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2016 (7) TMI 31 - KARNATAKA HIGH COURT

2016 (7) TMI 31 - KARNATAKA HIGH COURT - [2016] 387 ITR 725 - Revision u/s 263 - treatment to be given in the opening stock of the subsequent accounting year when the deduction is made under Section 43B - Held that:- There is no dispute on the point that the amount of import duty and excise duty are allowable deduction. What is dispute on behalf of the respondent is that the amount of customs and excise duty on the value of the closing stock of the petitioner-assessee should not be permitted in .....

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duction is already given. In this case, it is not the contention of the respondent that any sum payable under clause(a) of section 43B of the Act was at any time claimed by way of deduction in any previous year prior to 1983. In fact, the raw material were imported and the goods were manufactured in the year 1983, and they were cleared also in the year 1983. Therefore, their liability accrued in the year 1983, and they also paid the sum in the year 1983. In that view of the matter, the Explanati .....

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45A on the statute book, the effect of the allowable deduction under Section 43B is diluted or nullified or not. The language of Section 43B begins with the word “Notwithstanding anything contained in any other provisions of this Act” meaning thereby a non- abstente clause to have an overriding effect over any other provisions of the Act. - The resultant situation would be that the deduction so claimed and made permissible by the Tribunal in the impugned order is covered by the above referre .....

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he assessing officer was erroneous in law. In any case, the treatment is to be given in the opening stock of the subsequent accounting year when the deduction is made under Section 43B of the Act, hence it could also not be said as prejudicial to the interest of Revenue. - Under the circumstances, we find that the view taken by the Tribunal holding that the Commissioner was not justified in passing the order under Section 263 of the Act cannot be said as illegal but, can rather be said to be .....

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ssioner was not justified in passing the order U/s 263 of the Act on the ground that the order of assessment was not erroneous and prejudicial to the interest of the revenue as Assessing Officer has followed one of the permissible views in allowing the deduction of excise duty but without considering the fact that assessee has claimed such deduction twice? 2. Whether the Tribunal was correct in holding that the excise duty included in the valuation of closing stock of unsold finished goods as pe .....

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as Act ). The Assessing Officer, after considering the material on record allowed the deduction under Section 43-B of the Act of ₹ 82,35,034/- towards Excise duty pertaining to closing stock. The assessment order was passed on 29.12.2006 under Section 143(3) of the Act. 3. The matter was taken up in purported exercise of power under Section 263 of the Act by the Commissioner on the alleged ground that in view of the deduction of excise duty of ₹ 82,35,034/-, the total income is redu .....

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n is incorrect. In berger Paints India Ltd case, the assessee had incurred expenditure on account of customs and excise duty aggregating to ₹ 5,85,87,181/- which was duly debited to the P & L account of the assessee for the relevant previous year and was also fully paid during the relevant previous year. The assessee had also credited to the P & L account of the relevant previous year an amount of ₹ 98,25,833/- relatable to the customs and excise duty on the closing stock on .....

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nd customs duties of ₹ 98,25,833/- paid in the year of account and debited in the profit and loss account, on the ground that the crediting of the profit and loss account by the value of the closing stock, which included the aforesaid duties, did not have the effect of wiping out the debit to the profit and loss account? The High Court answered the question in favour of the Revenue and against the assessee. The Hon ble Supreme Court answered the question referred against the revenue and in .....

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e along with the return of income for A.Y. 2004-05. It may further be noted that the assessee had included the sum of ₹ 82,35,034/- in the opening stock for the previous year relevant to A.Y. 2005-06. Only when it was pointed out during the course of proceedings u/s 263 that the assessee is claiming deduction for the sum of ₹ 82,35,034/- in both the assessment years, the assessee has filed letter before the A.O. requesting for exclusion of excise duty of ₹ 82,35,034/- from the .....

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count for the purposes of computation of profits and gains from business and profession. 6. The assessment order dated 29.12.2006 passed u/s 143(3) of the I.T.Act, 1961 for A.Y. 2004-05 by the ACIT, C-12(2), Bangalore is therefore erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the I.T.Act, 1961 in as much as the total income has been short computed by a sum of ₹ 82,35,034/- resulting in short levy of tax of ₹ 29,54,319/-. A Sum of ₹ 82 .....

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under: 7. We have heard both the parties. Now it is a settled law that provisions of section 263 cannot be invoked unless the twin conditions of erroneous as well as prejudicial to the interest of revenue are satisfied. An order cannot be erroneous if the AO has adopted one of the views, which is permissible in law. The order is erroneous if the view adopted by the AO is not permissible in law. 8. The Special Bench in the case of DCIT v Glaxo Smithkline Consumer Healthcare Ltd. 299 ITR 1 has hel .....

