Commissioner Of Income Tax 1, Chennai v. M/S.dynavision Limited, Near Dr.vikram Sarabhai Instronics Estate, Kottivakkam, Chennai 600 041

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 13.07.2018 CORAM: The Honourable Mr.Justice M.M.SUNDRESHandThe Honourable Mr.Justice N.ANAND VENKATESHTax Case Appeal Nos.370 to 372 of 2010 Commissioner of Income Tax 1,Chennai. ... Appellant/Respondentin All Tax appealsVs. M/s.Dynavision Limited,Near Dr.Vikram Sarabhai InstronicsEstate,Kottivakkam,Chennai 600 041. ... Respondent /Appellant in All Tax appeals Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax AppellateTribunalChennai'A'Benchdated03.07.2009,ITANos.2943/Mds/1993, 1968/Mds/1994 and 250/Mds/1996, AssessmentYears 1990-91, 1991-92, and 1992-93.respectively against theorder of the commisioner of Income Tax(Appeals)-1,madras,dated12/12/95(28/07/1994 and 14/10/1993)made in IT/Appeal No.24/95-96ITA no.83/93-94 &Ita no.40/39-94b respectively, and against theassessment orders passed by the Assistant Commissioner,Centralcircle 11(1)(1/c) Madras-34,dated 27/03/1995, 29/03/1994 and31/03/1993 respectively made in PAN (GIR nos 41-04/ct-0595assesment year 1990-1991, 47-04/-CT-0595 assessment year 1991-1992 and PAN/GIR NO.47-04/-CT-0595 assessment year 1992-1993respectively. For Appellant : Mr.M.Swaminathan (in all) Standing Counsel For Respondent : Mr.Rahul Balaji (in all) https://hcservices.ecourts.gov.in/hcservices/ COMMON JUDGMENT (Judgment of the Court was made by N.ANAND VENKATESH, J.) The following Substantial Question of Law has been raisedin these tax appeal cases: 1.Whether on the facts and in thecircumstances of the case, the income TaxAppellate Tribunal was right in holding thatthe disallowance u/s 43B could not be made inrespect of unpaid customs duty on the groundthat such amount was included in the value ofthe closing stock? 2.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding oncean amount was included in the closing stock,the same was to be considered as part ofprofit and cancelled out the expenditureclaimed and therefore section 43B could not beapplied on such expenditure? 3.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in the ignoringthe fact that what was included in closingstock was taken to opening stock in the nextyear and there was no profit element attachedto the valuation of the closing stock and thedisallowance u/s 43B had to be madeindependently of the amount added to the valueof the closing stock? 2.The assessee made a provision in the accounts for customsduty of a sum of Rs.4,59,10,736/- and had paid only a sum ofRs.3,34,13,072/- for the relevant assessment year. Therefore,Assessing Officer disallowed under Section 43B of the Income TaxAct sum of Rs.1,24,97,664/- and added to the same to the income.This was done on the ground that in order to claim deductionunder Section 43B of the Income Tax Act, the customs duty musthave been actually paid during the relevant assessment year. 3.The assessee went on an appeal before the CIT(Commissioner of Income Tax) and the Commissioner of Income Taxconfirmed the order of the Assessing Officer. Aggrieved by thesame, the assessee filed an appeal before the Income TaxAppellate Tribunal. 2.The assessee made a provision in the accounts for customsduty of a sum of Rs.4,59,10,736/- and had paid only a sum ofRs.3,34,13,072/- for the relevant assessment year. Therefore,Assessing Officer disallowed under Section 43B of the Income TaxAct sum of Rs.1,24,97,664/- and added to the same to the income.This was done on the ground that in order to claim deductionunder Section 43B of the Income Tax Act, the customs duty musthave been actually paid during the relevant assessment year. 3.The assessee went on an appeal before the CIT(Commissioner of Income Tax) and the Commissioner of Income Taxconfirmed the order of the Assessing Officer. Aggrieved by thesame, the assessee filed an appeal before the Income TaxAppellate Tribunal. 