By TIOL News Service

MUMBAI, APR 03, 2017: THE issue is - Whether an importer can claim deduction u/s 43B in respect of customs duty adjusted against his export obligation before the due date of filing return. YES is the answer.

Facts of the case:

The assessee 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 was liable to pay customs duty on the crude oil so imported. However, the same was allowed to be adjusted against fulfillment of export obligations. During the year, the assessee provided for customs duty liability to the tune of Rs. 1,73,35,28,049/- and claimed the same as deduction u/s 43B. The same was originally allowed by the AO and the assessment was completed u/s. 143(3). The AO subsequently took the view that the deduction u/s. 43B in respect of customs duty liability could be allowed only when the customs duty was actually paid before the due date of filing return. Since the assessee had adjusted customs duty liability against export obligation, i.e., since the assessee did not actually pay the same, the AO took the view that the deduction u/s 43B was wrongly allowed to the assessee and hence he reopened the assessment. In the reopened assessment the AO did not accept the contention of the assessee that the customs duty liability ceased to exists upon completion of export obligation. Accordingly, the AO took the view that cessation of liability on account of customs duty was covered by the provisions of section 41(1) and the same could not be allowed u/s. 43B, since the assessee did not make any payment to the Government Account. Accordingly, he assessed the same at Rs. 173.35 crores as income of the assessee.

On appeal, the ITAT held that,

++ it is noticed that CIT(A) had taken the view in AY 2004-05 that the provisions of sec. 43B would not be applicable to the Customs duty liability, but the Tribunal had set aside the same. However, in the instant year, the CIT(A) has confirmed the addition by holding that the provisions of sec. 43B shall be applicable to the assessee. It is noticed 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. It is further noticed that the view so taken by the co-ordinate bench has been followed by another co-ordinate bench in the assessee's 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 years, this Tribunal holds that the assessee is entitled to deduction u/s 43B 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 adjusted 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.

(See 2017-TIOL-407-ITAT-MUM)