Rajasthan H.C : Whether reopening of the assessment is valid and whether furnishing of bank guarantee by the assessee against custom duty amounts to actual payment of custom duty and does not hit by the provisions of s. 43B

High Court Of Rajasthan : Jaipur Bench

CIT vs. Rajasthan Patrika Ltd.

Sections 43B, 147, 256, 260A

Asst. Year 1984-85, 1985-86, 1986-87, 1987-88

Y.R. Meena & Shashi Kant Sharma, JJ.

IT Appeal Nos. 37, 38 & 43 of 1999

18th July, 2002

Counsel Appeared

R.B. Mathur, for the Appellant : N.M. Ranka with J.K. Ranka & Rajkumar Yadav, for the Respondent

JUDGMENT

BY THE COURT :

These three appeals are directed against the judgment of Tribunal dt. 23rd March, 1999, whereby the Revenue has challenged the decision of Tribunal on two counts i.e., whether reopening of the assessment is valid and whether furnishing of bank guarantee by the assessee against custom duty amounts to actual payment of custom duty and does not hit by the provisions of s. 43B of the IT Act, 1961. Since common questions are involved in these three appeals, therefore, we dispose of all these three appeals by this common order.

2. The assessee-respondent imported newsprints, on which customs duty was payable. The assessee-respondent disputed the rate of custom duty before Hon’ble Supreme Court and made a request for interim ex parte stay order on payment of custom duty. The Hon’ble Supreme Court vide its order dt. 8th April, 1982, granted stay on the condition of giving an unqualified and categorical bank guarantee for the amount of custom duty payable by assessee. In pursuance of the direction of the Hon’ble Supreme Court, the assessee furnished bank guarantee for the amount in dispute and claimed deduction of that custom duty liability. AO allowed the claim of the assessee in the original assessment. Thereafter notice under s. 148 for reopening of the assessment under s. 147 of the IT Act, 1961, was issued and after reopening of the assessment for abovementioned three years, AO disallowed the claim of the assessee for deduction of custom duty of the assessee for deduction of custom duty liability. The AO held that the assessee is not entitled for any deduction in absence of actual payment of the custom duty as that hit by the provisions of s. 43B of the IT Act, 1961. In appeal before the CIT(A), the CIT(A) has confirmed the view taken by the AO. In appeal before the Tribunal, the Tribunal took the view that as material facts were disclosed for taxing the custom duty liability, therefore, the AO was not justified in reopening of the assessment under s. 147 r/w s. 148 of the IT Act, 1961. Tribunal also took the view that once the assessee has furnished a bank guarantee as per direction of the Hon’ble Supreme Court, the AO should not have disallowed the claim of the assessee, as furnishing of bank guarantee tantamounts to payment of custom duty.

3. Whether the reopening was bad or illegal, we have to consider the provisions of s. 147 as stood in the relevant years. Relevant provision of s. 147 of the IT Act, 1961, reads as under : 147. Income escaping assessment.—If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.”

4. Learned counsel for the assessee brought to our notice that on a query by the AO regarding custom duty liability, the assessee vide its letter dt. 8th Dec., 1986, submitted a reply including the reply regarding custom duty liability, which reads as under : “Custom Duty Payable : Against newsprint imported, the liability was provided, writ was filed by company and also by other newspapers in Supreme Court of India, for relief in rate of duty on newsprint. The Supreme Court has asked the company to submit a bank guarantee in favour of the custom department for the liability.” Similar type of reply was filed for asst. yr. 1985-86. Mr. Ranka, learned counsel for the assessee, submits that it amounts to furnishing fully and truly material for the purpose of deduction of customs duty liability. Once this fact has been disclosed that assessee has claimed custom duty liability on the basis of furnishing bank guarantee as per direction of Hon’ble Supreme Court and that has been allowed accepting the assessee’s claim in the original assessment, in our view to relook the same material and change the opinion. AO cannot reopen the assessment, if the notices have not been issued within 4 years from the end of the relevant assessment year. In the case in hand for asst. yr. 1984-85 notice under s. 148 has been issued on 1st Jan., 1991, and for 1985-86 again notice under s. 148 has been issued on 17th Jan., 1991, i.e., after 4 years from the end of the relevant assessment year. These facts are not in dispute.

