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By Vijay Kumar

Income Tax

Deduction u/s 43B - Nexus between duty and taxes actually paid and accrual of liability not required - Deduction allowable regardless of previous year; No deduction on unutilised modvat credit lying in account on last day of FY : Five-Member ITAT Special Bench

THE two ticklish issues before the Five-Member Special Bench of the Tribunal were :

1.Whether deduction for tax, duty etc. is allowable u/s. 43B of the Income Tax Act, 1961, on payment basis before incurring the liability to pay such amounts?

2.Whether Modvat Credit available to the assessee as on the last day of the previous year amounts to payment of Central Excise duty u/s. 43B?

Before we go to the arguments and counter-arguments and then the observation of the bench let's take a look at the background in which this Section was inserted into the Act. While tabling the Finance Bill 1983, the Finance Minister stated that

"Several cases have come to the notice where taxpayers do not discharge the statutory liability such as in respect of Excise duty, employer's provident fund, employees State Insurance scheme, for long period of time. For the purpose of their Income-tax assessment, they nevertheless claim the liability as deduction even as they take resort to legal action, thus depriving the Government all its dues while enjoying the benefit of non-payment. To curb such practices, I propose to provide that irrespective of the method of accounting followed by the taxpayers a statutory liability will be allowed as a deduction in computing the taxable profit only in the year and to the extent it is actually paid."

In reference to this, the ITAT President, Mr Vimal Gandhi, notes that the purpose of the Legislation and the mischief it sought to check is abundantly clear and needs no elaboration. Only thing to be highlighted is that there is no reference to any condition to establish, "accrual of liability" for the claim of deduction. Only actual payment is insisted upon.

Central Excise

Chemical examiner's report is binding on the department; Mere misstatement is not enough to attract extended limitation and penalty; there should be wilful suppression; No penalty when duty demand is quashed; Mere fact that both the registered offices and factories are situated in the same premises would not make them related - Supreme Court

The Show Cause Notice was issued in 1993. The assessee had to fight the battle for 14 long years! And that too an SSI unit!

Consignor alleged guilty of fraud - Cenvat Credit availed by consignee on basis of 'duty paying documents' - Matter remanded for deciding both cases together : Tribunal

Today we carry the Tribunal decision in the case of Rishabh Industries with the caption "Fraudulent credit taken by consignor and duty payment effected therefrom while removing manufactured goods - Credit availed by consignee on such inputs proper as transaction is bonafide - Tribunal ".

The Tribunal had in that case held that since the transaction was bonafide, the consignee could not be held ineligible to the Cenvat credit even if the consignor had utilized the fraudulently availed credit. While arriving at such a conclusion, the Bench had placed ample reliance on the Board Circular 766/82/2003-CX dated 15.12.2003 and also the Tribunal decision in R.S.Industries, which apparently squarely covered the issue.

In the present case, the facts are almost similar - a confirmed demand of Rs.46,95,820/- (representing inadmissible cenvat credit availed by the applicants on the strength of supplementary invoices issued by M/s New Bombay Ispat Udyog Pvt. Ltd.) together with interest and penalty of Rs. One lakh imposed upon the appellant and Rs. 25,000/- upon the Director.

Customs

In case of a COFEPOSA absconder, the live link is not snapped : Bombay HC

ANOTHER COFEPOSA detention order was challenged in the High Court. Yet again it was argued that the detaining authority had allegedly not applied his/her mind before passing the said detention order . And, well!!! The perennial evergreen 'Dev Anand' as far as challenge to grounds of detention is concerned - gross delay in passing detention order.

See our columns tomorrow for the judgments