4.Before the Income Tax Appellate Tribunal a difference ofopinion arose between the Judicial Member and the accountantmember. The Judicial Member was of the view that the AssessingOfficer was wrong in taking the aid of Section 43B of the IncomeTax Act and add the balance customs duty to the total income.The accountant member took a contrary view. Therefore, thematter was referred to the third member. The third member ofthe Income Tax Appellate Tribunal concurred with the decision ofthe learned Judicial Member and thereby the order of theAssessing Officer was set aside and the appeal filed by theassessee was allowed as per the majority view. 5.Mr.M.Swaminathan, learned Standing counsel submits thatthe assessee had claimed deduction of customs duty payable byincluding the unpaid portion of a part of the purchase price anddebiting it to the consumption account and therefore it wasimmaterial whether it was a part of a closing stock or not.Therefore, the learned Standing counsel would contend that whatwas allowable as a deduction under Section 43B was only the dutyactually paid within the time prescribed under the Statute andnot the amount which was not paid. 6.Per contra, Mr.Rahul Balaji, learned counsel appearingfor the assessee would submit that no deduction was claimedunder Section 43B of the Income Tax Act by the assessee. Theassessee did not debit or claim by way of deduction from theprofits, the amount of customs duty of Rs.4,59,10,736/-. Theassessee had included the total customs duty in the cost of theraw material and this amount was provided by the assessee to theraw material purchase account. The value of the closing stockincluded the customs duty payable which was an accrued liabilityon the assessee consequent upon the importing of the goods.Therefore, the learned counsel would submit that the customsduty got reflected on the debit as well as the credit side ofthe account as evidenced from the Profit and Loss Account andtherefore the assessee has not reduced the profits by claimingdeduction of the customs duty liability and the provisions ofSection 43B cannot be applied to the facts of this case and theAssessing Officer went wrong in taking the aid of the Section43B and adding the balance customs duty of Rs.1,24,97,664/-. 7.This Court has carefully considered the arguments oneither side. The Income Tax Appellate Tribunal by a majorityview has held that Section 43B can be invoked only when theassessee claims deduction for any amount payable by way of a taxor duty and in the present case the assessee had merely includedthe total customs duty provision amounting to Rs.4,59,10,736/-in the cost of raw material and the value of the closing stockincluded the customs duty payable. Thus, the customs duty gotreflected on both the debit and credit side of the account andtherefore it did not in any way reduce the profits since the assessee himself did not claim deduction of the customs dutyliability from the taxable profits. For the purpose of comingto this conclusion, the Appellate Tribunal has placed relianceon the Profit and Loss Account of the assessee Company. assessee himself did not claim deduction of the customs dutyliability from the taxable profits. For the purpose of comingto this conclusion, the Appellate Tribunal has placed relianceon the Profit and Loss Account of the assessee Company. 8.The above finding of the Appellate Tribunal is a findingof fact based on materials. No substantial question of law isinvolved for this Court to interfere with the order of theAppellate Tribunal. Therefore, the Tax Appeals filed by theRevenue stands dismissed. However, liberty is given to theAssessing Officer to factually verify the above said accountingtreatment made by the assessee and satisfy himself about thefact as to whether the customs duty was made part of the closingstock during the relevant assessment year. //True Copy// Sd/- Assistant Registrar(CS-VII) Sub Assistant Registrar Kp Copy to: 1.The Commissioner of Income Tax,Chennai. 2.The Deputy Commissioner of Income Tax,Special Range-I, Chennai. 3.The Commissioner of Income Tax, (Appeals-I), Chennai. 4.The Income Tax, Appellate Tribunal, Chennai Bench 'A' chennai. +2 cc to Mr.R.Parthasarathy Advocate SR.NO.46026&47135 AR(CS-VII)ASK(06/08/2018) T.C.A.Nos.370 to 372 of 2012 13.07.2018