Magnaflux Systems Pvt. Ltd., Pune V. DCIT, Circle 11(2), Pune

ITA 232/PUN/2013

• Counselvise Citation: 23224514 RSA 2013
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B D SINGH P SINGH
• Keywords: Rectification of order
• Section: 43B; 10

Judgement Text

] IQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !' # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM / ITA NO.232/PN/2013 $ % % / ASSESSMENT YEAR : 2008-09 MAGNAFLUX SYSTEMS PRIVATE LTD., BUILDING NO.14, SHOP NO.1, ANAND NAGAR, PAUD ROAD, PUNE-411029 PAN NO.AACCM3616R . / APPELLANT V/S DCIT, CIRCLE-11(2), PUNE . / RESPONDENT / APPELLANT BY : SHRI C.H. NANIWADEKAR / DEPARTMENT BY : SHRI B.D. SINGH P. SINGH & / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30- 08-2012 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMEN T YEAR 2008-09. 2. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS G ROUND OF APPEAL NO.2 FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS N O OBJECTION. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED . / DATE OF HEARING : 06.04.2015 / DATE OF PRONOUNCEMENT: 01 .07.2015 2 ITA NO.234/PN/2013 3. IN GROUND OF APPEAL NO.1 THE ASSESSEE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF DEDUCTION IN RESPECT OF EXCISE DUTY OF RS.25 LAKHS PAID DURING THE A.Y. 2008-09 IN RESP ECT OF A.YRS. 2003-04 AND 2004-05. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF UPS SYSTEMS. I T FILED ITS RETURN OF INCOME ON 30-09-2008 DECLARING TOTAL LOSS OF RS.13, 42,632/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED F ROM SCHEDULE-3 OF MANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.34,52,693/- ON ACCOUNT OF E XCISE DUTIES PERTAINING TO THE A.YRS.2002-03 AND 2003-04. ON BEING ASKED BY T HE AO, THE ASSESSEE SUBMITTED THAT THE AFORESAID SUM CONSISTS OF RS.25 LAKHS PAID IN ADVANCE IN F.Y. 2003-04 AND THE BALANCE AMOUNT WAS PAID IN THE YEAR UNDER CONSIDERATION. THE AO, THEREFORE, WAS OF THE OPINI ON THAT THE AMOUNT OF RS.25 LAKHS PAID ON ACCOUNT OF EXCISE DUTY NEITHER PERTAINS TO THE YEAR UNDER CONSIDERATION NOR PAID IN THE SAID YEAR. HE THEREF ORE ASKED THE ASSESSEE TO JUSTIFY THE ALLOWABILITY OF THE AMOUNT OF RS.25 LAK HS. 5. THE ASSESSEE SUBMITTED THAT THE AMOUNT OF RS.34, 54,693/- PAID DURING FINANCIAL YEAR 2007-08 RELATES TO F.Y. 2002-03 AND 2003-04 WHICH WAS PAID AS PER THE NOTICE TO SHOW CAUSE- CUM-DEMAND OF THE DIR ECTOR GENERAL OF CENTRAL EXCISE, INTELLIGENCE MUMBAI ZONAL UNIT DATE D 27-07-2005. OUT OF THESE DUES RS.25,00,000/- HAVE ALREADY BEEN PAID DU RING F.Y. 2003-04 ITSELF WHICH WAS SHOWN AS DEPOSIT WITH EXCISE AUTHORITIES. THE COMPANY PREFERRED APPEAL WITH HIGHER AUTHORITIES AND THE CASE WAS FIN ALLY SETTLED BY THE ORDER OF THE SETTLEMENT COMMISSION, ADDITIONAL BENCH, MUMBAI VIDE ORDER DATED 07- 09-2007 WHO CONFIRMED THE TOTAL LIABILITY AT RS.36, 30,600/-. THEREFORE, AS PER 3 ITA NO.234/PN/2013 THE ASSESSEE THE DEMAND SHOULD BE TREATED AS FINALI SED IN F.Y. 2007-08 AND SHOULD BE ALLOWED ACCORDINGLY. IT WAS SUBMITTED TH AT PART OF THE DEMAND