MANGALORE REFINERY AND PETROCHEMICALS LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 2630/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7947 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-07-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 05-04-2013
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: J EHANGIR D MISTRY; RONAK D DOSHI
• Keywords: Reopening of assessment
• Section: 43B; 143(3); 12; 139

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAVISH SOOD (JM) I.T.A. NO. 2630 /MUM/ 2013 (ASSESSMENT YEAR 20 03 - 04 ) M/S. MANGALORE REFINERY & PETROCHEMICALS LIMITED 16 TH FLOOR, MAKER TOWER F WING, CUFFE PARADE MUMBAI - 400 005. VS. DCIT 3(2) MUMBAI ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACM5132A ASSESSEE BY SHRI JEHANGIR D. MISTRY & SHRI RONAK D. DOSHI DEPARTMENT BY S HRI N.P. SINGH DATE OF HEARING 22 .3 . 201 7 DATE OF PRONOUNCEMENT 22 .3 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.1.2013 PASSED BY THE LEARNED CIT(A) - 4, MUMBAI AND IT RELATES TO A.Y. 2003 - 04. GROUNDS OF APPEAL URGED BY THE ASSESSEE RELATE TO THE FOLLOWING ISSU ES: - A) VALIDITY OF REOPENING OF ASSESSMENT B) VALIDITY OF ADDITION U/S. 43B OF THE ACT C) ALTERNATIVE CONTENTION WITH REGA RD TO THE ADDITION MADE U/S. 43B OF THE ACT. 2. WE SHALL FIRST TAKE UP THE ISSUE RELATING TO THE ADDITION MADE U/S. 43B OF THE ACT. THE ASSE SSEE PROCURES CRUDE OIL THROUGH IMPORTS. THE SIGNIFICANT PROPORTION OF THE IMPORTS WAS MADE BY UTILISING ADVANCE LICENSE BENEFIT OBTAINED FOR IMPORT OF RAW MATERIALS FOR MANUFACTURE OF PRODUCTS MEANT FOR EXPORT. THE ASSESSEE IS LIABLE TO PAY CUSTOMS DUTY O N THE CRUDE OIL SO IMPORTED. HOWEVER, THE SAME WAS ALLOWED TO BE ADJUSTED AGAINST FULFILLMENT OF MANGALORE REFINERY & PETROCHEMICALS LTD. 2 EXPORT OBLIGATIONS. DURING THE YEAR, THE ASSESSEE PROVIDED FOR CUSTOMS DUTY LIABILITY TO THE TUNE OF ` 1,73,35,28,049/ - AND CLAIMED THE SAME AS DEDUCTION U/S 4 3B OF THE ACT . THE SAME WAS ORIGINALLY ALLOWED BY THE ASSESSING OFFICER AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT . THE ASSESSING OFFICER SUBSEQUENTLY TOOK THE VIEW THAT THE DEDUCTION U/S. 43B OF THE ACT IN RESPECT OF CUSTOMS DUTY LIABILITY C AN BE ALLOWED ONLY WHEN THE CUSTOMS DUTY IS ACTUALLY PAID BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. SINCE THE ASSESSEE HAS ADJUSTED CUSTOMS DUTY LIABILITY AGAINST EXPORT OBLIGATION, I.E., SINCE THE ASSESSEE DID NOT ACTUALLY PAY THE SAME, THE A SSESSING OFFICER TOOK THE VIEW THAT THE DEDUCTION U/S 43B WAS WRONGLY ALLOWED TO THE ASSESSEE AND HENCE HE REOPENED THE ASSESSMENT. THE ASSESSEE HAD ADJUSTED THE CUSTOMS DUTY L I A BILITY AGAINST THE EXPORT OBLIGATIONS AS UNDER: - A) EXPORT OBLIGATIONS COMPLETED UP TO 31.3.2003 - ` 97,36,26,554/ - B) EXPORT OBLIGATIONS COMPLETED FROM 1.4.2003 - ` 75,99,01,495 / - TO 31.10.2003 C) TOTAL - ` 1,73,35,28,049 / - 3. IN THE REOPENED ASSESSMENT THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E THAT THE CUSTOMS DUTY LIABILITY CEASED TO EXISTS UPON COMPLETION OF EXPORT OBLIGATION. ACCORDINGLY, THE ASSESSING OFFICER TOOK THE VIEW THAT CESSATION OF LIABILITY ON ACCOUNT OF CUSTOMS DUTY IS COVERED BY THE PROVISIONS OF SECTION 41(1) OF THE ACT AND TH E SAME CANNOT BE ALLOWED U/S. 43B OF THE ACT , SINCE THE ASSESSEE DID NOT MAKE ANY PAYMENT TO THE GOVERNMENT ACCOUNT. ACCORDINGLY, HE ASSESSED THE SAME AT ` 173.35 CRORES AS