Commissioner of Income Tax vs O.E.N. India Ltd.

T.L. Viswanatha Iyer, J.—The assessment year is 1981-82 corresponding to the accounting year ending December 31, 1980. The assessee had imported certain components in relation to which the customs authorities levied duty in the first instance by loading the invoice value by 20 per cent. The assessee disputed the consequent demand, but paid the additional duty under protest. The Collector of Customs later passed another order by which he enhanced the invoice value by loading it at 100 per cent. for the purpose of levy of customs duty. That was on October 30, 1980. This was subsequently reduced in appeal to 50 per cent. by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi, by order dated August 30, 1983. In view of this pending demand, the assessee claimed deduction of an amount of Rs. 15,79,517 as additional duty payable on the import. This was disallowed by the Income Tax Officer on the ground that the assessee had not made any provision in the accounts, and further that if the entire claim is allowed, it will go to increase the value of the closing stock of the components thus neutralising the effect of the deduction.

The Commissioner (Appeals), however, held that the liability was one which had become crystallised during the year of account and was, therefore, liable to be allowed as business expenditure though no provision had been made in the accounts. He did not also accept the contention of the Income Tax Officer of the neutralising effect of the allowance.

The Revenue appealed to the Tribunal and the Tribunal affirmed the order of the Commissioner relying on the decision of the Supreme Court in Kedamath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 365. They also upheld the other finding regarding the neutralising effect of the allowance.

Aggrieved by this order of the Tribunal, the Revenue has come forward with this application u/s 256(2) of the Income Tax Act, 1961, raising a question regarding the deducibility of the amount as also another arising out of the finding regarding the neutralising effect or otherwise of the allowance.

Having heard both sides we do not find any reason to allow this petition.

At the close of the accounting year on December 31, 1980, there was admittedly a demand made by the customs authorities for Rs. 15,79,517 based on the loading of the invoice value by 100 per cent. by the Collector of Customs. This demand stood reduced only long afterwards to 50 per cent. by the order of the Tribunal. The position at the end of the accounting period was that the liability was there, though disputed. It was accordingly that the assessee claimed deduction of this amount. No doubt, it had not made any provision in its accounts and the liability was also being disputed. But as held by the Supreme Court in The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, , mentioned earlier, the fact that no provision is made in the accounts is no ground to reject the claim, if otherwise it is admissible in law as a business expenditure. We have also discussed the entire matter in our judgment rendered today in Income Tax References Nos. 67 and 68 of 1992 ( ABAD FISHERIES Vs. COMMISSIONER OF Income Tax. (AND VICE VERSA)., ). At the close of the accounting period, when the demand was subsisting, the assessee as a prudent businessman, was justified in treating the amount as a liability and claiming deduction of the same as an item of business expenditure. The apprehension was based on materials, particularly, on a subsisting demand and it could not, therefore, be said that the amount was not allowable ; for the reasons stated by us in our judgment in Income Tax References Nos. 67 and 68 of 1992 ( ABAD FISHERIES Vs. COMMISSIONER OF Income Tax. (AND VICE VERSA)., ). This amount was clearly allowable as a deduction and was rightly allowed by the Tribunal.

So far as the other question regarding the neutralising effect of the allowance is concerned, we do not find any substance in it. On the facts and circumstances, of the case, the Tribunal came to the conclusion that this finding of the Income Tax Officer was absolutely baseless.

We do not, therefore, find any referable question of law arising out of the order of the Tribunal. This petition is, therefore, dismissed.