PAID IN F.Y. 2003-04 AMOUNTING TO RS.25 LAKHS AFTER SEARCH CONDUCTED BY THE EXCISE AUTHORITIES IN THE FACTORY PREMISES ON 11-02 -2004 WAS AN ADVANCE ONLY. IT WAS SUBMITTED THAT THE SHOW CAUSE CUM DEMAND NOT ICE WAS ISSUED ON 27- 07-2005 TO PAY EXCISE DUTY IN RESPECT OF F.YRS. 200 2-03 AND 2003-04 AMOUNTING TO RS.35,71,303/-. AFTER RECEIVING THE N OTICE THE ASSESSEE APPROACHED THE SETTLEMENT COMMISSION WITH A PETITIO N ADMITTING THE LIABILITY AT RS.19,38,232/- FOR SETTLEMENT AND THE CASE WAS A DMITTED ON 26-06-2006. THE SETTLEMENT COMMISSION PASSED THE INTERIM ORDER ON 10-07-2006 AND FINAL ORDER ON 12-07-2006 CONFIRMING THE LIABILITY OF RS. 32,45,632/-. THE ASSESSEE FILED RECTIFICATION APPLICATION AND THE FINAL ORDER AFTER RECTIFICATION WAS PASSED ON 07-09-2007 DETERMINING THE LIABILITY AT R S.30,65,300/-. THE ARGUMENT OF THE AO THAT THE LIABILITY HAD ACTUALLY ACCRUED AND ARISED BEFORE THE A.Y. 2008-09 WAS CHALLENGED BY THE ASSESSEE ON THE GROUND THAT THE LIABILITY CAN BE CONSIDERED TO HAVE ACCRUED OR ARIS ED ONLY AFTER IT HAS REACHED FINALITY. THE PROVISIONS OF SECTION 43B WAS ALSO B ROUGHT TO THE NOTICE OF THE AO. VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOT ICE OF THE AO TO THE PROPOSITION THAT LIABILITY HAS NOT ACCRUED OR ARISE D IN A.Y. 2003-04 OR IN ANY SUBSEQUENT YEAR BEFORE A.Y. 2008-09. THE ASSESSEE FURTHER SUBMITTED THAT THE ADVANCE PAYMENT OF RS.25 LAKHS TO THE EXCISE DEPART MENT WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT IN F.Y. 2003-04 AND THE SAME SHOULD BE ALLOWED ONLY IN THE IMPUGNED ASSESSMENT YEAR AS THE LIABILI TY HAS FINALLY CRYSTALLIZED. 6. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM THE ASSESSEE FOLLOWS ME RCANTILE SYSTEM OF ACCOUNTING. IN GENERAL, ANY EXPENDITURE IS ALLOWED ONLY IF IT PERTAINS TO THE 4 ITA NO.234/PN/2013 YEAR UNDER CONSIDERATION AND DEBITED OR PAID DURING THE SAID YEAR. ACCORDING TO THE AO THE PROVISIONS OF SECTION 43B A LLOW THE ASSESSEE TO CLAIM CERTAIN EXPENSES ON PAID BASIS EVEN IF IT PERTAINS TO EARLIER YEARS. HOWEVER, IN THE PRESENT CASE, UNDOUBTEDLY THE EXCUSE DUTIES PERTAIN TO F.YRS. 2002-03 AND 2003-04. PART OF THE EXCISE DUTIES AMOUNTING T O RS.25 LAKHS WERE PAID IN THE F.Y. 2003-04. THEREFORE, THE CLAIM OF THE ASSE SSEE THAT THE LIABILITY TO PAY THE DUES HAVE CRYSTALLIZED AND PAID DURING THE F.Y. 2007-08 IS NOT CORRECT. FURTHER, ACCORDING TO THE AO, THE AMOUNT OF RS.25 L AKHS PAID BY THE ASSESSEE IN F.Y. 2003-04 IS ON ACCOUNT OF EXCISE DUTY AND NO T A DEPOSIT AS THERE IS NO SUCH PROVISION TO MAKE DEPOSITS OF EXCISE DUTY IN R ESPECT OF DISPUTED CLAIM. THE ASSESSEE WAS ENTITLED TO CLAIM THE SAID EXPENSE S IN THE F.Y. 2003-04 AS PER THE METHOD OF ACCOUNTING FOLLOWED BY IT. SINCE THE ASSESSEE FAILED TO DO SO FOR THE REASONS BEST KNOWN TO THEM, THEREFORE, THE VARIOUS DECISIONS RELIED ON BY THE ASSESSEE ARE NOT SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN VIEW OF THE ABOVE THE AO HELD THAT THE EXPENSES OF RS.25 LAKHS CLAIMED ON ACCOUNT OF PAYMENT OF EXCISE DUTY NEITHER PERTAIN T O THE F.Y. 2007-08 NOR PAID IN F.Y. 2007-08 AND THEREFORE IS NOT AN ALLOWA BLE EXPENDITURE. THE AO ACCORDINGLY MADE ADDITION OF RS.25 LAKHS TO THE TOT AL INCOME OF THE ASSESSEE. 7. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO. WHILE DOING SO, HE OBSERVED THAT THE SEARCH OPERATIONS WERE CARRIED OUT BY THE EXCISE DEPARTMENT AT THE FACTORY AND OFFICE PREMISES OF TH E COMPANY ON 11-02-2004. ON THE BASIS OF MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION, THE EXCISE DEPARTMENT CAME TO THE CONCLUSION THAT THE A SSESSEE COMPANY HAS EVADED THE CENTRAL EXCISE DUTY FOR WHICH A SHOW CAU SE NOTICE WAS ISSUED TO THE ASSESSEE RAISING A DEMAND OF RS.35,55,751/- VID E NOTICE DATED 27-07-2005. THE LD.CIT(A) OBSERVED FROM PARA 7.8 OF THE SAID NO TICE THAT THE DETAILS OF 5 ITA NO.234/PN/2013 THE CENTRAL EXCISE DUTY PAYABLE BY THE COMPANY HAVE BEEN GIVEN WHICH ARE AS UNDER : S.NO. YEAR VALUE OF CLEARANCES AS PER CATEGORY (I) (RS.) VALUE OF CLEARANCES AS PER CATEGORY (II) (RS.) TOTAL VALUE DUTY PAYABLE (1) (2) (3) (4) (5) (6) 1 2002-03 RS.0,67,37,627 NIL RS.0,67,37,627 RS.10,78,021 2 2003-04 RS.1,40,85,750 RS.14,00,068 RS.1,54,85,81 8 RS.24,77,730 3 TOTAL RS.2,08,23,377 RS.14,00,068 RS.2,22,23,445 RS.35,55,751 7.1 REJECTING VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE THE LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO BY OBSERVING AS UNDER : 8. THE CHART SHOWS THAT DUTY OF RS.24,77,730/- WAS PAY ABLE BY THE COMPANY FOR THE F.Y. 2003-04. IN PARA 7.6 OF THE SA ID NOTICE IT HAS BEEN STATED THAT THE COMPANY, IN TUNE WITH THE CONFESSIONS G IVEN BY ITS M.D. SHRI ANAND PENDSE, VOLUNTARILY PAID PART OF THE CE D UTY DURING THE INVESTIGATION, OF RS.25,00,000/- IN THE MONTH OF FEBR UARY AND MARCH, 2004. THIS PROVES THAT THE PAYMENT OF RS.25,00,000/- WAS MADE IN THE F.Y. 2003-04 ITSELF AND AS PART OF THE CE DUTY PAYABL E. CONSIDERING THE ABOVE FACTS, IT IS CLEAR THAT THE AMOUNT OF DUTY PAYA BLE BY THE APPELLANT COMPANY WAS ASCERTAINED IN THE F.Y. 2003-04 ITSELF AND PART PAYMENT THEREOF WAS ALSO MADE IN F.Y.2003-04 IN ACCORDANCE WI TH THE CALCULATION MADE BY THE EXCISE DEPARTMENT. THE AMOUNT PAID WAS N OT ALSO REFUNDABLE, MATERIALS FURTHER SHOW THAT THE EXCISE DEP T. AFTER THE SEARCH ISSUED THE NOTICE FOR SHOW CAUSE CUM DEMAND ON 27/7/200 5 ASKING THE APPELLANT TO PAY THE EXCISE DUTY FOR FYS 2002-03 & 20 03-04 OF RS.35,71,303/-. IF THE CLAIM OF THE APPELLANT IS ACCE PTED THAT THE DEMAND HAD NOT CRYSTALLIZED IN THE FY 2003-04 WHEN SEARCH TO OK PLACE AND THE DIRECTOR ADMITTED THE DEFAULT AND AGREED FOR THE PA YMENT, THEN THE NEXT POINT WHEN THE DEMAND CAN FURTHER BE CONSIDERED TO H AVE CRYSTALLIZED WOULD BE ON RECEIPT OF THIS NOTICE IN FY 2005-06. TH E APPELLANT HAS NOT DONE SO. THEREAFTER THE APPELLANT FILED A PETITION W ITH THE SETTLEMENT COMMISSION ADMITTING A LIABILITY OF RS.19,38,232/- AND THIS PETITION WAS ADMITTED ON 26/6/2006. THE APPELLANT COULD HAVE EVE N TREATED THIS YEAR OR ATLEAST THE AMOUNT ADMITTED IN THE PETITION TO HA VE CRYSTALLIZED IN FY 2006-07, THIS