INCOME OF THE ASSESSEE. THE LEARNED CIT(A) ALSO HELD THAT THE ASSESSEE CANNOT CLAI M DEDUCTION U/S 43B OF THE ACT IN RESPECT OF CUSTOMS DUTY ADJUSTED AGAINST THE EXPORT OBLIGATION. ACCORDINGLY THE LD CIT(A) CONFIRMED THE ADDITION MADE BY THE AO AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. AT THE TIME OF HEARING , THE LEARNE D COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE COORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ITA NO. 6835/MUM/2008 AND CO NO. MANGALORE REFINERY & PETROCHEMICALS LTD. 3 105/MUM/2009 RELATING TO A.Y. 2004 - 05 AND THE COORDINATE BENCH HAS TAKEN T HE VIEW THAT FULFILLMENT OF EXPORT OBLIGATIONS HAS RESULTED IN REDUCTION OF A LIABILITY WHICH IS OTHERWISE ALLOWED UNDER THE ACT AND THEREFORE IN TERMS OF THE FIRST PROVISO TO SECTION 43B OF THE ACT, THE CUSTOMS DUTY LIABILITY IS DEDUCTIBLE. THE LD D.R DID NOT CONTROVERT THE SUBMISSIONS MADE BY LD A.R. 5. WE NOTICE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH IN THE ASSESSEES OWN CASE AND F OR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE COORDINATE B ENCH IN THE ABOVE SAID CASE : - 27. NOW, WE MAY TAKE UP THE MERITS OF THE DISALLOWANCE OF RS.40,41,81,896/ - MADE BY THE ASSESSING OFFICER, WHICH IS SOUGHT TO BE CHALLENGED BY THE ASSESSEE ON VARIOUS LIMBS. IN ORDER TO APPRECIATE THE CONTROVERSY, THE FOLLOW ING BACKGROUND OF THE DISPUTE IS RELEVANT. THE APPELLANT - COMPANY PROCURES A PORTION OF ITS RAW MATERIAL (I.E. CRUDE OIL) THROUGH IMPORTS. A SIGNIFICANT PORTION OF THE IMPORTS IS AGAINST THE ADVANCE LICENCES OBTAINED FOR IMPORT OF RAW MATERIAL FOR MANUFACTU RE OF PRODUCTS MEANT FOR EXPORTS. THE CUSTOMS DUTY ON THE IMPORT OF CRUDE OIL IS PROVIDED ON ALL IMPORTS AND PROVISION TO THE EXTENT OF RS.40,75,50,184/ - WAS OUTSTANDING AS ON 31.3.2004 TOWARDS CUSTOMS DUTY ON CRUDE OIL IMPORTED AGAINST ADVANCE LICENCES PE NDING COMPLETION OF EXPORT OBLIGATIONS. SUBSEQUENTLY, UPTO 30.9.2004 ASSESSEE FULFILLED EXPORT OBLIGATIONS WITH RESPECT TO CUSTOMS DUTY AMOUNTING TO RS.40,41,81,896/ - . THE ASSESSEE - COMPANY ADJUSTED THE SAID AMOUNT OF RS.40,41,81,896/ - AGAINST THE PROVISION FOR CUSTOMS DUTY OUTSTANDING ON 31.3.2004 AND CLAIMED IT AS A DEDUCTION U/S 43B OF THE ACT. THE ASSESSING OFFICER HAS DISAGREED WITH THE ASSESSEE ON THE GROUND THAT THERE WAS NO ACTUAL PAYMENT OF CUSTOMS DUTY AND, THEREFORE, THE SAID AMOUNT WAS NOT DEDUCT IBLE IN TERMS OF SEC. 43B OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, PROVISION OF SEC. 43B OF THE ACT CATEGORICALLY STATES THAT THE DEDUCTIONS THEREOF ARE TO BE ALLOWED ONLY ON THE BASIS OF ACTUAL PAYMENT ONLY. THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE CIT(A) CONTENDING THAT THE ACTION OF ASSESSING OFFICER WAS ERRONEOUS INASMUCH AS ASSESSEE - COMPANY HAD FULFILLED ITS EXPORT OBLIGATIONS BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME THEREBY COMPLYING WITH THE CONDITIONS LAID DOWN IN SEC. 43B OF THE ACT TO CLAIM THE DEDUCTION OF RS.40,41,81,196/ - COMPRISED IN THE LIABILITY FOR CUSTOMS DUTY OUTSTANDING AS ON 31.3.2004. THE CIT(A) HAS SINCE AFFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. IN COMING TO HIS DECISION, THE CIT(A) HELD THAT SEC. 43B OF THE ACT WAS NOT APPLICABLE AT ALL IN THE CASE OF ASSESSEE BECAUSE THE LIABILITY FOR PAYMENT OF CUSTOMS DUTY OF RS.40,41,81,196/ - DID NOT ARISE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND, THEREFORE, THERE