Loading judgment…
Facts
The assessee paid customs duty under protest for the assessment years 2017-18 and 2018-19. The assessee claimed this amount as a deduction under Section 43B of the Income Tax Act. The AO proposed an adjustment for disallowance.
Held
The Tribunal held that once a customs duty demand is quantified and paid, it is an allowable deduction in the year of payment under Section 43B, irrespective of any pending adjudication. The Tribunal also noted that offering the refunded amount to tax in a future year prevents double taxation.
Key Issues
Whether customs duty paid under protest is an allowable deduction in the year of payment under Section 43B of the Income Tax Act, even if the final determination of liability is pending.
Sections Cited
143(1), 43B, 143(i)(a)(iv)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCHES : C : NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI KRINWANT SAHAY
ORDER PER ANUBHAV SHARMA, JM:
These appeals are preferred by the assessee against the orders dated 23.07.2024 of the Ld. Commissioner of Income-tax (Appeals), Panchkula (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in appeals No.CIT(A), Delhi-5/10179/2019-20 and CIT(A), Delhi- 1/10017/2019-20 filed before him against the orders dated 02.10.2019 and 15.03.2019, respectively, passed u/s 143(1) of the Income-tax Act, 1961
ITAs No.4346 & 4347/Del/2024 (hereinafter referred to as ‘the Act’) by the ADIT, CPC, Bangalore (hereinafter referred to as the Ld. AO, for short).
Heard and perused the records. The appeals were heard together and have common issue so where necessary facts for AY 2018-19 shall be narrated.
The factual aspects necessary for determination of these appeals are that the Appellant was incorporated on February 14, 2014 in India as private limited company and is engaged in business of marketing, distribution and after sales services of the products manufactured by Keysight Group entities under the Electronic Measurement Group business. Such products are used primarily for measurement of signals and cater to industries such as communications, aerospace/ defense, industrials / semi-conductor etc. During the year under consideration AY 2018-19, the Appellant paid certain customs duty amounting to INR 99,35,027 and while computing the total income, the Appellant claimed a deduction of INR 99,35,027 under section 43B of the Act on account of payment of custom duty. A communication dated June 22, 2018 was issued to Appellant by the Ld. AO proposing an adjustment under section 143(i)(a)(iv) of the Act to make the following disallowance.
Inconsistency in amount disallowed under section 43B in any preceding previous year but allowable during the previous year
ITAs No.4346 & 4347/Del/2024
The case of assesse is that customs duty was paid under protest as mandated by the Customs Act, 1962. The foremost contention was that the disallowance made by the Ld. AO is outside the purview of the processing of return u/s 143(1) of the Act. Then it was contended by ld.AR that Section 43B of the Act allows deduction of statutory liabilities in the year of payment irrespective of the method of accounting followed by an assesse and Appellant fulfills the conditions laid down by the various judicial precedents read with provisions of the Act for claiming deduction under Section 43B of the Act in respect of customs duty paid under protest. Thus liability to pay customs duty must be allowed as a deduction under Section 43B of the Act in the year in which the payment is made by the Appellant irrespective of the fact that the Appellant has recorded it as an expenditure in the books of accounts or not.
Appellant’s AR submits that in the year in which the determination of tax liability reached finality, the refunded amount of the impugned customs duty paid under protest has been offered to tax in AY 2020-21 and will be offered to tax in future also in the year of actual receipt. Thus, the additions made by the Ld. AO on this account are contrary to the facts of the case and liable to be deleted.
Ld. DR has submitted that there cannot be any provision or advance payment of any customs duty which has to accrue on basis of productions. He relied orders of ld. Tax authorities below. 3
ITAs No.4346 & 4347/Del/2024
Now with regard to the issue before us we find that Appellant’s liability arises for payment of customs duty on raising of demand by customs authorities in FY 2017-18 as during the year appellant has imported goods for the purpose of selling to its customers in India and as per instructions of CBEC where items are imported from related party the declared import price of said items are required to be certified by Special Valuation Branch (SVB). These instructions mandate that an additional customs charge in the form of Extra Duty Depoists (EDD) of 1% is payable on provisional basis until the investigation is underway.
The Appellant has paid ‘Extra Duty Deposits (EDD)’ in accordance with Circular No. 5/2016 issued by Central Board of Excise and Customs dated 9th February 2016. It comes up that the Appellant has in fact received a favorable order from the SVB wherein the declared price has been accepted and the refunds of the taxes paid was accordingly payable to the Appellant.
It is settled law that once the demand has been quantified, the amount paid towards discharging the liability irrespective of the matter is pending for adjudication at higher level same is an allowable deduction. Reliance is rightly placed by ld. AR on decision of Hon'ble Supreme Court Kedarnath Jute Manufacturing Co. Ltd v. CIT [1971] 82ITR 363 (SC) and CIT v. Bharat Carbon & Ribbon Mfg. Co. (P.) Ltd. (1999) 239 ITR 505 (SC).
ITAs No.4346 & 4347/Del/2024
We are of considered view that once the customs authority order for clearance of goods, then statutory liability of customs duty, is deemed to have incurred by the Appellant in such year in which the liability has been paid. Thus, on the basis of the aforesaid discussion, we are of the considered view that Section 43B of the Act permits certain deductions only on actual payment of the amounts and same provides a clear departure from the method of accounting followed by an assessee. It allows deduction of statutory liabilities in the year of payment notwithstanding the fact that the liability in respect thereof may have been incurred in another year. More so when appellant has offered to tax in AY 2020-21, the amount refunded in pursuance thereof and thus if the impugned addition is sustained it will lead to double taxation. In the light of the aforesaid, the grounds in both the years deserve to be sustained. The appeals of the assessee are allowed.
Order pronounced in the open court on 28.11.2025.