Facts of the Case

The assessee, Toshiba India Pvt. Ltd., filed two appeals against orders passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Years 2012–13 and 2013–14.

The assessee was engaged in importing completely built units and parts of LCD/LED televisions from Toshiba Singapore Pvt. Ltd. A search was conducted by the Directorate of Revenue Intelligence (DRI), which resulted in a show cause notice alleging wrongful availment of higher concession in import duty.

Subsequently, the assessee approached the Settlement Commission, and by order dated 24 June 2016, the customs duty, penalty, and interest liability were settled. These amounts were paid in March 2016 and recorded in the financial year 2015–16 relevant to Assessment Year 2016–17.

The dispute before the ITAT concerned the disallowance of the interest component paid on customs duty.

Issues Involved

  1. Whether the ITAT erred in disallowing deduction of interest paid on customs duty.
  2. Whether such interest is allowable as deduction under Section 43B in the year of actual payment.
  3. In ITA 173/2018:
    • Whether there existed any international transaction with associated enterprises for AY 2012–13.
    • Whether ITAT was justified in remanding the issue of determination of ALP of AMP expenses to the Transfer Pricing Officer (TPO).

Petitioner’s Arguments

  • The assessee contended that the interest paid on customs duty is a statutory liability and should be allowed as deduction.
  • It was argued that since the payment was made during financial year 2015–16, the deduction should be allowed in accordance with Section 43B of the Act in the year of actual payment.

Respondent’s Arguments

  • The Revenue initially contested the allowability of the interest deduction.
  • However, based on written instructions from the Deputy Commissioner of Income Tax, the Revenue accepted that such interest would be allowable as deduction under Section 43B in the year of actual payment, subject to Section 37.

Court Findings / Order

  • The High Court accepted the position taken by the Revenue.
  • It held that the interest paid on customs duty is allowable as deduction under Section 43B in the year in which the payment was actually made, i.e., Assessment Year 2016–17.
  • Accordingly:
    • ITA 591/2018 was disposed of.
    • ITA 173/2018 was admitted and specific questions regarding transfer pricing and AMP expenses were framed for further consideration.

Important Clarification

  • Interest on customs duty qualifies as a statutory liability.
  • Deduction is governed by Section 43B, which mandates allowance only on actual payment basis.
  • Such deduction remains subject to the general provisions of Section 37 regarding allowability of expenditure.

Sections Involved

  • Section 43B of the Income Tax Act, 1961
  • Section 37 of the Income Tax Act, 1961
  • Transfer Pricing provisions relating to ALP (Arm’s Length Price)

 Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:7396-DB/SMD15052019ITA1732018_153921.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.