JUDGMENT S. Rafat Alam, J.
1. This appeal is under Section 260A of the Income-tax Act, 1961 (in short "the Act"), against the judgment and order of the Income-
tax Appellate Tribunal dated February 11, 1999, in I. T. A. T. No. 6797/D of 1992 whereby the appeal of the Revenue-appellant challenging the order of the Commissioner of Income-tax (Appeals) was dismissed.
2. The short question involved in this appeal is as to whether in view of the provisions contained in Section 43B of the Act, the assessee can claim deduction for the sum paid against the customs duty in the previous years. In other words, whether the benefit for the sum paid against the customs duty can be claimed in the subsequent year or the benefit of such deduction can only be allowed in the year in which the actual payment is made.
3. The admitted fact, in brief, is that in the assessment proceeding for the assessment year 1988-89, the Assessing Officer found that the assessee debited a sum of Rs. 3,56,541 in March, 1987, being the customs duty paid in relation to the import of brass scrap weighing 17.433 kg. It was disclosed by the assessee that the aforesaid brass scrap had been shipped from Rotterdam vide bill of lading dated January 7, 1987. The customs house agent of the assessee was Frakcht-Forwardes and through them customs duty of Rs. 2,87,393 was paid in the beginning of March, 1987, and further additional duty of Rs. 69,148 was paid on March 27, 1987. The aggregate of the two amounts comes to Rs. 3,56,541. The assessee thus claimed deduction of the above amount in the assessment year 1988-89 which was not allowed by the Assessing Officer on the ground, inter alia, that in view of the provisions contained in Section 43B of the Act, the claim of deduction towards payment of customs duty is permissible only, in which the actual payment is made. Since the payment was made in the month of March, 1987, the deduction can be claimed in the assessment year 1987-88 and not in the assessment year 1988-89, and thus disallowed the deduction. The assessee being aggrieved by the assessment order preferred an appeal before the Income-tax Commissioner, Bareilly, vide Appeal No. 13/OC(A)MBD/90-91 on the ground, inter alia, that in the accounts for the year ending on March 31, 1987, the goods and the customs duty paid has been shown under the "document in hand" and the customs duty paid was a part of the value of the closing stock but shown under the "document in hand" as the duty was fully paid only during the relevant previous year and, therefore, the provisions of Section 43B of the Act are not at all attracted in the facts of the case. Further, the case of the assessee-respondent was that the goods were finally released on April 30, 1987, on the payment of additional amount of Rs. 20,530 and, therefore, the customs duty, even though paid partly earlier, should be treated to have been paid during the relevant previous year.
4. The Income-tax Commissioner (Appeals), Bareilly, having heard the parties, was of the view that since the cost of goods and the customs duty paid thereon in the preceding year was directly shown in the balance-sheet on the assets side, that does not preclude the assessee from debiting the entire cost of goods along with customs duty to the trading account of the year under appeal after release of goods by the customs authorities in the month of April, 1987, and, therefore, the provision of Section 43B of the Act is not applicable in the facts and circumstances of the present case. The learned Income-tax Commissioner (Appeals) was further of the view that Section 43B applies where the deduction is claimed towards any tax or duty, which has actually been not claimed within the prescribed limits. Since in the case in hand the customs duty was paid in the preceding year in respect of consignment of goods which was actually delivered to the assessee on April 22, 1987, relevant to the assessment year in the appeal, the learned Commissioner (Appeals) was of the view that the disallowance of Rs. 3,56,541 does not deserve to be sustained and thus allowed the appeal. The Revenue went in appeal against the aforesaid order of the learned Income-tax Commissioner (Appeals) before the Income-tax Appellate Tribunal, who also vide order dated February 11, 1999, in I. T. A. T. No. 6797/D/92 upheld the order of the learned Commissioner (Appeals) dated July 6, 1992, and dismissed the appeal. It is against these two above orders this appeal has been preferred by the Revenue.
5. Shri A. N. Mahajan, learned standing counsel for the Income-tax Department (appellant), urged that the sum of customs duty paid by the assessee in March, 1987, is deductible only in the year in which it is actually paid, i.e., the assessment year 1987-88, and not in the assessment year 1988-89, and, therefore, both the learned Income-tax Commissioner (Appeals) and the learned Tribunal have not correctly appreciated the provisions contained in Section 43B of the Act which permits deduction of sums paid in the year in which such sum is actually paid by the assessee. In support of his contention, he placed reliance on a judgment of the apex court rendered in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 and on another judgment of the Calcutta High Court in the case of CIT v. Berger Paints (India) Ltd. (No. 1) [2002] 254 ITR 498. Relying on the aforesaid two judgments it is urged that in view of Section 43B of the Act, the sum paid towards tax, duty cess or fee under any law shall be allowed in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by the assessee and, therefore, in the case in hand the sum paid towards customs duty was deductible only in the assessment year 1987-88 and not in the assessment year 1988-89, which is the subject matter of appeal.
