Facts of the Case

The assessee, Toshiba India Pvt. Ltd., filed two appeals before the Delhi High Court against orders of the Income Tax Appellate Tribunal (ITAT) concerning Assessment Years (AY) 2012–13 and 2013–14.

The assessee was engaged in importing completely built units and components of LCD/LED televisions from Toshiba Singapore Pvt. Ltd. A search was conducted by the Directorate of Revenue Intelligence (DRI) on 23 July 2014, following which a show cause notice was issued alleging wrongful availment of higher import duty concessions.

Subsequently, the assessee approached the Settlement Commission for Customs and Central Excise. By order dated 24 June 2016, the customs duty, penalty, and interest liability were settled. The assessee paid these amounts in March 2016 and recorded them in its financial statements for FY 2015–16 relevant to AY 2016–17.

The dispute arose regarding the allowability of deduction of the interest component on customs duty for earlier assessment years.

Issues Involved

  1. Whether the ITAT erred in disallowing deduction of interest paid on customs duty.
  2. Whether such interest is allowable under Section 43B of the Income Tax Act in the year of accrual or in the year of actual payment.
  3. (In ITA 173/2018) Whether there existed an international transaction involving Associated Enterprises and whether remand to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price (ALP) of AMP expenses was justified. 

Petitioner’s Arguments

  • The assessee contended that the interest paid on customs duty is a legitimate business expenditure.
  • It argued that such interest should be allowed as deduction, and the disallowance by the ITAT was erroneous.
  • The assessee also raised transfer pricing issues concerning international transactions and AMP expenses.

Respondent’s Arguments

  • The Revenue clarified its stand through written instructions that the interest on customs duty would be allowable as a deduction only in the year in which it is actually paid.
  • It was argued that Section 43B of the Income Tax Act governs such deductions and mandates allowance on actual payment basis, subject to Section 37 provisions.

Court’s Findings / Order

  • The Delhi High Court accepted the Revenue’s position.
  • It held that the interest component paid on customs duty is allowable as a deduction under Section 43B of the Income Tax Act in the year of actual payment, i.e., FY 2015–16 relevant to AY 2016–17.
  • Accordingly, the question of law was answered in favor of allowing deduction in AY 2016–17, and ITA 591/2018 was disposed of.
  • In ITA 173/2018:
    • The Court admitted the appeal.
    • It framed questions relating to:
      • Existence of international transactions with Associated Enterprises.
      • Justification of ITAT’s remand to TPO regarding AMP expenses.
    • The matter was listed for further hearing.

Important Clarification

  • Interest on statutory liabilities like customs duty is governed by Section 43B, which allows deduction strictly on actual payment basis, not accrual.
  • Such deduction remains subject to the general provisions of Section 37 (business expenditure).
  • This judgment reinforces that timing of deduction is crucial and linked to payment rather than liability crystallization.

Sections Involved

  • Section 43B – Deduction on actual payment basis
  • Section 37 – General business expenditure
  • Transfer Pricing provisions (ALP, AMP expenses – Income Tax Act)

 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