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2016 (4) TMI 746 - HC - Income TaxAllowance of liability on account of customs duty - Held that:- Contention of Mr. Chhotrary that the seller had not shown the consideration as his receipt of sale of the goods and, therefore, the buyer of the goods i.e. Respondent-Assessee cannot claim the same as a deduction is not sustainable. The remedy, if any of the Revenue to bring to tax the income in the hands of the seller of the goods. There is nothing on record to indicate that the seller of the goods has not shown the aforesaid consideration in its return of income and offered it to tax. This submission on the part of Mr. Chhotrary, is not supported by the facts on record. In any case, the buyer of the goods cannot be made liable to tax on the consideration paid by him to the seller of goods only because the seller of goods has failed to take it into consideration as a part of his income while discharging its obligation to pay tax under the Act. Thus, there is no merit in the first submission made on behalf of the Revenue. As the Respondent-Assessee is admittedly following the Mercantile Systems of Accounting and as held by the Apex Court in Kedarnath Jute Mills ( 1971 (8) TMI 10 - SUPREME Court), mere challenge to the demand by the seller may not by itself lead to the liability ceasing. Although, the seller of the goods may not be able to claim/obtain a deduction on the above account as the same has not been paid in terms of Section 43B of the Act. However, this does not in any way deprive the RespondentAssesse of the deduction of the amounts paid for purchase of goods. Thus, we are not able to accept the submission on behalf of the Revenue. Thus, the Respondent-Assessee would be entitled to deduct the aforesaid amount of ₹ 1.78 Crores as consideration paid for the goods in the subject Assessment Year. In any case, as observed by the Tribunal, if the Apex Court holds that no custom duty is payable and quashes the demand of the Customs Department, then the consideration payable for the goods would stand reduced by virtue of Section 41 of the Act, the very amount of ₹ 1.78 Crores or the extent to which the Apex Court sets aside the demand. Therefore, Respondent-Assessee would be liable to pay tax under Section 41 of the Act on remission as its liability to pay for the goods purchased from the seller would stands reduced. The customs duty, if any, is payable by the importer at the time of import and clearance of the goods. The selling price of the goods is on the basis of costs + ₹ 1/. The costs includes amongst other things, the customs duty which has been paid or which would have to be paid on the import of the goods. Thus, the Respondent-Assessee is obliged to pay the consideration in accordance with the terms of contract entered into between the Respondent-Assessee and its sellers - Decided in favour of the Respondent-Assessee and against the Revenue.
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