Case: Berger Paints India Ltd Vs. Commnr. Of Income Tax, Calcutta

2. The assessee is a company engaged in the manufacture and sale of paints, varnishes and other allied products. During the previous year ending on 31st December, 1983 pertaining to the assessment yearthe petitioner in its returns had disclosed a sum of Rs. 1,33,31,370/as income. During this period, thehad incurred expenditure on account of customs and excise duty aggregating to Rs.which was duly debited to the Profit and Loss Account of the petitioner for the relevant previous year and was also fully paid during the relevant previous year. In addition thereto, the petitioner had also credited to the Profit and Loss account of the relevant previous year an amount of Rs. 98,25,833/relatable to the customs and excise duty on the closing stock of inventory by including the said sum in the valuation of such closing stock. During the assessment proceedings for the assessment yearee claimed that under Section 43B of the Income Tax Act, 1961 (hereinafter referred to as the Act) that it was entitled to deduction of the entire sum of Rs. 5,85,87,181/being the duties actually paid during the relevant previous year.3. On similar basis, thehad claimed a deduction of an amount of Rs. 1,22,54,261/being the actual customs and excise duty included in the value of the closing stock for the previous year pertaining to the assessment yearand offered for tax a sum of Rs. 98,25,833/being customs and excise duty included in the value of the opening stock. Similarly, for the assessment yearthe petitioner claimed a deduction of Rs. 24,28,428 (Rs. 1,22,54,261. The assessee claimed a deduction of Rs. 77,81,739 (Rs. 2,00,36,000In the assessment proceedings of the assessment yearthe Inspecting Assistant Commissioner of Income Tax allowed theclaim that it was entitled to deduct the entire sum of Rs. 5,85,87,181/being the duties actually paid during the relevant year previous to the assessment yearThe Commissioner of Income Tax initiated proceedings under Section 263 of the Act on the ground that the Assessing Officer had wrongly allowed the claim for deduction of an amount of Rs. 98,25,833/towards customs and excise duty paid during the previous year but credited to the Profit and Loss Account in closing stock of goods under the provisions of Section 43B. The assessee relied upon the judgment of the Gujarat High Court in Lakhanpal National Ltd. vs. ITO, (1986) 162 ITR 240 (Guj). (hereinafter referred to as "Lakhanpal National Ltd.s case) in support of its claim. The Commissioner of Income Tax took the view of the Gujarat High Courts decision was distinguishable on facts and, therefore, made on order under Section 263 of the Act disallowing the claim of the assessee. On appeal to the Tribunal, the Tribunal held that the Gujarat High Courts judgment in Lakhanpal National Ltd.s case was distinguishable and confirmed the order of the Commissioner of Income Tax. On an application made under Section 256(1) of the Act at the instance of thethe Tribunal inter alia referred the following question of law for the opinion of the Highon the facts and in the circumstances of the case, the Tribunal was right in law in rejecting, the assessees claim for deduction of the excise and customs duties of Rs. 98,25,833/paid in the year of account and debited in the Profit & Loss Account, on the ground that the crediting of the Profit & Loss Account by the value of the closing stock, which included the aforesaid duties, did not have the effect of wiping out the debit of the Profit & LossThe High Court by its judgment dated 24th September 2001 in ITR No. 213 of 1993 answered the question referred in favour of the Revenue and against the assessee.6. For the assessment yearthe Tribunal upheld the claim of the assessee and allowed a deduction amounting to Rs. 77,81,948/claimed under Section 43B of the Act being Central Excise and Customs duty, which had been included in the value of the closing stock. At the instance of the Revenue, the following question of law was referred to the High Court for the assessment yearon the facts and in the circumstances of the case and under Explanation 2 to section 43B coming into force with effect from 1.4.84, the Tribunal was justified in law in directing to allow the amount of Rs.43B of the I.T. Act, being Central Excise and Customs duty which had been included in the value of closingFor the assessment yearthe Tribunal allowed a similar claim and a reference came to be made to the High Court in the followingon the facts and in the circumstances of the case, the Tribunal is justified in law in directing the I.T.O. to allow the sum of Rs. 24,28,428/being Central Excise and Customs duty under Section 43B of the Act on the ground that the said amount has been included in the value of closingThe High Court by its judgment dated 6th February, 2002 disposed off both the reference. The questions referred in both the reference were answered in favour of the Revenue and against the assessee. An application made for certificate to appeal to this court under Section 261 of the Act was rejected by the Calcutta High Court by observing "we are unable ourselves to burden an already over burdened Honble Supreme Court". Being aggrieved, the assessee impugned both judgments of the Calcutta High Court pertaining to the three assessment years, by these appeals.