WAS ALSO NOT DONE. INTERIM ORDER OF TH E SETTLEMENT COMMISSION AND THE FINAL ORDER CONFIRMING THE LIABILI TY OF RS.32,45,632/- WERE PASSED ON 10/7/2006 AND 12/7/2006 RESPECTIVELY AN D THE APPELLANT ATLEAST COULD HAVE ADMITTED THE LIABILITY TO HAVE ACCRUED OR ARISEN IN FY 2006-07, WHICH WAS ALSO NOT DONE. THE APP ELLANT CLAIMS THAT A RECTIFICATION PETITION WAS FILED AND THE FINAL ORD ER WAS PASSED ON 7/9/2007 CONFIRMING THE DEMAND OF RS.30,65,300/-. TH E APPELLANT CLAIMS THAT THE DEMAND ACCRUED AND AROSE IN THIS YEAR I.E. FY 2007-08. THE DISPUTE THEREFORE IS THE YEAR IN WHICH THE LIABIL ITY IS TO BE ALLOWED IN THE SYSTEM OF ACCOUNTING BEING FOLLOWED REGULARLY. IT IS WELL SETTLED PRINCIPLE OF TAXATION THAT INCOME OF A PARTICULAR A SSESSMENT YEAR IS REQUIRED TO BE SUBJECTED TO TAX AS PER THE PREVAILING RATES IN THAT YEAR AND FOR DOING SO CORRECTLY METHOD OF ACCOUNTING IS IM PORTANT AS ALSO ITS USE IN A CONSISTENT AND REGULAR MANNER. THIS IS THE RESPO NSIBILITY OF THE 6 ITA NO.234/PN/2013 APPELLANT AS WELL AS THE AO TO COMPUTE THE INCOME OF A PARTICULAR YEAR CORRECTLY ON THE ABOVE PRINCIPLE. THEREFORE ASSESSMENT OF EACH ASSESSMENT YEAR HAS BEEN TREATED IN LAW AS SEPARATE FROM O THERS. AS DISCUSSED ABOVE, FOR ACHIEVING THIS OBJECTIVE, THE METH OD OF ACCOUNTING ASSUMES SIGNIFICANCE. THERE IS NO DISPUTE THAT THE APPELL ANT FOLLOWS MERCANTILE METHOD OF ACCOUNTING, AS PER WHICH REVENU E OR EXPENDITURE HAS TO BE RECOGNIZED ON ACCRUAL OR ARISING. THEREFORE FOR COMPUTING AN INCOME OF A ASSESSMENT YEAR, THE REVENUE AS WELL AS THE E XPENDITURE ACCRUING OR ARISING IN A PARTICULAR PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR HAS TO BE RECOGNIZED IN THIS METHOD OF AC COUNTING REGULARLY AND CONSISTENTLY. NEITHER THE APPELLANT NOR THE AO IS AT LIBERTY TO DEVIATE FROM THIS METHOD AS IT WILL RESULT INTO SHIF TING OF INCOME OR EXPENDITURE OF ONE YEAR TO ANOTHER YEAR WHICH IS NOT PERMISSIBLE UNDER THE IT ACT. HOWEVER, THE PROVISIONS OF SEC. 43B OF TH E I.T. ACT, 1961 CARVES OUT AN EXCEPTION FOR THIS SYSTEM OF ACCOUNTING. AS PER THE SAID SECTION CERTAIN DEDUCTIONS ARE ONLY TO BE ALLOWED ON THE BASIS OF ACTUAL PAYMENT IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOL LOWED BY THE APPELLANT. THE NECESSARY IMPLICATION OF THIS PROVISION IN RESPECT OF AN APPELLANT FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING R EGULARLY, IS THAT THE SPECIFIED EXPENSES CAN BE ALLOWED EVEN AFTER ITS ACCRUA L ONLY ON ACTUAL PAYMENT. THEREFORE, FOR AN APPELLANT FOLLOWING THIS SYSTEM OF ACCOUNTING, THE EXPENDITURE MUST FIRST ACCRUE AND ARISE AND GET DE BITED IN THE PROFIT & LOSS A/C. AND THEREAFTER ONLY THE APPLICATION OF SEC .43B CAN BE CONSIDERED. THE DECISION OF THE KERALA HIGH COURT GIV EN IN THE CASE OF CIT VS KERALA SOLVENT EXTRACTIONS LTD. (2008) 306 ITR 54 UPHOLDS THIS INTERPRETATION. IN THE PRESENT CASE IT CAN BE SEEN THA T THE LIABILITY IN QUESTION WAS RELATING TO FY 2002-03 & 2003-04, HOWEVE R THE SAME CAME TO LIGHT ONLY AFTER THE SEARCH CONDUCTED IN FEBRUAR Y 2004 AND