previous year, although in advance, according to the method of accounting followed by him. If we accept the reasoning given by the Tribunal, an advance payer of tax, duty etc. payable in accordance with the method of accounting followed by him will not be entitled to get the benefit ....
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....nt with such contention since such adjustment amounts to actual payment. Even the ld counsel for revenue has no objection to such contention provided such deduction was not allowed in the preceding year since double deduction of the same amount cannot be allowed. Considering the same, the order of ld. CIT(A) is modified and the matter is remitted to the file of Assessing Officer who shall allow the alternate claim of assessee after verification if such deduction was not allowed in the preceding year. Since it has been held that advance payment did not represent the payment of excise duty, the question of including the same in the closing stock does not arise. Therefore, finding of Ld. CIT(A) to that effect is vacated." 14. A plain reading of Section 43-B clarifies that (a) deduction claimed by the assessee must be "otherwise" allowable under the other provisions of the Act. (b) The deduction must relate to any sum payable by way of tax, duty, cess or fee. (c) the assessee must have incurred liability in respect of such tax, duty, etc. On fulfilling these conditions, the assessee's claim can be allowed in the year in which actual payment is made, notwithstanding the....
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.... consequence of not allowing the amounts as deductions, are vividly brought out in the decision of the Allahabad High Court in C.L.Gupta (supra), where it was held that: "10. In the case in hand, admittedly, the amount of customs duty of Rs. 3,56,451 was paid by the assessee in March, 1987, and, therefore, in terms of Section 43B it is deductible only in the year in which it is actually paid, i.e., for the assessment year 1987-88, irrespective of the year in which the assessee incurred the liability on the basis of the method of accounting regularly adopted by him and, therefore, in view of the clear provisions of law, the deduction cannot be allowed in the assessment year 1988-89. In our view, both the learned Income Tax Appellate Tribunal as well as the Commissioner of Income Tax (Appeals) fell in error in holding that since the assessee-firm debited the cost of goods imported including the duty paid on delivery of goods in the trading account in April, 1987, and before the actual delivery of the goods, the value of the goods and customs duty paid thereon was shown in the balance-sheet as document in hands, therefore, the deduction should be allowed in the assessment year 1988-8....