Reasoning: 9. There is no doubt that the judgment of the Gujarat High Court in Lakhanpal National Ltd.s case is completely in favour of the assessee as it accepts the contention of the assessee in toto. It is not in dispute that the decision in Lakhanpal National Ltd.s case was not challenged by the department before this court and thus has been accepted by the department. The interpretation placed on Section 43B in Lakhanpal National Ltd.s case was directly followed by the judgment of the Bombay High Court in CIT vs. Bharat Petroleum Corporation Ltd., (2001) 252 ITR 43 (Bom) . and by the Madras High Court in Chemicals and Plastics India Ltd. vs. CIT, (2003) 260 ITR 193 (Mad). These two judgments also appear to have been accepted by the Revenue and have not been challenged before this Court at all. This fact asserted before us by thehas not been disputed in the counter affidavit of the Department.The judgment of the Gujarat High Court in Lakhanpal National Ltd.s case was relied upon and followed by the Bombay High Court in CIT vs. Bharat Petroleum Corporation Ltd. (supra) as well as by the Madras High Court in Chemicals and Plastics India Ltd. vs. CIT (supra). The Special Bench of the Tribunal also relied upon the judgment of the Gujarat High Court in Lakhanpal National Ltd.s case. The Revenue has attempted to distinguish the judgment of the Gujarat High Court on the facile ground that the judgment of the Gujarat High Court was one rendered in connection with a provisional assessment High Court was one rendered in connection with a provisional assessment under Section 141A and not in a regular assessment. In our view, this distinction is hardly acceptable. In any event, a reading of the Gujarat High Courts judgment shows that the judgment is not based merely on the adjustments permissible under Section 141A, as is contended by the Revenue, but that the judgment proceeds on an analysis of Section 43B and makes a finding that the entire amount of excise duty / customs duly paid by the assessee in a particular according year was an allowable deduction in respect of that year irrespective of the amount of excise duty / customs duty which was included in the valuation of the assessees closing stock at the end of the according year. After coming to this conclusion, the Gujarat High Court then proceeded to consider the impact of Section 141A and granted appropriate relief thereunder. It is not possible for us to accept the contention of the Revenue that the judgment of the Gujarat High Court in Lakhanpal National Ltd.s case is distinguishable on the ground put forward.14. The decision in Lakhanpal National Ltd.s case which clearly laid down the interpretation of Section 43B was followed by the judgments of the Madras High Court and Bombay High Court and was again followed by the decision of Special Bench of the Income Tax Appellate Tribunal, none of which have been challenged. In these circumstances, the principle laid down in Union of India vs. Kaumudini Narayan Dalal (supra), CIT vs. Narendra Doshi (supra) and CIT vs. Shivsagar Estate (supra) clearly applies. We see no just cause as would justify departure from the principle. Hence, in our view, the Revenue could not have been allowed to challenge the principle laid down in Lakhanpal National Ltd.s case, which was followed by the Inspecting Assistant Commissioner in the case of the assessee in the three assessment years in question. We are, therefore, the view that the Commissioner, the Income Tax Appellate Tribunal and the Calcutta High Court erred in permitting the Revenue to raise a contention contrary to what was laid down by the Gujarat High Court in Lakhanpal National Ltds. case. This decision has been subsequently followed by the decisions of the Bombay High Court in CIT vs. Bharat Petroleum Corporation Ltd. (supra) and the Madras High Court in Chemicals and Plastics India Ltd. vs. CIT (supra) as well as the decision of the Special Bench in Indian Communication Network Pvt. Ltd. vs. IAC (supra), which have all remained unchallenged.