THEREFORE THE EARLIEST POINT AT WHICH IT COULD BE SAID TO HAVE ACCRUED OR ARISEN WAS IN FY 2003-04. THE APPELLANT ADMITTED THE LIABILITY IN THIS YEAR AND PAID PART AMOUNT OF RS.25 LAKHS ALSO. HOWEVER THE APPELLANT FAILED TO RECOGNIZE THE EXPENDITURE IN THIS ASSESSMENT YEAR WHICH WAS REQUIRED TO BE DONE AS PER THE SYSTEM OF ACCOUNTING BEING FOLLOWED REGULARLY. THEREAFTER ALSO THE SUBSEQUENT OCCASIONS HAPPENING IN TH E FORM OF ISSUE OF DEMAND NOTICE BY THE DGCE, INTERIM AND FINAL ORD ER OF THE SETTLEMENT COMMISSION, ETC. IN EARLIER THAN THE FY 2007-08, WERE OCCASIONS WHEN IT WAS APPARENT THAT THE LIABILITY KEPT ON BEING RAISED / CONFIRMED. THEREFORE IT IS INCORRECT ON THE PART OF THE APPELLA NT TO SAY THAT THE LIABILITY ACCRUED ONLY IN THE FY 2007-08 AFTER THE RECTIFICATION ORDER WAS PASSED BY THE SETTLEMENT COMMISSION. THE APPELLANT COUL D STILL NOT HAVE RECOGNIZED THIS LIABILITY IF IT HAD DECIDED TO DO SO BY FILING APPEAL TO THE SUPERIOR COURTS LIKE THE HIGH COURT AND SUPREME COURT . THIS WOULD SEEM TO GIVE A TOOL IN THE HAND OF APPELLANT TO PLAY ARO UND' WITH THE SYSTEM OF ACCRUAL, WHICH IS NOT ENVISAGED IN THE ACT. THEREFORE IT HAS TO BE HELD THAT THE ENTIRE LIABILITY ACCRUED IN EARLIER THAN THE. F Y 2007-08 AND THEREFORE IT CANNOT BE ALLOWED TO BE RECOGNIZED AS EXPENDITURE IN THIS ASSESSMENT YEAR. IF THE EXPENDITURE HAS NOT BEEN RECOGNIZED IN THE EARLIER YEARS AND DEBITED IN THE P&L A/C. IN THE YEAR OF ITS ACCRUAL F ALLING OTHER THAN THIS ASSESSMENT YEAR, IT CANNOT EVEN QUALIFY FOR ALLOWANCE U /S 43B. IN VIEW OF THE ABOVE, IT IS HELD THAT THE ACTION OF THE AO TO D ISALLOW THE EXPENDITURE IS CORRECT IN THE FACTS OF THE CASE AND IN LAW. HOWEVE R, COMING TO THE AMOUNT TO BE DISALLOWED, IT APPEARS THAT WERE CERTAIN CONFUSIONS IN THE MIND OF THE AO AS THE APPELLANT HAD GIVEN DIFFERENT FIGURES FOR DIFFERENT STAGES. THEREFORE, THE AO IS DIRECTED TO VERIFY THE A MOUNT WHICH HAS BEEN DEBITED IN THIS ASSESSMENT YEAR RELATING TO FYS 200 2-03 & 2003-04, 7 ITA NO.234/PN/2013 WHICH WERE NOT DEBITED EARLIER, AND DISALLOW THE SAME . GROUND NO. A OF THE APPELLANT IS DISMISSED. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE AO AND THE CIT(A). HE SUBMITTED TH AT THE ASSESSEE IS MANUFACTURER OF UPS SYSTEMS, INVERTERS AND BATTERIE S ETC. THE ASSESSEE IS A SMALL SCALE INDUSTRIAL UNIT. AS PER THE SAID SCHEM E NO EXCISE DUTY IS PAYABLE TO ANY SMALL SCALE UNIT WHERE THE TURNOVER IS LESS THAN RS.1 CRORES. ON 11-02- 2004 THERE WAS A SEARCH BY THE EXCISE DEPARTMENT. DURING THE SAID OPERATION, THE EXCISE DEPARTMENT NOTICED THAT THE S ISTER CONCERN OF THE ASSESSEE IS ALSO MANUFACTURING THE SAME PRODUCT. A CCORDINGLY, THEY CONFRONTED THE ASSESSEE ON THE GROUND THAT THE ASSE SSEE IS SPLITTING ITS TURNOVER BETWEEN THE 2 SISTER CONCERNS TO GET THE E XCISE EXEMPTION. THE ASSESSEE IN HIS STATEMENT ACCEPTED SUCH SPLITTING O F TURNOVER. ACCORDINGLY, A SHOW CAUSE NOTICE CUM DEMAND WAS ISSUED TO THE ASSE SSEE ON 27-07-2005 RAISING DEMAND OF RS.35,55,751/-. THE ASSESSEE PAI D AN AMOUNT OF RS.25 LAKHS