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n a deduction otherwise allowable only means statutory liabilities mentioned in section 43B. The expression a deduction otherwise allowable reflects deduction on account of general liability fastened to the asscessee s business on account of duties, taxes, cess or fees by whatever name called arising in the course of the carrying on of the business. The expression does not mean any specific liability which is require to be incurred . 9. The Mumbai Tribunal in the case of Hawkins Cookers Ltd. v I .....

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um of ₹ 82,35,034/- should be reduced from the opening stock. Moreover, the assessee has paid excise duty before the due date and the excise duty so paid is allowable u/s 43B of the IT Act. 10. The Hon ble Bombay High Court in the case of CIT v Mahalakshmi Glass 2009-TIOL- 233-HC-Mumbai has held that if adjustment is to be made in the closing stock then the adjustment is also required to be made in the opening stock. IT is now well settled law that if the AO makes an adjustment in the valu .....

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xcise duty paid u/s 43B of the IT Act, therefore, the view adopted by the AO is one of the permissible views and the learned CIT was not justified in directing the AO to add a sum of ₹ 82,35,034/- u/s 43B of the IT Act. The direction given by the learned CIT is vacated and the order of the CIT is cancelled. 5. Accordingly, the Tribunal found that the assessee has paid the excise duty before due date and the excise duty so paid is allowable under Section 43-B of the Act. The Tribunal also r .....

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umstances, the Revenue has preferred the present appeal by raising the aforesaid two substantial questions of law. 7. Before we embark upon the facts in the present case, we find it appropriate to refer to the legal position on the subject. Section 43B of the Act reads as under: Certain deductions to be only on actual payment.: 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 asse .....

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tate financial corporation or a State industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing [, or] [(e) any sum payable by the assessee as interest on any [loan or advances] from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan [or advances],][or] [(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee,] shall be allowed (irre .....

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der sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.[***]] Explanation[1].-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relev .....

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lity in the previous year even though such sum might not have been payable within that year under the relevant law.] [Explanation 3].-For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) [or clause (d)] of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) in w .....

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year relevant to the assessment year commencing on the 1st day of April, 1996, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] [Explanation 3B.-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (f) o .....

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the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid.] [Explanation 3D.-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed .....

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ancial corporation means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); (c) State industrial investment corporation means a Government company within the meaning of section 617 of the Companies Act,1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and [eligible for deduction underclause (viii) of sub-section (1) of section 36].] .....

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e (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.-For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment; (b) interest received by an assessee on compensation or on enhanced compensation, as the case may .....

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ich means that it controls the operation of other provisions of the Act and irrespective of the other provisions, section 43B will have overriding effect. Keeping in mind, if we examine the language of the section, it clearly brings out the intention of the Legislature that the deduction in respect of any tax or duty under any law would be an allowable deduction in computing the income under section 28 of that previous year in which such sum is actually paid by the assessee. The intention is mad .....

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deduction merely on accrual of the liability to pay the tax or duty, but would be so entitled to get deduction only on actual payment of tax or duty. The Legislature has also taken care by providing an Explanation that the assessee shall not be entitled to any deduction under section 43B of the Act in respect of such sum in computing the income of the previous year in which such sum is clearly paid by him in case a deduction in respect of any such sum was allowable in the previous year. It is, t .....

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hich such sum is actually paid by the assessee. 15. There is no dispute on the point that the amount of import duty and excise duty are allowable deduction. What is dispute on behalf of the respondent is that the amount of customs and excise duty on the value of the closing stock of the petitioner-assessee should not be permitted in the assessment year 1984-85 (accounting year ending on December 31,1983), though actually paid in the year 1983, because the assessment of the closing stock of the y .....

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imed by way of deduction in any previous year prior to 1983. In fact, the raw material were imported and the goods were manufactured in the year 1983, and they were cleared also in the year 1983. Therefore, their liability accrued in the year 1983, and they also paid the sum in the year 1983. In that view of the matter, the Explanation to section 43B of the Act is also not attracted in the present case. 16. Mr. J. P. Shah, the learned advocate appearing for the petitioner, has invited our attent .....

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e benefit for the same amount. The argument of Mr. S. N. Shelat that section 43B of the Act does not enlarge the scope of deduction is correct in as much as it speaks about the deduction otherwise allowable under this Act, but argument is not that the sum which is paid by way of import duty or liability to pay excise duty is not the sum given under the permissible deductions. Under the mercantile method of accounting, as stated earlier, the moment the liability is incurred, it would be an admiss .....

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aid goods was incurred by the petitioner-assessee. When that is so, it is also clear that the deduction of the said excise duty and import duty even on the closing stock was allowable in the accounting year 1983, but because of the specific language of section 43B of the Act which has an overriding effect, it could not have been claimed by way of deduction unless payment thereof was made and here, in this case, it is not the case of the respondent that the payment of the said duty is not made an .....

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puted that the said goods in the closing stock were either imported or manufactured in the accounting year 1983 and as per the principles of the mercantile method of accounting, the expenditure incurred by way of import duty as well as excise duty would be a permissible deduction in the year 1983, and particularly when the payment thereof is made under Section 43B of the Act. Under the circumstances, we do not find any merit in any of the contentions raised by Mr. Shelat, and for the same reason .....

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0. We may at this stage usefully refer to the decision of the Apex Court in case of Berger Paints India Ltd., vs. Commissioner of Income Tax, Calcutta reported at (2004) 12 SCC 42 wherein, once again the question came up for consideration before the Apex Court for permissibility of deduction under Section 43B and the above referred decision of the High Court of Gujarat in case of Lakhanpal was pressed into service as against the view taken by High Court of Calcutta. 11. The Apex Court, after con .....

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urt in Lakhanpal National Ltd. 's case The Revenue has attempted to distinguish the judgment of the Gujarat High Court on the facile ground that the judgment of the Gujarat High Court was one rendered in connection with a provisional assessment under Section 141A and not in a regular assessment. In our view, this distinction is hardly acceptable. in any event a reading of the Gujarat High Court's judgment shows that the judgment is not based merely on the adjustments permissible under Se .....

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hen proceeded to consider the impact of Section 141A and granted appropriate relief thereunder. It is not possible for us to accept the contention of the Revenue that the judgment of the Gujarat High Court in Lakhanpal National Ltd.'s case is distinguishable on the ground put forward. 12. The Revenue has attempted to distinguish the Judgment of Gujarat High Court on the futile ground that the Judgment of Gujarat High Court was one rendered in connection with a provisional assessment order un .....

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year irrespective of the amount of excise duty/customs duty which was included in the valuation of the assessee s closing stock at the end of the accounting year. After coming to the conclusion, the Gujarat High Court then proceeded to consider the impact of Section 141A and granted appropriate relief thereunder. It is not possible for us to accept the contention of the Revenue that the Judgment of Gujarat High Court in Lakhanpal case supra is distinguishable on the ground put forward. 12. There .....

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rendra Doshi (supra) and CIT v. Shivsagar Estate (supra) clearly applies. We see no 'just cause' as would justify departure from the principle. Hence in our view, the Revenue could not have been allowed to challenge the principle laid down in Lakhanpal National Ltd. 's case, which was followed by the Inspecting Assistant Commissioner in the case of the assessee in the three assessment years in question. We are. therefore, of the view that the Commissioner, the Income Tax Appellate Tr .....

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ra), which have all remained unchallenged. 13. We are therefore of the view that CIT, the Tribunal and the Calcutta High Court erred in permitting the Revenue to raise the contention contrary to what was laid by the Gujarat High Court in Lakhanpal Nationals Ltd., case. 14. Thereafter, the Judgment of Calcutta High Court was set aside and based on the decision of High Court of Gujarat decision in Lakhanpal case supra, the question was answered in favour of the assessee against the Revenue. 15. We .....

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circumstances for contending that the matter is not covered by the decision of the Apex Court in case of Berger Paints India Ltd., His attempt was two fold, one was on the ground that, the actual payment of the central excise duty was not made by the assessee before the end of accounting year i.e. 31st March and the another was that, Section 145A at the relevant point of time was not on the statute book when the Apex Court rendered the decision in case of Berger Paints India Ltd., Therefore, he .....

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n the impugned order passed by the Tribunal, such a contention was raised and has rendered a finding of fact the relevant of which i.e. para.9 reads as under: Moreover, the assessee has paid excise duty before the due date and the excise duty so paid is allowable under Section 43B of the IT Act. 18. In view of the aforesaid finding of the Tribunal for the payment already made before the outer limit is covered by proviso to Section 43B of the Act. Hence, it would be allowable deduction under Sect .....

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nd to find out as to whether by insertion of Section 145A on the statute book, the effect of the allowable deduction under Section 43B is diluted or nullified or not. The language of Section 43B begins with the word Notwithstanding anything contained in any other provisions of this Act meaning thereby a non- abstente clause to have an overriding effect over any other provisions of the Act. 20. Further, if language used under Section 145A is considered, the language is Notwithstanding anything to .....

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ar or peculiar method for accounting under Section 145 as well as under Section 145A, then also as per language used of non-abstente clause over any other provisions of the Act under Section 43B, it cannot be accepted that by virtue of Section 145A, the Parliament has diluted or nullified the effect of provisions of Section 43B providing for certain deductions. 21. Under the circumstances, we find that the distinction as sought to be canvassed to come out from the law already settled by the Apex .....

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