6. On the other hand, Shri Vikram Gulati, learned counsel appearing for the respondent-assessee, opposed the appeal and submitted that admittedly the goods were delivered to the respondent-assessee only in the month of April, 1987, when the balance amount of Rs. 20,530 on demand made by the customs department was actually paid. Thereafter, on the delivery of the goods in April, 1987, proper entry was made in the trading account maintained for the assessment year in question, i.e., 1988-89. It is submitted that the deposit of Rs. 3,56,541 was paid in advance and the final payment of the remaining amount was actually made in the month of April, 1987, and, therefore, the customs duty paid in advance cannot be considered in isolation and should be linked to the actual delivery of the goods. It is further submitted that both the courts below have recorded a finding of fact to the effect that the customs duty was paid in advance towards the delivery of goods and if for any reason the goods could not have been delivered to the appellant, the customs duty so paid would become refundable to the appellant, and, therefore, before the actual delivery of goods the value of goods as also the customs duty paid were shown in the balance-sheet as "document in hand".
7. It is not in dispute that the sum of Rs. 3,56,451 was paid by the assessee-respondent in March, 1987, towards customs duty in respect of imported brass scrap and a further sum of Rs. 69,148 was paid in the month of April, 1987, towards additional duty.
8. Section 43B of the Act runs as under :
"43B. Certain deductions to be only on actual payment.--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 assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees, or
(c) any sum referred to in Clause (ii) of Sub-section (1) of Section 36, or
(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution, in accordance with the terms and conditions of the agreement governing such loan or borrowing, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him.
Provided that nothing contained in this section shall apply in relation to any sum referred to in Clause (a) or Clause (c) or Clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under 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 :
Provided further that no deduction shall, in respect of any sum referred to in Clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below Clause (va) of Sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.
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 relevant to the assessment year commencing on the 1st day of April, 1983, 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 2.--For the purposes of Clause (a), as in force at all material times, 'any sum payable' means a sum for which the assessee incurred liability 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 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 4.--For the purposes of this section, the expression 'public financial institution' shall have the meaning assigned to it in Section 4A of the Companies Act, 1956 (1 of 1956)".
9. From a close reading of Section 43B it is apparent that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force, shall irrespective of the previous year in which the liability to pay such sum was incurred, be allowed in computing the income of that previous year in which such sum is actually paid by the assessee. This section was inserted by the Finance Act, 1983, and given effect from April 1, 1984. It was enacted to curb the practice of taxpayers, who on the one hand claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis and, on the other hand, they do not discharge the liability and dispute the same. The Supreme Court while considering the provisions contained in Section 43B in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677, observed that Section 43B was, therefore, clearly aimed at curbing the activities of those taxpayers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay those amounts, had been incurred by them in the relevant previous year. It was to stop this mischief that Section 43B was inserted.
Explanation 1 to Section 43B is for removal of doubts. It provides that where a deduction in respect of any sum mentioned in Clause (a) or (b) of Section 43B is allowed in computing the income of any previous year, being a previous year relevant to the 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 Section 43B in respect of such sum on the ground that a sum has been actually paid by him in that year. Section 43B, therefore, clearly provides, inter alia, that a deduction in respect of any sum payable by the assessee by way of tax or duty shall be allowed from the income of the previous year in which such sum is actually paid irrespective of the previous year in which the liability to pay such sum was incurred. The deduction thus in computing the income shall be allowed in the year in which such sum is actually paid by the assessee irrespective of the method of accounting adopted by the assessee.
10. In the case in hand, admittedly, the amount of customs duty of Rs. 3,56,451 was paid by the assessee in March, 1987, and, therefore, in terms of Section 43B it is deductible only in the year in which it is actually paid, i.e., for the assessment year 1987-88, irrespective of the year in which the assessee incurred the liability on the basis of the method of accounting regularly adopted by him and, therefore, in view of the clear provisions of law, the deduction cannot be allowed in the assessment year 1988-89. In our view, both the learned Income-tax Appellate Tribunal as well as the Commissioner of Income-tax (Appeals) fell in error in holding that since the assessee-firm debited the cost of goods imported including the duty paid on delivery of goods in the trading account in April, 1987, and before the actual delivery of the goods, the value of the goods and customs duty paid thereon was shown in the balance-sheet as document in hands, therefore, the deduction should be allowed in the assessment year 1988-89, is contrary to the prescription of law. Section 43B in clear terms provides that the deduction claimed by the assessee in respect of any sum paid by way of tax, duty, cess or fee, shall be allowed only in computing the income referred to in Section 28 of that previous year in which it was actually paid, irrespective of the previous year in which the liability was incurred for the payment of such sum as per the method of accounting regularly employed by the assessee. For the purpose of claiming benefit of deduction of the sum paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant and is only to be taken into account. The year in which the assessee incurred the liability to pay such tax, duty, etc., has no relevance and cannot be linked with the matter of giving benefit of deduction under Section 43B of the Act. In this view of the matter, the appeal deserves to be allowed.
11. In the result, the appeal succeeds and is allowed. The impugned order of the learned Income-tax Appellate Tribunal dated February 11, 1999, in I. T. A, No. 6797/D/92 for the assessment year 1988-89, and the order of the learned Commissioner of Income-tax (Appeals), Bareilly, dated July 6, 1992, in Appeal No. 13/OC(A) MBD/90-91 are set aside. There shall, however, be no order as to costs.