AS ADVANCE IN THE F.Y. 2003-04 AND THE SAME W AS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE APPROACHED T HE SETTLEMENT COMMISSION VIDE ORDER DATED 12-07-2006 WHO SETTLED THE CENTRAL EXCISE DUTY AT RS.32,45,632/-. THE ASSESSEE FILED A WRIT PETITION BEFORE THE HONBLE HIGH COURT ON 08-09-2006 WHICH WAS ADMITTED BY THE HONB LE HIGH COURT ON 18- 10-2006. IN THE MEANTIME THE ASSESSEE FILED A MISC ELLANEOUS APPLICATION BEFORE THE SETTLEMENT COMMISSION REQUESTING FOR REC TIFICATION OF CERTAIN MISTAKES. A CONCESSION WAS ALSO GIVEN THAT IF THE MISCELLANEOUS APPLICATION IS ALLOWED, THEN THE ASSESSEE WILL WITHDREW THE WRI T PETITION. THE HONBLE 8 ITA NO.234/PN/2013 SETTLEMENT COMMISSION VIDE ORDER DATED 07-09-2007 R ECTIFIED THE MISTAKE BRINGING DOWN THE DEMAND TO RS.30,65,300/-. SUBSEQ UENTLY, THE ASSESSEE WITHDREW THE WRIT PETITION ON 16-10-2007. 10. THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTEN TION OF THE BENCH TO THE PROVISIONS OF SECTION 43B AND SUBMITTED THAT FOR AL LOWING ANY DEDUCTION U/S.43B THE LIABILITY OF EXPENDITURE HAS TO BE CRYS TALLIZED. IN THE INSTANT CASE, THE LIABILITY TO PAY THE DUTY CRYSTALLIZED DURING T HIS YEAR AFTER DISPOSAL OF THE MISCELLANEOUS APPLICATION. THEREFORE, THE SAME SHO ULD BE ALLOWED AS DEDUCTING DURING THE YEAR. IN HIS ALTERNATE CONTEN TION, HE SUBMITTED THAT ONLY RS.19,38,732/- WAS THE ADMITTED LIABILITY. TH EREFORE, THE AO COULD HAVE DISALLOWED ONLY TO THIS EXTENT AND BALANCE AMOUNT W OULD HAVE BEEN ALLOWED. HE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. CIT VS. KERALA SOLVENT EXTRACTIONS LTD. REPORTED I N 306 ITR 54 2. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT REPORTED IN 213 ITR 523 (GUJ.) 3. DY.CIT VS. AGGARWAL & MODI ENTERPRISES (CINEMA PROJ ECT) CO. (P) LTD., REPORTED IN (2003) 80 TTJ 1020 (DEL.) 4. JAI KUMAR MUNI CHAND VS. CIT REPORTED IN 303 ITR 133 (HP) 11. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT I T IS A VERY CLEAR CUT CASE AND THE CIT(A) HAS PASSED A VERY DETAILED ORDER. T HE VARIOUS DECISIONS RELIED ON BY LD. COUNSEL ARE DISTINGUISHABLE AND NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE. 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS 9 ITA NO.234/PN/2013 DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE ONLY DISPUTE TO BE DECIDED IS THE ALLOWABILITY OF RS.25 LAKHS PAID BY THE ASSESSEE DURING F.Y. 2003-04 AS A DEDUCTION FROM THE TOTAL INCOME DURING THE IMPUGNED ASSESSMENT YEAR, I.E., A.Y. 2008-09. IT IS THE CAS E OF THE REVENUE THAT THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AN D AS PER THE PROVISIONS OF SECTION 43B THE DEDUCTION CAN BE ALLOWED ON PAYMENT BASIS EVEN IF IT PERTAINS TO EARLIER YEARS. SINCE THE ASSESSEE IN THE INSTAN T CASE HAS PAID AN AMOUNT OF RS.25 LAKHS IN THE F.Y. 2003-04, THEREFORE, THE SAM E CAN BE CLAIMED ONLY IN THAT YEAR AND IT CANNOT BE CLAIMED IN THE IMPUGNED ASSESSMENT YEAR. IT IS THE CASE OF THE ASSESSEE THAT THE LIABILITY TO PAY THE DUES HAVE CRYSTALLISED DURING THE IMPUGNED ASSESSMENT YEAR AFTER THE ORDER OF