WAS NO MANGALORE REFINERY & PETROCHEMICALS LTD. 4 QUESTION OF CONSIDERING THE PLEA OF ASSESSEE OF HAVING PAID THE SAID SUM BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME IN ORDER TO CLAIM THE BENEFIT OF DEDUCTION U/S 43B OF THE ACT. 28. IN THIS BACKGROUND OF THE MATTER, THE LEARNED REPRESENTATIVE FO R THE ASSESSEE HAS MADE VARIED SUBMISSIONS BY POINTING OUT THAT CIT(A) WAS NOT CORRECT IN HOLDING THAT THE LIABILITY FOR PAYMENT OF CUSTOMS DUTY OF RS.40,41,81,196/ - DID NOT ARISE DURING THE YEAR. ACCORDING TO THE ASSESSEE, THE ASSESSING OFFICER WAS CORREC T IN DEDUCING THAT THE PROVISIONS OF SEC. 43B OF THE ACT WAS APPLICABLE THEREBY IMPLYING LIABILITY AROSE IN THE YEAR UNDER CONSIDERATION, BUT ERRED TO THE EXTENT OF HOLDING THAT FULFILMENT OF EXPORT OBLIGATIONS BY 30.9.2004 DID NOT AMOUNT TO PAYMENT OF CUS TOMS DUTY WITHIN THE MEANING OF SEC. 43B OF THE ACT. FURTHER, IT HAS BEEN POINTED OUT THAT HAVING REGARD TO THE MANNER IN WHICH ASSESSEE HAS TREATED THE AMOUNT RELATING TO THE CUSTOMS DUTY IN ITS BOOKS OF ACCOUNT, THE ENTIRE EXERCISE IS UNNECESSARY AND IS TAX NEUTRAL OVER THE YEARS. THE LEARNED REPRESENTATIVE HAS IN DETAIL ARGUED ON THE AFORESAID PROPOSITIONS, WHICH WE SHALL ELUCIDATE FURTHER IN THE SUBSEQUENT PARAS. 29. ON THE CONTRARY, THE STAND OF THE LD. DR APPEARING FOR THE REVENUE IS IN SUPPORT OF T HE ORDERS OF AUTHORITIES BELOW. 30. PERTINENTLY, THE ENTIRE CONTROVERSY REVOLVES AROUND THE PROVISIONS OF SEC. 43B OF THE ACT. SEC. 43B OF THE ACT WAS INSERTED BY THE FINANCE ACT, 1983 W.E.F. 1.4.1984 AND PRESCRIBES FOR CERTAIN DEDUCTIONS TO BE ALLOWED O NLY ON ACTUAL PAYMENT WHILE COMPUTING THE INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. SHORN OF OTHER DETAILS, INSOFAR AS IT IS NECESSARY TO APPRECIATE THE CONTROVERSY IN QUESTION, THE SALIENT FEATURES OF SEC. 43B O F THE ACT ARE AS FOLLOWS. BROADLY SPEAKING, SEC. 43B OF THE ACT PROVIDES THAT DEDUCTION FOR ANY SUMS PAYABLE BY THE ASSESSEE BY WAY OF TAX OR DUTY, CESS OR FEE OR ANY OTHER SUM PRESCRIBED SHALL, IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO P AY SUCH SUM WAS INCURRED, BE ALLOWED ONLY IN COMPUTING THE INCOME OF THAT PREVIOUS YEAR IN WHICH THE SAID SUM IS ACTUALLY PAID. IT IS A NON - OBSTANTE CLAUSE PRESCRIBING THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, A DEDUCTIO N OTHERWISE ALLOWABLE UNDER THE ACT IN RESPECT OF THE SUMS PRESCRIBED THEREIN SHALL BE ALLOWED ONLY IN COMPUTING THE INCOME FROM PROFIT AND GAINS OF BUSINESS OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID IRRESPECTIVE OF THE PREVIOUS YEAR IN WHI CH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED. IN THE INSTANT, THE CASE MADE OUT BY CIT(A) IS THAT SEC. 43B OF THE ACT IS NOT APPLICABLE IN THE PRESENT CASE FOR THE REASON THAT THE AM OUNT OF RS.40,41,81,196/ - IS NOT A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT. ACCORDING TO THE CIT(A), THE LIABILITY FOR THE IMPUGNED CUSTOMS DUTY DOES NOT ARISE BECAUSE ASSESSEE HAS OBTAINED CLEARANCE OF THE IMPORTED MATERIAL WITHOUT PAYMENT OF CUSTOMS DUTY, AND THAT THE ULTIMATE LIABILITY MANGALORE REFINERY & PETROCHEMICALS LTD. 5 MAY OR MAY NOT ARISE INASMUCH AS ON A FUTURE DATE, IF THE ASSESSEE IS ABLE TO MEET THE EXPORT OBLIGATIONS, THE CHARGE OF CUSTOMS DUTY WOULD NOT ARISE. FOR THIS REASON, ACCORDING TO THE CIT(A), THE CHARGE OF CUSTOMS DU TY IS ONLY A CONTINGENT LIABILITY, HAPPENING OF WHICH IS NOT CERTAIN AND, THEREFORE, A CONTINGENT LIABILITY CANNOT BE CONSIDERED TO BE AN AMOUNT OTHERWISE ALLOWABLE UNDER THIS ACT. THEREFORE, HE INFERRED THAT SEC. 43B OF THE ACT IS NOT APPLICABLE. 