No disallowance u/s 43B when unpaid custom duty included in closing stock – SLP dismissed by SC

No disallowance u/s 43B when unpaid custom duty was included in the value of the closing stock – Supreme Court dismissed SLP of the Department

ABCAUS Case Law Citation:
ABCAUS 2776 (2019) (02) SC

The Assessing Officer (AO) had made a disallowance u/s 43B of the Income Tax Act, 1961 (the Act) on the ground that the addition made represented the customs duty not actually paid during the relevant assessment year.

Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Aggrieved by the same, the assessee filed an appeal before the Income Tax Appellate Tribunal.

Before the Income Tax Appellate Tribunal a difference of opinion arose between the Judicial Member and the accountant member. The third member of the Income Tax Appellate Tribunal concurred with the decision of the Judicial Member and thereby the order of the Assessing Officer was set aside and the appeal filed by the assessee was allowed as per the majority view.

The Tribunal held that the disallowance u/s 43B could not be made in respect of unpaid customs duty as it was included in the value of the closing stock.

The Tribunal held that once an amount was included in the closing stock, the same was to be considered as part of profit and cancelled out the expenditure claimed and therefore section 43B could not be applied on such expenditure.

The Hon’ble High Court observed that the Tribunal, placing reliance on the Profit and Loss Account of the assessee,  had recorded the finding that the assessee had included the total customs duty provision in the cost of raw material and also in the value of the closing stock. Thus, the customs duty got reflected on both the debit and credit side of the account and therefore it did not in any way reduced the profits since the assessee himself did not claim deduction of the customs duty liability from the taxable profits.

The Hon’ble High Court dismissed the appeal of the Revenue on the basis of the above finding of fact which was based on materials.

Aggrieved by the judgment of the Hon’ble High Court, the Revenue had filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court which has been dismissed.

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