THE SETTLEMENT COMMISSION AND THEREFORE THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION DURING THE IMPUGNED ASSESSMENT YEAR. WE FIND THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE CHANDIGARH SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. GLAXO SMITHKLINE CONSUMER HEAL TH CARE LTD. REPORTED IN (2007) 107 ITD 343 (CHD. (SB). WE FIND THE SPEC IAL BENCH AT PARA 51 & 52 OF THE ORDER (PAGE 387) HAS OBSERVED AS UNDER: 51. WE HAVE CONSIDERED IN DETAIL THE ARGUMENTS OF BO TH SIDES AND THE AUTHORITIES RELIED ON BY THEM; CONSIDERED THE STATUTOR Y PROVISIONS AS WELL; EXAMINED THE EXACT NATURE OF THE ADVANCE PAYM ENT OF EXCISE DUTY, ETC. WE HAVE FOUND THAT GENERALLY THOSE PAYMENTS ARE NOT PROVISIONAL OR REFUNDABLE. THEY ARE ACTUALLY PAYMENTS OF CENTRAL EX CISE DUTY. WE HAVE EXAMINED THE LEGISLATIVE INTENT AND PURPOSE OF SECTION 43B. THE ASSESSEES IN THE PAST WERE NOT PAYING TAXES, DUTIES AND OTH ER DUES TO THE GOVERNMENT IN TIME. AT THE SAME TIME, THEY WERE BOOK ING THOSE ITEMS AS EXPENSES IN THEIR ACCOUNTS ON ACCRUAL BASIS ON THE GROUN D THAT THEY ARE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. BY DOING SO, THEY WERE CLAIMING DEDUCTION AND REDUCING THE TAXABLE INCOME. CONCURRENTLY IN MANY CASES, THE ASSESSEES WERE CHALLENGING THE VERY LIABIL ITY ITSELF BEFORE THE COURTS AND TRIBUNALS, FINALLY RESULTING THE PAYMEN TS BELATED, DEFERRED, AND SOMETIMES NEVER MADE. IN ORDER TO STOP SU CH EXPLOITATION PRACTISED BY THE ASSESSEES, SECTION 43B HAS BEEN BROUGHT IN THE STATUTE DECLARING THAT WELL YOU CLAIM THE DEDUCTION, BUT O NLY ON ACTUAL PAYMENT. THE LAW HAS MADE IT CLEAR THAT SUCH PAYMENT S ARE TO BE ALLOWED AS DEDUCTIONS IN THE YEAR OF PAYMENT. SECTION 43B DOES NOT LAY DOWN ANY SEQUENCE OR ORDER OF EVENTS IN WHICH THE LIA BILITY HAS TO BE INCURRED AND THE PAYMENT HAS TO BE MADE BY THE ASSESSEE. SECTION 43B 10 ITA NO.234/PN/2013 DOES NOT LAID DOWN ANY RULE THAT THE LIABILITY TO PA Y THE DUTY MUST INCUR FIRST AND ONLY THEREAFTER THE PAYMENT OF SUCH DUTY T O BE MADE SO AS TO CLAIM THE DEDUCTION UNDER SECTION 43B. BUT THE REVEN UE TRIES TO MAKE OUT A CASE THAT THE STATUTE HAS PRESCRIBED SUCH AN ORDER OF EVENTS. IN FACT THERE IS NO SUCH PRESCRIPTION IN THE STATUTE. WE HAVE SEEN THAT THE EXPRESSION OTHERWISE ALLOWABLE REFERS TO A DECLARATIO N OF PERMISSION IN LAW THAT WHICH ARE AVAILABLE AS DEDUCTIONS ON PAYMEN T UNDER SECTION 43B, ARE THOSE EXPENSES WHICH ARE USUALLY ALLOWED BY T HE INCOME-TAX ACT FOR THE PURPOSE OF COMPUTING INCOME. WE HAVE SEEN THA T THE EXPRESSION ANY SUM PAYABLE DOES NOT MEAN PAYMENT OUTSTANDING. IN THE LIGHT OF THE DECISION OF THE SUPREME COURT IN THE CASE OF ALLIED MOTORS V. CIT [1997] 224 ITR 677, WE HAVE HELD THAT FOR THE PURPO SE OF SECTION 43B THE PROVISO THERE-UNDER AND EXPLANATION 2 HAVE TO BE READ AND CONSTRUED TOGETHER. 