31. ON THIS ASPECT OF THE MATTER, THE STAND OF ASSESSEE IS BASED ON THE PROVISIONS OF CUSTOMS ACT, 1962, WHICH WE SHALL REFER TO A LITTLE LATER. BEFORE THAT, WE MAY REFER TO THE PERTINENT FACT - SITUATION. AS NOTED EARLIER, ASSESSEE IS IMPORTING A PORTION OF ITS RAW MATERIAL, I.E., CRUDE OIL BY UTILIZING THE ADVANCE LICENCE BENEFITS OBTAINED FOR IMPORT OF RAW MATERIAL FOR MANUFACTURE OF PRODUCTS MEANT FOR EXPORT. AS ON 31.3.2004, ASSESSEE - COMPANY HAS MADE A PROVISION OF CUSTOMS DUTY OF RS.40,75,50,184/ - ON CRUDE OIL IMPORTED AGAINST ADVANCE LICENCE PENDING COMPLETION OF EXPORT OBLIGATIONS. UPTO 30.9.2004, ASSESSEE HAS FULFILLED THE EXPORT OBLIGATIONS CORRESPONDING TO THE CUSTOMS DUTY LIABILITY OF RS.40,41,81,896/ - . IN ITS COMPUTATION OF INCOME, ASSESSEE ADJUSTED T HE AFORESAID AMOUNT OF RS.40,41,81,896/ - AGAINST THE PROVISION FOR CUSTOMS DUTY AS ON 31.3.2004 AND CLAIMED IT AS DEDUCTION U/S 43B OF THE ACT. WE MAY ALSO BRIEFLY TOUCH UPON THE ACCOUNTING TREATMENT ACCORDED BY THE ASSESSEE TO SUCH TRANSACTIONS. AT THE TI ME OF IMPORT OF RAW MATERIAL, ASSESSEE CREATES A PROVISION OF CUSTOMS DUTY ON SUCH IMPORTS BY DEBITING CUSTOMS DUTY ON RAW MATERIAL ACCOUNT AND CREDITING CUSTOMS DUTY ADVANCE LICENCE ACCOUNT. THE CUSTOMS DUTY ADVANCE LICENCE ACCOUNT IS SHOWN AS A LIABILITY OUTSTANDING IN THE BALANCE - SHEET AND SUBSEQUENTLY, ON FULFILMENT OF THE EXPORT OBLIGATION, THE CUSTOMS DUTY ADVANCE LICENCE ACCOUNT IS DEBITED AND EXPORT LICENCE BENEFIT RECEIVED ACCOUNT IS CREDITED AND IS OFFERED AS INCOME. IN THE CONTEXT O F THE INSTANT FACT - SITUATION, IT MAY BE APPRECIATED THAT ASSESSEE HAD CREATED A PROVISION OF RS.40,75,50,184/ - IN THE YEAR UNDER CONSIDERATION, BEING CUSTOMS DUTY PAYABLE ON IMPORT OF RAW MATERIAL AND THE SAME WAS DEBITED TO THE PROFIT & LOSS ACCOUNT. SUBS EQUENTLY, BY 30.9.2004, ASSESSEE FULFILLED ITS EXPORT OBLIGATIONS TO THE EXTENT OF RS.40,41,81,896/ - AND ADJUSTED THE SAME AGAINST LIABILITY, WHICH WAS OFFERED AS INCOME IN THE NEXT YEAR. CONSIDERING THE FULFILMENT OF EXPORT OBLIGATIONS TO THE EXTENT OF RS .40,41,81,896/ - AS A PAYMENT/DISCHARGE OF LIABILITY OF THE PROVISION OF CUSTOMS DUTY AS ON 31.3.2004, IN TERMS OF THE FIRST PROVISO TO SEC. 43B OF THE ACT, ASSESSEE CLAIMED A DEDUCTION. 32. THE FIRST QUESTION TO BE DECIDED IS AS TO WHETHER THE PROVISION OF CUSTOMS DUTY OF RS.40,75,50,184/ - CREATED BY THE ASSESSEE AS ON 31.3.2004 IS A LIABILITY WHICH HAS ARISEN SO AS TO FALL WITHIN THE EXPRESSION A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN SEC. 43B OF THE ACT. FOR THE SAID PURPOSE, THE LEARNED REPR ESENTATIVE FOR THE ASSESSEE REFERRED TO SEC. 12 OF CUSTOMS ACT, 1962 TO EMPHASISE ON THE TIMING OF MANGALORE REFINERY & PETROCHEMICALS LTD. 6 CRYSTALLISATION OF CHARGE OF CUSTOMS DUTY. THE CUSTOMS DUTY IS LEVIED ON GOODS IMPORTED INTO OR EXPORTED FROM INDIA. SEC. 143A OF THE CUSTOMS ACT, 1962, WHIC H IS RELEVANT FOR THE PRESENT PURPOSE READS AS UNDER : - SECTION 143A : DUTY DEFERMENT. (1) WHEN ANY MATERIAL IS IMPORTED UNDER AN IMPORT LICENCE BELONGING TO THE CATEGORY OF ADVANCE LICENCE GRANTED UNDER THE IMPORTS AND EXPORTS (CONTROL) ACT, 1947 ( 18 OF 1947), SUBJECT TO AN OBLIGATION TO EXPORT THE