Indian Kanoon - Search engine for Indian Law

3.5.7. Grounds No. 3.2 and 3.3 deal with the Customs Duty of Rs 42,961/- and Rs. 12,64,98,615/- paid on import of components for export purposes for which exports have not and have been made. Case of the assessee is that the assessee has been consistently following exclusive method of accounting in respect of custom duty paid on import of components for export purpose, and accordingly, duties paid on purchases are not included in the cost of purchases and the value of closing stock in the profit and loss account. Addition of the duty, both in the purchases as well as the closing stock as per the requirement of section 145A, is tax neutral inasmuch as the same amount is both debited as well as credited to the profit and loss account. But to give effect to the provisions of section 43B, which ITA No.-6021/Del/2012 mandates that duties paid by the assessee are allowable only on payment basis, custom duty paid by the assessee on import of components for export purposes, whether or not export against the same had actually taken place during the relevant year, is claimed as deduction in the return of income. The assessing officer, however, disallowed the same following the assessment for the assessment year 2005-06. On this aspect, a coordinate Bench of the Tribunal in assessee's own case for the assessment years 1999-00, 2000-01, 2005-06, 2006-07 and 2007-08 has held that, since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. Ld. AR submitted that Section 145A provides for uniformity in the method of valuation of inventory, purchases and sales, thereby, mandating the inclusion of duties actually paid in the inventory and only operates notwithstanding anything to the contrary contained in Section 145, which relates to the method of accounting followed by the assessee. He further submitted that the introduction of the provisions of Section 145A does not in any way affect the claims of the assessee under Section 43B as there is no conflict between the provisions of Section 145A and Section 43B of the Act. Though the provisions of Section 145A mandate the assessee to include the value of tax, duty, cess or fee in the value of its closing stock, nowhere it requires the assessee to go a step further and curtail the operation of Section 43B by not claiming the deduction of such duties, etc. in the year of payment but in the year in which such stocks are consumed by the assessee. He submits that even if the said amount has to be added to purchases and closing stock by virtue of Section 145A, thereby being income neutral in so far as the P&L Account is concerned, the said amount will be separately deductible while computing the taxable income u/s 43B of the Act.

3.5.9. Ld. AR further submitted that the provisions of Section 43B, while overriding all the other provisions of the Act, also override Section 145A. Section 145A does not in any manner prevail over or in any way limit the operation of Section 43B of the Act, and that in the Berger Paints case, the closing stock valuation of the assessee ITA No.-6021/Del/2012 included the amount of duties. In other words the position was as if the provisions of Section 145A had been given effect to and implemented. Therefore provisions of Section 145A do not adversely affect the judgment in the case of Berger Paints.

and the decision of the Tribunal has been affirmed by the Delhi High Court in ITA No. 999/2007 wherein the High Court, taking into account the provisions of section 145A of the Act, has observed that the aforesaid issue will not affect the income of the assessee and matter was tax neutral in as much as whether the assessee follows inclusive or exclusive method of accounting the same would not make any impact on the profit and loss. Apart from that, he submits that recently the Karnataka High Court in the case of CIT v. NCR Corporation India (P) Ltd. 240 Taxman 598, reiterated the principle laid down by the Apex Court in the case of Berger Paints (supra) and held that the entire amount of excise duty and customs duty paid by the assessee in a particular year are allowable as deduction irrespective of the fact that such duties are included in the value of closing stock. It was further held that provisions of Section 43B, while overriding all the other provisions of the Act, also override Section 145A and further that provisions of section 145A does not in any manner dilute or nullify the effect of provisions of Section 43B of the Act.

4.19. Before taking up this aspect, we would like to deal with the judgment of the Hon'ble Supreme Court in Shri Ram Honda (supra), relied by the ld. AR for supporting the claim of per se deduction without any further adjustments as per section 145A. It is relevant to note that the Hon'ble Supreme Court in Shri Ram Honda (supra) was dealing with A.Y. 1995-96. While granting deduction for Modvat credit, the Hon'ble Summit Court followed the judgment of the Hon'ble Bombay High Court in CIT vs. Indo Nippon Chemical Co. Ltd., (2000) 245 ITR 384 (Bom), as affirmed by the Hon'ble Apex Court in (2003) 261 ITR 275, in holding that the same was squarely applicable and hence the amount was deductible. The assessment year involved in the case of Indo Nippon (supra) was 1989-90, which is again before the insertion of section 145A. It is interesting to note that during the course of arguments before the Hon'ble Bombay High Court, the ld. counsel for the Department brought to the notice of Their Lordships that section 145A stood inserted and, hence, the exclusive (net) method followed by the assessee was impermissible. The Hon'ble High Court considered this aspect in the last para of its judgment and observed that the insertion of section 145A w.e.f. the AY 1999-2000 had no bearing as the assessment year under their consideration was 1989-90. In the light of this position, it becomes imperative to give effect to the provisions of section 145A of the Act, which are applicable to the year under consideration and are binding without any exception. 4.20. Now we come to giving effect to sections 145A and 43B under the `Inclusive method'. In line with our discussion made above while dealing with PLA component of excise duty, we direct the AO to first recast Profit and loss account of the assessee by taking the figures of purchase, sale and opening and closing stocks at the value inclusive of tax or duty etc., so as to give effect to the mandate of section 145A. Once this is done, then it will be the turn of giving effect to the mandate of section 43B, which requires the granting of deduction of tax or duty etc. on payment basis. This can be done by allowing deduction for that part of the Modvat credit separately u/s 43B of the Act, which has not been finally deducted.