52. THEREFORE, WE HOLD THAT THE DEDUCTION FOR TAX, DUTY ETC. IS ALLOWABLE UNDER SECTION 43B OF THE INCOME-TAX ACT, 1961 ON PAY MENT BASIS BEFORE INCURRING THE LIABILITY TO PAY SUCH AMOUNTS. ACCORDINGLY, THE FIRST QUESTION IS ANSWERED IN AFFIRMATIVE AND IN FAVOUR OF T HE ASSESSEE. (UNDERLINE GIVEN BY US) 12.1 WE FIND THE OTHER MEMBER OF THE SPECIAL BENCH (HONBLE PRESIDENT) WHILE SUPPLEMENTING TO THE VIEW OF THE AUTHOR OF TH E JUDGMENT AT PARA 20 OF HIS OWN ORDER (PAGE 415) HAS OBSERVED AS UNDER : 20. IN THE LIGHT OF CLEAR OBJECT OF SECTION 43B, FO UND FROM ITS HEADING, ITS LANGUAGE, THE MISCHIEF IT SOUGHT TO COVER AND VARIOUS DECISIONS OF COURTS, IT HAS TO BE HELD THAT DEDUCTION IN RESPECT OF STATUT ORY PAYMENT IS TO BE ALLOWED IN THE PREVIOUS YEAR IN WHICH THE AMOUNT IS A CTUALLY PAID. THE SECTION ITSELF COMMANDS THAT ACTUAL DISCHARGE OF LIABI LITY IS TO BE INSISTED UPON IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE L IABILITY TO PAY WAS INCURRED. IT WOULD BE ACTING CONTRARY TO THE PURPOSE AND SPIRIT OF SECTION IF WE START EXAMINING THE QUESTION AS TO IN WHICH PREV IOUS YEAR LIABILITY TO PAY WAS INCURRED. THEREFORE, IN OUR CONSIDERED OPI NION, SECTION 43B ALLOWS DEDUCTIONS AS ARE ALLOWABLE IN CASE OF CASH SYSTEM OF ACCOUNTING AND THERE IS NO NEED TO ESTABLISH INCURRING OF THE LIA BILITY TO PAY THE AMOUNT IN QUESTION. (UNDERLINE GIVEN BY US) 12.2 IN VIEW OF THE ABOVE DECISION OF THE SPECIAL B ENCH CITED (SUPRA) DEDUCTION U/S.43B HAS TO BE ALLOWED ON PAYMENT BASI S BEFORE INCURRING THE LIABILITY TO PAY SUCH AMOUNTS. PROVISION OF SECTIO N 43B DOES NOT LAY DOWN ANY SEQUENCE OR ORDER OF EVENTS IN WHICH THE LIABIL ITY HAS TO BE INCURRED AND THE PAYMENT HAS TO BE MADE BY THE ASSESSEE. THEREF ORE, THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE LIABILITY CRY STALLISED DURING THE IMPUGNED ASSESSMENT YEAR AND THEREFORE EVEN IF THE AMOUNT WAS PAID IN F.Y. 11 ITA NO.234/PN/2013 2003-04 THE SAME HAS TO BE ALLOWED AS DEDUCTION DUR ING THE IMPUGNED ASSESSMENT YEAR IS WITHOUT ANY MERIT. SINCE ADMITT EDLY THE ASSESSEE HAS PAID THE AMOUNT OF RS.25 LAKHS IN THE F.Y. 2003-04 AND T HE LIABILITY ALSO RELATES TO F.Y. 2002-03 AND 2003-04, THEREFORE, BY NO STRETCH OF IMAGINATION THE SAME CAN BE ALLOWED AS A DEDUCTION IN THE IMPUGNED ASSES SMENT YEAR. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SINCE THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE DE CISION OF THE SPECIAL BENCH OF THE TRIBUNAL CITED (SUPRA), THEREFORE, WE FIND N O INFIRMITY IN THE ORDER OF THE CIT(A) WHO HAS PASSED A DETAILED SPEAKING ORDER GIVING HIS REASONS FOR NON ALLOWABILITY OF THE DEDUCTION CLAIMED BY THE AS SESSEE U/S.43B. WE ACCORDINGLY UPHOLD THE SAME AND THE GROUND RAISED B Y THE ASSESSEE IS DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01-07-2015. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) / JUDICIAL MEMBER ' / ACCOUNTANT MEMBER IQ.KS PUNE ; ! DATED : 01 ST JULY, 2015. LRH'K &'()*+,+) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # # $ ( ) / THE CIT(A)-I, PUNE 4. # # $ / THE CIT-I, PUNE 5. '() **+, , # +, , IQ.KS / DR, ITAT, A PUNE; 6. )./ 0 / GUARD FILE. &$ / BY ORDER , ' * //TRUE C Y //TRUE COPY// 123 *4 +5 / SR. PRIVATE SECRETARY # +,, IQ.KS / ITAT, PUNE