GOODS AS ARE SPECIFIED IN THE SAID LICENCE WITHIN THE PERIOD SPECIFIED THEREIN, THE ASSISTANT COMMISSIONER OF CUSTOMS OR DEPUTY COMMISSIONER OF CUSTOMS MAY, NOTWITHSTANDING ANYTHING CONTAINED IN THIS ACT, PERMIT CLEARANCE OF SUCH MATERIAL WITHOUT PAYMENT OF DUTY LEVIABLE THEREON. (2) THE PERMISSION FOR CLEARANCE WITHOUT PAYMENT OF DUTY UNDER SUB - SECTION (1) SHALL BE SUBJECT TO THE FOLLOWING CONDITIONS, THAT IS TO SAY (A) THE DUTY PAYABLE ON THE MATERIAL IMPORTED SHALL BE ADJUSTED AGAINST THE DRAWBACK OF DUTY PAYABLE UNDER THIS ACT OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE ON THE EXPORT OF GOODS SPECIFIED IN THE SAID ADVANCE LICENCE; AND (B) WHERE THE DUTY IS NOT SO ADJUSTED EITHER FOR THE REASO N THAT THE GOODS ARE NOT EXPORTED WITHIN THE PERIOD SPECIFIED IN THE SAID ADVANCE LICENCE, OR WITHIN SUCH EXTENDED PERIOD NOT EXCEEDING SIX MONTHS AS THE ASSISTANT COMMISSIONER OF CUSTOMS OR DEPUTY COMMISSIONER OF CUSTOMS MAY, ON SUFFICIENT CAUSE BEING SHO WN, ALLOW, OR FOR ANY OTHER SUFFICIENT REASON, THE IMPORTER SHALL, NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 28, BE LIABLE TO PAY THE AMOUNT OF DUTY NOT SO ADJUSTED TOGETHER WITH SIMPLE INTEREST THEREON AT THE RATE OF TWELVE PER CENT PER ANNUM FROM THE DATE THE SAID PERMISSION FOR CLEARANCE IS GIVEN TO THE DATE OF PAYMENT. (3) WHILE PERMITTING CLEARANCE UNDER SUB - SECTION (1), THE [ASSISTANT COMMISSIONER OF CUSTOMS OR DEPUTY COMMISSIONER OF CUSTOMS] MAY REQUIRE THE IMPORTER TO EXECUTE A BOND WITH SUCH SURETY OR SECURITY AS HE THINKS FIT FOR COMPLYING WITH THE CONDITIONS SPECIFIED IN SUB - SECTION (2). 33. SUB - SECTION (1) OF SEC. 143A OF CUSTOMS ACT, 1962 PRESCRIBES THAT WHERE ANY MATERIAL IS IMPORTED UNDER AN IMPORT LICENCE BELONGING TO THE CATEGORY OF ADVANCE LICENCE, THE COMPETENT AUTHORITIES CAN PERMIT CLEARANCE OF SUCH MATERIAL WITHOUT PAYMENT OF DUTY LEVIABLE THEREON. SUB - SECTION (2) PROVIDES THE CONDITIONS FOR GRANT OF PERMISSION FOR CLEARANCE OF GOODS WITHOUT PAYMENT OF DUTY. IT IS NOTEWORTHY T HAT IN TERMS MANGALORE REFINERY & PETROCHEMICALS LTD. 7 OF SEC. 12 OF THE CUSTOMS ACT, 1962 THE CHARGE OF CUSTOMS DUTY GETS CRYSTALLISED WITH THE IMPORT OF GOODS INTO INDIA, WHICH IN THE PRESENT CASE IMPLIES THAT THE CHARGE OF CUSTOMS DUTY GETS CRYSTALLISED WHEN ASSESSEE BRINGS INTO INDIA ITS RAW M ATERIAL, I.E., CRUDE OIL FROM A PLACE OUTSIDE INDIA. THE COMPETENT AUTHORITIES UNDER THE CUSTOMS ACT, 1962 ARE EMPOWERED IN TERMS OF THE SPECIFIC PROVISIONS OF SEC. 143A OF THE CUSTOMS ACT, 1962 TO PERMIT CLEARANCE OF SUCH GOODS UNDER ADVANCE LICENCE WITHO UT PAYMENT OF CUSTOMS DUTY LEVIABLE THEREON, SUBJECT TO CERTAIN CONDITIONS. THUS, THE CLEARANCE OBTAINED BY THE ASSESSEE OF ITS IMPORTED RAW MATERIAL WITHOUT PAYMENT OF CUSTOMS DUTY LEVIABLE AFTER COMPLYING WITH THE CONDITIONS, AS IMPOSED BY THE COMPETENT AUTHORITIES, DOES NOT IMPLY THAT THE CHARGE OF CUSTOMS DUTY DOES NOT ARISE. RATHER, THE CHARGE OF CUSTOMS DUTY GETS CRYSTALLISED AND IS FASTENED TO THE IMPORTED GOODS ONCE THEY ARE BROUGHT INTO INDIA FROM A PLACE OUTSIDE INDIA. THEREFORE, HAVING REGARD TO THE SAID LEGAL POSITION UNDER THE CUSTOMS ACT, 1962, IT IS WRONG ON THE PART OF THE CIT(A) TO SAY THAT THE LIABILITY OF CUSTOMS DUTY IN THE CONTEXT OF THE IMPORT OF RAW MATERIAL, I.E., CRUDE OIL AGAINST THE ADVANCE LICENCE BENEFIT DOES NOT ARISE; RATHER, I T IS A CASE WHERE THOUGH THE CHARGE OF DUTY ARISES, BUT THE GOODS HAVE BEEN PERMITTED CLEARANCE WITHOUT PAYMENT OF DUTY SUBJECT TO THE CONDITIONS PRESCRIBED UNDER THE CUSTOMS ACT, 1962. OSTENSIBLY, THE CIT(A) HAS OBLITERATED THE DIFFERENCE BETWEEN ARISING OF THE LIABILITY OF CUSTOMS DUTY AND ITS PAYMENT. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAD JUSTIFIABLY PLACED RELIANCE ON THE JUDGMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF METAL BOX COMPANY OF INDIA LTD., 73 ITR 53 (SC) AND BHARAT EARTH MOVERS, 245 ITR 428 (SC) TO EMPHASISE THAT THE POINT OF ARISAL OF A LIABILITY IS NOT THE SAME AS THE POINT OF TIME PRESCRIBED FOR ITS PAYMENT. NOTABLY, IN THE PRESENT CASE, ASSESSEE, AT THE TIME OF OBTAINING CLEARANCE OF RAW MATERIAL WITHOUT PAYMENT OF DUTY COMPLIED WITH THE CONDITIONS PRESCRIBED BY THE CUSTOMS DEPARTMENT BY FURNISHING A BOND TO THE CUSTOMS AUTHORITIES, WHICH ENABLED THE AUTHORITIES TO PERMIT THE ASSESSEE TO CLEAR THE GOODS WITHOUT PAYMENT OF DUTY ON THE CONDITION OF FULFILLING THE E XPORT OBLIGATIONS, FAILING WHICH THE DUTY LIABLE ON SUCH GOODS WOULD BE PAID BY THE ASSESSEE TOGETHER WITH INTEREST. IN FACT, THE LEARNED REPRESENTATIVE POINTED OUT THAT ONE OF THE CONDITIONS CONTAINED IN SEC. 143A(2) OF THE CUSTOMS ACT, 1962 PRESCRIBING P AYING OF DUTY WITH INTEREST IF ASSESSEE WAS TO DEFAULT IN MEETING WITH EXPORT OBLIGATIONS ITSELF WOULD DEMONSTRATE THAT THE LIABILITY FOR PAYMENT OF CUSTOMS DUTY ARISES DURING THE YEAR OF THE CLEARANCE OF GOODS. AT THE TIME OF HEARING, RELIANCE HAS ALSO BE EN PLACED ON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF PRATIBHA SYNTEX LTD. V. JT. COMMISSIONER OF INCOME - TAX, 81 ITD 118 WHERE IT HAS BEEN OBSERVED UNDER SOMEWHAT SIMILAR CIRCUMSTANCES THAT THE CUSTOMS DUTY LIABILITY IS NOT TO BE REGARDED AS A CONTINGENT LIABILITY. 34. THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION, IT IS REASONABLE TO CONCLUDE THAT THE LIABILITY REPRESENTED BY THE PROVISION OF RS.40,75,50,184/ - BEING CUSTOMS DUTY PAYABLE ON IMPORT OF RAW MATERIAL MANGALORE REFINERY & PETROCHEMICALS LTD. 8 ARISES DURING T HE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AS ASSESSEE BROUGHT THE REQUISITE GOODS INTO INDIA FROM A PLACE OUTSIDE INDIA. THEREFORE, UNDER THESE CIRCUMSTANCES, CIT(A) ERRED IN TAKING THE VIEW THAT SEC. 43B OF THE ACT IS NOT APPLIC ABLE IN THE CASE OF ASSESSEE ON AN ERRONEOUS GROUND THAT THE LIABILITY OF CUSTOMS DUTY DID NOT ARISE IN THE INSTANT YEAR. 35. THE FIRST PROVISO TO SEC. 43B OF THE ACT PRESCRIBES THAT THE DISALLOWANCE U/S 43B OF THE ACT WOULD NOT APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUBSECTION (1) OF SEC. 139 OF THE ACT IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED. ON THE STRENGTH OF SUCH PROVISO, THE CLAIM OF ASSESSEE WAS THAT UPTO 30.9.2004, IT HAS FULFILLED EXPORT OBLIGATIONS AMOUNTING TO RS.40,41,81,896/ - OUT OF THE TOTAL PROVISION FOR CUSTOMS DUTY OUTSTANDING AS ON 31.3.2004 AND, THEREFORE, CLAIMED IT AS A DEDU CTION U/S 43B OF THE ACT. THE STAND OF THE ASSESSING OFFICER WAS THAT THE PROVISIONS OF SEC. 43B OF THE ACT ENVISAGED DEDUCTION OF SUM WHICH IS ACTUALLY PAID, WHEREAS IN THE INSTANT CASE THERE WAS NO ACTUAL PAYMENT OF DUTY. IN OTHER WORDS, THE DISCHARGE OF OBLIGATION TO EXPORT THE FINISHED PRODUCTS AS PER THE TERMS OF THE ADVANCE LICENCE BENEFIT UNDERTAKEN BY THE ASSESSEE HAS NOT BEEN UNDERSTOOD TO BE A SUM ACTUALLY PAID FOR THE PURPOSE OF SEC. 43B OF THE ACT. IN THIS CONTEXT, THE ASSESSEE RELIED UPON THE D ECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF PRATIBHA SYNTEX LTD. (SUPRA) WHERE IT HAS BEEN HELD THAT IF THE LIABILITY FOR PAYMENT OF CUSTOMS DUTY IN RELATION TO IMPORTS OF RAW MATERIAL IS LIQUIDATED BY PERFORMING AN ACT, IT WOULD TANTAMOU NT TO PAYMENT THEREOF AND DEDUCTION U/S 43B OF THE ACT OUGHT TO BE GRANTED FOR THE CUSTOMS DUTY LIABILITY IN THE YEAR OF EXPORT AS IT WENT TO REDUCE THE CUSTOMS DUTY LIABILITY. 36. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE HAS EMPHASISED ON THE STA ND OF REVENUE TO POINT OUT THAT THE BENEFIT OF THE FIRST PROVISO TO SEC. 43B OF THE ACT CAN BE AVAILED ONLY IF THE AMOUNT IS ACTUALLY OR PHYSICALLY PAID, WHICH IS NOT THE CASE HEREIN. 37. IN OUR VIEW, THE STAND OF REVENUE IS MISCONCEIVED BECAUSE FULFILME NT OF EXPORT OBLIGATIONS BY THE ASSESSEE REDUCES THE CUSTOMS DUTY LIABILITY OF THE ASSESSEE. IN FACT, IF NO EXPORT OF FINISHED GOODS WAS MADE BY THE ASSESSEE AS REQUIRED, THEN ASSESSEE WOULD HAVE TO PAY THE CUSTOMS DUTY IN MONETARY TERMS. OBVIOUSLY, THE PA YMENT OF DUTY IN MONETARY TERMS WOULD HAVE FACILITATED DEDUCTION U/S 43B OF THE ACT IN THE YEAR OF PAYMENT. THE MOOT QUESTION IS COULD THE LEGISLATURE HAVE INTENDED THAT AN ASSESSEE WHO DOES NOT COMPLY WITH THE MANDATED EXPORT OBLIGATIONS WOULD BE ABLE TO AVAIL THE PROVISIONS OF SEC. 43B OF THE ACT, BUT NOT A PERFORMING ASSESSEE WHO COMPLIES WITH AND DISCHARGES HIS OBLIGATION TO MAKE THE MANDATED EXPORT? BE THAT AS IT MAY, IN OUR VIEW, THE FULFI L LMENT MANGALORE REFINERY & PETROCHEMICALS LTD. 9 OF EXPORT OBLIGATIONS HAS RESULTED IN REDUCTION OF A LIA BILITY WHICH IS OTHERWISE ALLOWABLE UNDER THIS ACT AND, THEREFORE, IN TERMS OF THE FIRST PROVISO TO SEC. 43B OF THE ACT THE AMOUNT OF RS.40,41,81,896/ - IS DEDUCTIBLE IN THE INSTANT ASSESSMENT YEAR, AND THE STAND OF THE ASSESSING OFFICER IN THIS CONTEXT IS LEGALLY MISPLACED. 38. APART FROM THE AFORESAID, ASSESSEE HAD ALSO MADE A PLEA THAT THE ACCOUNTING TREATMENT ACCORDED BY THE ASSESSEE WAS TAX NEUTRAL AND, THEREFORE, THE ENTIRE EXERCISE UNDERTAKEN BY THE ASSESSING OFFICER WAS UNNECESSARY IN THE PRESENT CASE. IN THIS CONTEXT, IT HAS BEEN POINTED OUT THAT ASSESSEE HAS CLAIMED DEDUCTION OF THE LIABILITY FOR PAYMENT OF CUSTOMS DUTY IN THE YEAR OF IMPORT, AS REFLECTED BY THE DEBIT TO THE PROFIT & LOSS ACCOUNT OF THE PROVISION OF CUSTOMS DUTY AND HAS CORRESPON DINGLY OFFERED FOR ASSESSMENT, THE CREDITS MADE IN THE SUBSEQUENT YEAR BY WAY OF FULFILMENT OF EXPORT OBLIGATIONS IN ORDER TO COMPLY WITH THE TERMS OF THE ADVANCE LICENCE SCHEME. IT WAS, THEREFORE, POINTED OUT THAT IF ONE EXAMINES THE POSITION OVER A PERIO D OF 2 TO 3 YEARS, THE DEBITS FOR CUSTOMS DUTY PAYABLE IN THE YEAR OF IMPORT WOULD BE EQUAL TO THE CREDITS MADE IN THE PROFIT & LOSS ACCOUNT IN THE SUBSEQUENT YEARS ON THE MAKING OF EXPORTS AS PER THE ADVANCE LICENCE SCHEME. IN FACT, IT WAS POINTED OUT THA T THE CREDITS IN THE PROFIT & LOSS ACCOUNT IN THE NEXT YEARS HAVE BEEN OFFERED FOR ASSESSMENT AND HAVE BEEN ASSESSED AND, THEREFORE, DISALLOWANCE OF CUSTOMS DUTY IN THE YEAR OF MAKING IMPORT WAS UNJUSTIFIED AND WOULD RESULT IN DOUBLE ADDITION. AT THIS STAG E, IT HAS ALSO BEEN POINTED OUT THAT THE LIABILITY FOR PAYMENT OF CUSTOMS DUTY, CLAIMED AS DEBIT TO THE PROFIT & LOSS ACCOUNT, IS NEUTRALISED BY THE INCLUSION OF THE SAME IN THE CLOSING STOCK, AND