Case Law Details

Case Name : Assistant Commissioner of Income Tax Vs. Orient Ceramics & Industries Ltd. (ITAT Delhi)
Appeal Number : ITA No. 900(Del)/2012
Date of Judgement/Order : 23/04/2012
Related Assessment Year : 2008- 09
Courts : All ITAT (4457) ITAT Delhi (986)

Directions issued by the Customs Department, the payment of customs duty has been made though the same has been shown as advance or a note has been appended in the accounts for contingent liability. Therefore, in our view the Assessee has made the payment of customs duty only when the liability has accrued on it. Since the customs duty has been paid to acquire the plant and machinery and therefore, it has to be capitalized, moreover, there is no dispute to the fact that such expenditure cannot be capitalised as observed by the assessing officer in his order in paragraph 2.3. The obligation to pay the excise duty arose during the impugned year and therefore, the liability to pay the amount had accrued to the Assessee during the year itself and the said liability cannot be said to be contingent and cannot be said to be an advance payment. The order of the learned Commissioner (Appeals) is a reasoned order, who has rightly accepted the contention and explanation of the Assessee and has rightly allowed the claim of the Assessee for capitalization of the payment of excise duty amounting to Rs. 4,25,34,027 and has rightly directed the assessing officer to allow the depreciation on the said amount. We find no infirmity in the order of the learned Commissioner (Appeals). Thus ground No. 1 of the revenue is dismissed.’

The ld. senior DR has not been able to distinguish the facts of the case. The issue is also no longer res-integra. Therefore, following the decision of the Hon’ble High Court, it is held that the assessee is entitled to deduct depreciation allowance on the WDV of the amount representing capital expenditure on account of payment of customs duty.

INCOME TAX APPELLATE TRIBUNAL, DELHI

ITA No. 900(Del)/2012

Assessment Year: 2008- 09

Assistant Commissioner of Income Tax

Vs.

Orient Ceramics & Industries  Ltd.

Date of Pronouncement: 23.04.2012.

ORDER

PER K.G. BANSAL: AM

One of the grounds taken by the assessee before the CIT(Appeals)- XVI, New Delhi, was that the Assessing Officer erred in disallowing the depreciation amounting to Rs. 34,39,584/- in respect of written down value (WDV) of the customs duty amounting to Rs. 4,41,14,803/- paid and capitalized in assessment year 2005-06. The ld. CIT (Appeals) allowed this ground. It has been mentioned in paragraph no. 2.1 of the impugned order that the issue has been decided in favour of the assessee by the decisions of the CIT(Appeals), ITAT and Delhi High Court for assessment years 2005-06 and 2006-07. Thus, these decisions were followed by him. Aggrieved by this order, the revenue has filed appeal before us in which following two grounds have been taken up:-

1. “On the facts and circumstances of the case, the ld. CIT(A) has erred in allowing relief of Rs. 34,39,584/- on account of depreciation on custom duty payment during the year under consideration.

2. On the facts and circumstances of the case, the ld. CIT(A) has erred in overlooking the fact that though similar issue was raised during A.Y. 2005- 06 and 2006- 07 and decided in favor of the assessee by the Hon’ble High Court of Delhi, but the Customs Authorities have also imposed a heavy penalty on the forgery committed by clearing agents on behalf of the assessee. The ld. CIT(A) failed to appreciate that the assessee had paid the additional customs duty under protest and that the customs department had not taken a final decision in the matter and hence it would be premature to add this amount to the cost of plant and machinery for the purpose of depreciation u/s 32 of the Income-tax Act, 1961.”

2. The ld. DR submits that the customs authority had also imposed a heavy penalty on account of forgery committed by clearing agents on behalf of the assessee. The assessee had paid additional customs duty under protest and the customs department has not taken a final view in the matter. Therefore, it would be premature to add this amount to the cost of machinery and plant. The amount has been shown as advance in the accounts. Therefore, it also cannot be said that the amount has been capitalized in the books.

2.1 In reply, the ld. counsel for the assessee referred to various decisions of the Tribunal and the High Court, which have been placed in the paper book from page nos. 1 to 32. The decision of the High Court in ITA Nos. 65 and 66 of 2011 20.01.2011 has been placed in the paper book from page nos. 28 to 32. The decision in so far as issue at hand is concerned is reproduced below for ready reference:-

“3 In so far as the first item of addition is concerned, the background of the facts is that the assessee company had imported machinery under duty exemption certificate issued by the Ministry of Finance. Because of this certificate issued in favour of the assessee, the assessee did not pay any custom duty on the import of the said machinery. However, in the Assessment Year 2004-05, the Custom Department disputed the said certificate and issued Show Cause Notice to the assessee and called upon the assessee to pay the differential amount of custom duty and demand of Rs.4,25,34,028 was made in this behalf. The assessee paid this amount without prejudice to its contention that the certificate issued by the Ministry of Finance was valid, legal and proper and no such custom duty was paid. While paying the custom duty, the assessee has contested the show cause notice issued by the Custom Department and these proceedings are still pending. Since the amount of Rs. 4,25,34,028 was paid by the assessee in the aforesaid manner, the assessee capitalized the cost of machinery by adding the said payment to the cost of machinery and on that basis, depreciation @ 25% on the said addition was claimed to the cost of machinery as well. The Assessing Officer (AO) disallowed the depreciation on the aforesaid addition.

4. The question, in these circumstances, arose as to whether the assessee who had made the payment in the meantime would be entitled to add the same to the cost of plant and machinery and claim depreciation thereon.

5. The CIT (A) as well as the Tribunal while accepting the course of action taken by the assessee in claiming depreciation on the said amount as well relied upon the judgments, i.e., Commissioner Of Income-tax, Bombay City I Vs. Messrs. Shoorji Vallabhdas And Co. 46, ITR 144 (SC); Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. Commissioner of Income Tax 227 ITR 172 (SC); Kedarnath Jute Manufacturing Co. Ltd. Vs. Commissioner of Income Tax 82 ITR 363 and Sutlej Cotton Mills Ltd. Vs. Commissioner of Income Tax 116 ITR 1 (SC) wherein it is held that even if the liability is challenged and the legal proceedings are pending, once the amount has gone out of the coffers of the assessee, the assessee would be entitled to capitalize the same. The Tribunal while dealing with these judgments held as under:

‘At the outset we are convinced with the arguments made by Shri Salil Aggarwal, advocate, that mere book entries are not decisive of any income. The question is whether a receipt of money is taxable or not, whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with the book entries for the accounting practice since the accounting practice cannot override the provisions of the Act. These views are fortified by the judgment of various courts of law in the cases of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC), Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363 (SC), Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC) and CIT v. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC). There is nothing on record placed by the departmental representative to establish that the appeal has been filed by the Assessee against any order of the Customs Department. The explanation, therefore, appears to be satisfactory that on the directions issued by the Customs Department, the payment of customs duty has been made though the same has been shown as advance or a note has been appended in the accounts for contingent liability. Therefore, in our view the Assessee has made the payment of customs duty only when the liability has accrued on it. Since the customs duty has been paid to acquire the plant and machinery and therefore, it has to be capitalised, moreover, there is no dispute to the fact that such expenditure cannot be capitalised as observed by the assessing officer in his order in paragraph 2.3. The obligation to pay the excise duty arose during the impugned year and therefore, the liability to pay the amount had accrued to the Assessee during the year itself and the said liability cannot be said to be contingent and cannot be said to be an advance payment. The order of the learned Commissioner (Appeals) is a reasoned order, who has rightly accepted the contention and explanation of the Assessee and has rightly allowed the claim of the Assessee for capitalization of the payment of excise duty amounting to Rs. 4,25,34,027 and has rightly directed the assessing officer to allow the depreciation on the said amount. We find no infirmity in the order of the learned Commissioner (Appeals). Thus ground No. 1 of the revenue is dismissed.’

2.2 The ld. senior DR has not been able to distinguish the facts of the case. The issue is also no longer res-integra. Therefore, following the decision of the Hon’ble High Court, it is held that the assessee is entitled to deduct depreciation allowance on the WDV of the amount representing capital expenditure on account of payment of customs duty.

3. In the result, the appeal is dismissed.

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