When the notice has been issued after 4 years after expiry of the relevant assessment year and if the assessee has disclosed fully and truly the material facts for the assessment, in our view the AO is not justified in reopening of the assessment. As referred above in the reply that when assessee has explained how he is claiming deduction on account of custom duty liability and thereafter AO has allowed, may be by mistake, but he cannot tax that income after reopening on the ground that assessee has not disclosed fully and truly material facts particularly when assessee has categorically explained that he is claiming this amount on the basis of furnishing bank guarantee in spite of s. 43B. If ITO allowed in the original assessment, he cannot reopen assessment on change of opinion on the same material, which was before him at the time of original assessment, therefore, in our view reopening of the assessment under s. 147 for the asst. yrs. 1984-85 and 1985-86 is bad in law. For the asst. yrs. 1987-88, the reopening has not been challenged and the reopening has been held valid, as it has been reopened within 4 years. Therefore, we have to consider for the asst. yr. 1987-88 the only issue that whether on merits when the assessee has furnished only bank guarantee and not made the actual payment, whether he is entitled for deduction in spite of the provisions of s. 43B of the IT Act, 1961. The relevant part of provision 43B reads under : 43B. Certain deductions to be only on actual payment.—Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of— (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund of superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in cl. (ii) of sub-s. (1) of s. 36, or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (e) any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan. shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him.” The provisions of s. 43B starts with non obstante clause.

The words used that in spite of the method of accounting regularly employed by the assessee in computing income referred to in s. 28 of the previous year, deduction will be allowed in which such sum is actually paid by him, the words used “actually paid”. At no stretch of imagination it can be said that furnishing of bank guarantee is actual payment of the tax duty in cash. Bank guarantee is only a guarantee for payment on some happening and that cannot be actual payment as required under s. 43B of the IT Act, 1961. Mr. Ranka further submits that in any case the tax effect is meagre i.e., Rs. 30,000, therefore, the appeal is not maintainable. There is a circular of Board that when tax effect is not more than Rs. 50,000, no appeal should be filed. He also brought to our notice latest decision of Hon’ble apex Court in the case of Tamil Nadu Industrial Investment Corporation Ltd. vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC), wherein their Lordships have taken the view that in fact the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to s. 145 of the IT Act or illegal in any form. It is meant for a uniform administration of law by all the IT authorities in a specific situation and is, therefore, validly issued under s. 119 of the IT Act. As such the circular would be binding on the Department. Mr. Mathur, learned counsel for the Revenue, also brought to our notice the decision of Hon’ble apex Court in the case of CIT vs. Hero Cycle (P) Ltd. & Ors. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC) wherein their Lordships have taken the view that the circulars can bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. It is true that the case of the Hon’ble Supreme Court, which has been referred by Mr. Ranka, learned counsel for the assessee, their Lordships held that circular has binding effect, but the issue before Hon’ble Supreme Court relates to the circular, which interprets the statute for the uniformity of the decisions in the Department. But the circular before us is as to whether the appeal is to be filed or not ? These are the administrative instructions and in spite of these administrative instructions if Department prefers to file an appeal or make the reference to this Court, in our view on such administrative instructions appeal of Department should not be dismissed or reference should not be rejected. We do not find any infirmity in disposing of the appeal on merits.

In the result, reopening of assessment in the asst. yrs. 1984-85 and 1985-86 is bad and when the reopening of the assessment is bad, there is no need to go into the merits whether the tax was allowable on the basis of furnishing of bank guarantee, therefore, we find no reason to interfere in the asst. yrs. 1984-85 and 1985-86. So far as asst. yr. 1987-88 is concerned, reopening has been held valid and we found that furnishing of bank guarantee does not tantamount to actual payment of the custom duty as required under s. 43B, therefore, that has been hit by the provisions of s. 43B of the Act, 1961, and Tribunal has committed error in allowing the deduction of custom duty liability on the basis of bank guarantee furnished by the assessee. In the result, the appeal for asst. yrs. 1984-85 and 1985-86 are dismissed, while the appeal for asst. yr. 1987-88 is allowed.

[Citation : 258 ITR 300]

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