IF THE VIEW OF CIT(A) IS ADOPTED THAT THERE WAS NO LIABILIT Y FOR PAYMENT OF CUSTOM DUTY IN THE FIRST YEAR OF IMPORT, THEN THE CLOSING STOCK WILL HAVE TO BE REDUCED BY THE CORRESPONDING DUTY INCLUDED THEREIN. IT IS POINTED OUT THAT THE INCLUSION OF THE CUSTOMS DUTY IN THE VALUATION OF CLOSING STOCK IS UNDOUBTEDLY O N THE FOOTING THAT SUCH A DEFINITE LIABILITY EXISTS. BEFORE US, RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF NAGRI MILLS CO. LTD., 33 ITR 681 (BOM.) FOR THE PROPOSITION THAT WHERE A DEBIT/CREDIT IN ONE YEAR IS OF F - SET BY A CREDIT/DEBIT IN THE SUBSEQUENT YEAR, THE ASSESSING OFFICER WOULD NOT BE JUSTIFIED IN DISTURBING WHAT THE ASSESSEE HAS DONE, PARTICULARLY IN THE CASE OF CORPORATE ASSESSEES, WHERE TAX IS ATTRACTED AT A UNIFORM RATE. AT THE TIME OF HEARING, THE A FORESAID FACTUAL MATRIX WAS PUT ACROSS TO THE LD. DR WHO HAS NOT CONTROVERTED THE SAME, BUT MERELY REITERATED THE STAND OF THE LOWER AUTHORITIES. 39. IN OUR CONSIDERED OPINION, EVEN ON THE PRINCIPLE OF TAX NEUTRALITY, THE IMPUGNED STAND OF THE REVENUE I S MISCONCEIVED. HAVING REGARD TO THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF NAGRI MILLS CO. LTD. (SUPRA), ON THIS ASPECT ALSO WE FIND NO REASON TO UPHOLD THE DISALLOWANCE OF RS.40,41,81,896/ - MADE BY THE ASSESSING OFFICER. MANGALORE REFINERY & PETROCHEMICALS LTD. 10 40. IN VIEW O F THE AFORESAID DISCUSSION, WE HEREBY SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.40,41,81,896/ - . 6. WE NOTICE THAT THE LD CIT(A) HAD TAKEN THE VIEW IN AY 2004 - 05 THAT THE PROVISIONS OF SEC. 43B WO ULD NOT BE APPLICABLE TO THE CUSTOMS DUTY LIABILITY, BUT THE TRIBUNAL HAD SET ASIDE THE SAME. HOWEVER, IN THE INSTANT YEAR, THE LD CIT(A) HAS CONFIRMED THE ADDITION BY HOLDING THAT THE PROVISIONS OF SEC. 43B SHALL BE APPLICABLE TO THE ASSESSEE. WE NOTICE THAT THE CO - ORDINATE BENCH HAS TAKEN THE VIEW THAT THE CUSTOMS DUTY LIABILITY ADJUSTED AGAINST EXPORT OBLIGATIONS IS LIABLE TO BE ALLOWED AS DEDUCTION UNDER FIRST PROVISO TO SEC. 43B OF THE ACT . WE FURTHER NOTICE THAT THE VIEW SO TAKEN BY THE CO - ORDINATE BENCH HAS BEEN FOLLOWED BY ANOTHER CO - ORDINATE BENCH IN THE ASSESSEES OWN CASE RELATING TO AY 2005 - 06 IN ITA NO.7341/MUM/2008 & CO NO.104/M/2009 DATED 22 - 12 - 2006. IN VIEW OF THE ABOVE, CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCHES IN OTHER Y EARS, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 43B OF THE ACT IN RESPECT OF CUSTOMS DUTY LIABILITY ADJUSTED AGAINST EXPORT OBLIGATION. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE ENTIRE AMOUNT OF CUSTOMS DUTY LIABILITY HAS BEEN ADJUSTE D AGAINST EXPORT OBLIGATION BEFORE THE DUE DATE FOR FILING RETURN OF INCOME. ACCORDINGLY WE REVERSE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION. 7. THE ASSESSEE HAS ALSO RAISED GROUNDS RELATING TO VALIDITY OF R EOPENING OF ASSESSMENT AND ALSO ALTERNATIVE GROUNDS ON THE DEDUCTION CLAIMED BY THE ASSESSEE. SINCE WE HAVE DECIDED THE ISSUE RELATING TO DEDUCTION CLAIMED U/S 43B OF THE ACT IN FAVOUR OF THE ASSESSEE, WE DO NOT FIND IT NECESSARY TO DISPOSE OF THE OTHER T WO GROUNDS, AS THE SAME WOULD BE ACADEMIC IN NATURE. MANGALORE REFINERY & PETROCHEMICALS LTD. 11 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 22 .3. 201 7. SD/ - SD/ - (RAVISH SOOD ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 22 / 3 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI