Gujarat High Court
Pr. Commissioner Of Income ... vs Gujarat Borosil ... on 21 June, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/476/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 476 of 2016
==========================================================
PR. COMMISSIONER OF INCOME TAX-VADODARA-3....Appellant(s)
Versus
GUJARAT BOROSIL LIMITED....Opponent(s)
==========================================================
Appearance:
MR KM PARIKH, ADVOCATE for the Appellant.
==========================================================
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 21/06/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Revenue is in Appeal against the judgment of the Income-Tax Appellate Tribunal raising following questions for our consideration:
"1. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in allowing deduction of Rs. 3,71,42,093/- under section 43B on account of adjustment of refund from Central Excise and Customs without interpreting the provisions of section 43B of the Income-tax Act, 1961 in its true spirit ?
2. Whether, the Tribunal was justified in allowing the claim of the assessee under section 43B of the Income-tax Act as the assessee failed to treat the demand of Central Excise and Customs as actual liability in its books of account and whether by just putting a note to accounts to the annual account Page 1 of 4 HC-NIC Page 1 of 4 Created On Thu Jun 23 02:32:12 IST 2016 O/TAXAP/476/2016 ORDER being declaration in nature can be termed as "incurred liability in the previous year" in view of the accounting principles ?"
2. Though two questions are framed, central issue is only one namely that of deduction of Rs. 3.71 crores framed by the assessee towards payment of excise duty liability. From the perusal of the order of the Tribunal, it emerges that the assessee had refund claim of Rs. 3.71 crores against Excise Department. As against this, the department had raised a demand of Rs. 4.50 crores and adjusted assessee's refund claim of Rs. 3.71 crores against such demand. It was in this background that the assessee had claimed deduction of Rs.3.71 crores on actual payment basis. The Revenue contends that such claim would be hit by section 43B of the Income-tax Act, 1961.
3. The CIT(Appeals) found that adjustment of the refund towards excise duty liability can be treated as actual payment. He has also found that demand of the department was not on account of any penalty but was a routine tax demand. The Tribunal upheld the view of the CIT(Appeals) and dismissed the appeal of the Revenue making following observations:
"3.4 We have considered the rival submissions and perused the material on record. We find that a refund of Rs. 3.71 crore was adjusted against the demand raised of Rs.4.55 crore by the Excise Department which means that the demand raised by the department stands discharged to the extent of Rs. 3.71 crore. We note that the order passed by the CIT(A) had taken into consideration all the issues raised concerning the all the material aspects of the case and clear cut finding was given that assessee was entitled to the said deduction under section 43B of the Act on the Page 2 of 4 HC-NIC Page 2 of 4 Created On Thu Jun 23 02:32:12 IST 2016 O/TAXAP/476/2016 ORDER payment basis and further held that the demand raised was not on account of penalty as claimed by the A.O. But was a routine demand. We are in full agreement with CIT(A) on this point. The assessee has also given note in the "notes to accounts" to the annual account mentioning the facts qua the said demand raised by the Excise Department and adjustment of refund of Rs. 3.71 crore against that demand though not accounted for in the books of accounts. The Hon'ble Supreme Court in the case of CIT vs. Bharat Carbon and Ribbon Manufacturing Co.Pvt.Ltd. (1999) 239 ITR 505 while following its earlier decision in case of Kedarnath Jute Manufacturing Co.Ltd. vs. CIT 82 ITR 363 has held that the liability accrues over the accounting period because of the demand notices issued by the excise department and obligation to pay excise duty arose on that stage. The Court further held that raising of the dispute by the assessee by filing writ petition for quashing of deduction of that liability would not be a ground for holding that liability to pay excise duty as per demand notice was not incurred. The Court also refered to the decision of Kedarnath Jute to hold that irrespective of the fact that the liability was not accounted for in the books, it was deductible under mercantile system of accounting when liability has accrued. Therefore, once the company makes the payment, whether under protest or otherwise, by debiting Profit and Loss account or by showing in the Balance Sheet or as contingent liability the same will be available as deduction under section 43B on making payment.
Further, in the case of Glaxo Smithline Consumer Healthcare Ltd. ITA No.343/Chjandigarh/2005, the five member Special Bench of ITAT, Chandigarh, it has been held that section 43B is not restrictive of prohibiting section by the Revenue but it is equally en enabling provision under which deductions are allowed on the payment of duties and taxes. In other words, the provision of section 43B overrides the method of accounting consistently followed and provides for the deduction of statutory liabilities in the year of Page 3 of 4 HC-NIC Page 3 of 4 Created On Thu Jun 23 02:32:12 IST 2016 O/TAXAP/476/2016 ORDER payment irrespective of the year in which the liability is incurred. The case of the assessee is squarely covered by the ratio laid down in the various decisions discussed above and by respectfully following these decisions, we dismiss the appeal of the Revenue on this point."
4. As noted, the facts are simple. Department had adjusted the refund claim of the assessee of Rs. 3.71 crores towards its excise duty liability. That being the position, it cannot be said that excise duty of Rs. 3.71 crores was not actually paid over. The claim would not be hit by section 43B of the Act. Tax Appeal is therefore, dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) VC DARJI Page 4 of 4 HC-NIC Page 4 of 4 Created On Thu Jun 23 02:32:12 IST 2016