Decided on January 31,1994



T.V.K. Natarajachandran, Accountant Member - (1.) THIS is an appeal by the Revenue which is directed against the order of the CIT (Appeals) wherein he held that Section 43B could not be applied to the case of the assessee as he was only an agent and thereby he deleted the addition of Rs. 26,88,130 made by the Assessing Officer. The Revenue has taken several grounds to urge that the CIT(A) erred in his decision and he ought to have upheld the addition made by the Assessing Officer.
(2.) The assessee is a Registered firm and the assessment year involved is 1985-86 for which the accounting year ended on 31-3-1985. Assessee follows Mercantile Method of Accounting. According to the Assessing Officer, the assessee carries on business of import and export of iron, steel and pharmaceuticals both on own account andalso as agent of principals. While completing the assessment, the Assessing Officer noticed outstanding liability for custom duty. The case of the assessee was that the liability related to agency business in respect of which the assessee is entitled to receive commission charges only. Assessee obtains amounts from principals and clears the imported goods by paying custom duty and the outstanding amount disallowed by the Assessing Officer represented such advances received for clearing the imported goods. Thus, the plea of the assessee was that neither the advances formed part of its trading receipts nor the payment of custom duty was claimed as deduction as a business expenditure so as to invoke the provisions of Section 43B. Further plea taken by the assessee was that the whole transaction is unrelated to the proprietary business carried on by the assessee-firm and therefore the provisions of Section 43B were not applicable. On the other hand, the case of the Assessing Officer was that the modus operandi adopted by the assessee in maintaining its books of account was immaterial and as long as the custom duty remained outstanding liability, provisions of Section 43B were attracted. He also held that deduction would be permissible in the year of actual payment subject to production of evidence. Thus, he treated the outstanding liability as pertaining to the assessee's own business. In other words, he has rejected the plea of agency business and the non-applicability of provisions of Section 43B to the case of agency business. Before the CIT(A), the assessee explained the modus operandi of its agency business and how the advances received from the principal were adjusted. This has been reproduced in para-2 of the appellate order. Shortly stated, the assessee raised debit note against M/s. Lloyd Steel Industries for Rs. 26,88,130.93 towards the custom duty payable on the goods imported by them and the imported goods were kept in the Bonded warehouses with the sanction of the Customs Department and the customs duty was payable out of the advances received as and when the goods were removed from the Bonded warehouses. The goods were owned by M/s. Lloyd Steel Industries and the assessee had no interest whatsoever in the imported goods. However, the custom duty payable was shown in the books of the assessee in the balance-sheet only and which would get reduced by the amount of custom duty actually paid and thus the outstanding liability would be wiped out by actual payment. Keeping in view the true nature of the transaction and the vested right in the imported goods, the assessee contended that provisions of Section 43B were not at all applicable. The decision of the Andhra Pradesh High Court in the case of S. Subba Rao & Co. v. Union of India [1988] 38 Taxman 272 was relied upon.
(3.) THE CIT(A), considered 2 debit notes dated 17-1-1985 and 15-3-1985 raised by the assessee against M/s. Lloyd Steel Industries, Bombay, and came to the conclusion that provisions of Section 43B were not attracted to the outstanding customs duty shown as liability in the balance-sheet, because custom duty was not payable as goods were not released and in any case, the appellant was only an agent, and if at all it could be applied only in the hands of the principal M/s. Lloyd Steel Industries. THErefore, he deleted the addition made by the Assessing Officer.;

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