1994 (11) TMI 85 - HC - Income Tax

Summary

Issues:
1. Dispute over customs duty levy and subsequent adjustments.
2. Deductibility of additional duty as business expenditure.
3. Contention on the neutralizing effect of the allowance.

Analysis:
1. The judgment pertains to the assessment year 1981-82 where the assessee disputed the customs duty levy on imported components. Initially, duty was imposed at 20%, later increased to 100% by the Collector of Customs, and subsequently reduced to 50% by the Tribunal. The assessee claimed a deduction of Rs. 15,79,517 as additional duty payable, which was disallowed by the Income-tax Officer due to the absence of provision in the accounts and concerns over stock value increase.

2. The Commissioner (Appeals) held that the liability, though disputed, had crystallized during the accounting year and should be allowed as business expenditure, rejecting the Income-tax Officer's contention. The Tribunal upheld this decision, citing the precedent of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. The Tribunal also dismissed the Income-tax Officer's claim of the neutralizing effect of the allowance.

3. The Revenue appealed the Tribunal's decision under section 256(2) of the Income-tax Act, 1961, challenging the deductibility of the amount and the neutralizing effect contention. The High Court, after considering the facts, held that the absence of provision in the accounts does not bar the allowance if it is a legitimate business expenditure, following the principles laid down in Kedarnath's case. The Court emphasized the prudent treatment of the liability by the assessee and affirmed the Tribunal's decision to allow the deduction. Additionally, the Court dismissed the Revenue's argument on the neutralizing effect, finding it unsubstantiated based on the case's circumstances.

In conclusion, the High Court dismissed the Revenue's petition, stating that no question of law arose from the Tribunal's order. The Court upheld the deduction of the additional duty as a legitimate business expenditure and rejected the claim of the neutralizing effect of the allowance.