1. These three appeals are directed against the judgment of the Tribunal dated March 23, 1999, whereby the Revenue has challenged the decision of the Tribunal on two counts, i.e., whether reopening of the assessment is valid and whether furnishing of bank guarantee by the assessee against customs duty amounts to actual payment of customs duty and is not hit by the provisions of Section 43B of the Income-tax 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 news prints, on which customs duty was payable. The assessee-respondent disputed the rate of customs duty before the Supreme Court and made a request for interim ex parte stay order on payment of customs duty. The Supreme Court vide its order dated April 8, 1982, granted stay on the condition of giving an unqualified and categorical bank guarantee for the amount of customs duty payable by the assessee.
3. In pursuance of the direction of the Supreme Court, the assessee furnished a bank guarantee for the amount in dispute and claimed deduction of that customs duty liability. The Assessing Officer allowed the claim of the asses-see in the original assessment. Thereafter notice under Section 148 for reopening of the assessment under Section 147 of the Income-tax Act, 1961, was issued and after reopening of the assessment for the above mentioned three years, the Assessing Officer disallowed the claim of the assessee for deduction of customs duty liability. The Assessing Officer held that the assessee is not entitled for any deduction in the absence of actual payment of the customs duty as that is hit by the provisions of Section 43B of the Income-tax Act, 1961.
4. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has confirmed the view taken by the Assessing Officer.
5. In appeal before the Tribunal, the Tribunal took the view that as material facts were disclosed for taxing the customs duty liability, therefore, the Assessing Officer was not justified in reopening of the assessment under Section 147 read with Section 148 of the Income-tax Act, 1961. The Tribunal also took the view that once the assessee has furnished a bank guarantee as per the direction of the Supreme Court, the Assessing Officer should not have disallowed the claim of the assessee, as furnishing of the bank guarantee is tantamount to payment of customs duty.
6. Whether the reopening was bad or illegal, we have to consider the provisions of section 147 as it stood in the relevant years. The relevant provision of Section 147 of the Income-tax Act, 1961, reads as under :
"147. Income escaping assessment.--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under Sub-section (3) of Section 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 the 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 Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year."
7. Learned counsel for the assessee brought to our notice that on a query by the Assessing Officer regarding customs duty liability, the assessee, vide its letter dated December 8, 1986, submitted a reply including the reply regarding customs duty liability, which reads as under :
"Customs duty payable :
Against newsprint imported, the liability was provided, writ was filed by the company and also by other newspapers in the Supreme Court of India, for relief in rate of duty on newsprint. The Supreme Court has asked the company to submit bank guarantee in favour of the Customs Department for the liability."
8. Similar type of reply was filed for the assessment year 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.
9. Once this fact has been disclosed that the assessee has claimed customs duty liability on the basis of furnishing bank guarantee as per the direction of the 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, the Assessing Officer cannot reopen the assessment, if the notices have not been issued within four years from the end of the relevant assessment year. In the case in hand for the assessment year 1984-85 notice under Section 148 has been issued on January 19, 1991, and for 1985-86 again notice under Section 148 has been issued on January 17, 1991, i.e., after four years from the end of the relevant assessment year. These facts are not in dispute.
10. When the notice has been issued after four years after the 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 Assessing Officer is not justified in reopening the assessment. As referred to above in the reply when the assessee has explained how it is claiming deduction on account of customs duty liability and thereafter the Assessing Officer has allowed it, may be by mistake, he cannot tax that income after reopening on the ground that the assessee has not disclosed fully and truly material facts particularly when the assessee has categorically explained that he is claiming this amount on the basis of furnishing the bank guarantee in spite of Section 43B. If the Income-tax Officer allowed in the original assessment, he cannot reopen the assessment on change of opinion on the same material, which was before him at the time of the original assessment, therefore, in our view reopening of the assessment under Section 147 for the assessment years 1984-85 and 1985-86 is bad in law.
11. For the assessment year 1987-88, the reopening has not been challenged and the reopening has been held valid, as it has been reopened within four years. Therefore, we have to consider for the assessment year 1987-88 the only issue that whether on the 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 Section 43B of the Income-tax Act, 1961. The relevant part of the provision of section 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 or superannuation fund or gratuity fund or any other fund for the welfare of employees, or
(c) any sum referred to in Clause (ii) of Sub-section (1) of Section 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 Section 28 of that previous year in which such sum is actually paid by him :"
12. The provisions of section 43b start with a non obstante clause. The words used that in spite of the method of accounting regularly employed by the assessee in computing the income referred to in Section 28 of the previous year, deduction will be allowed in which such sum is actually paid by him, the words used are "actually paid". By no stretch of imagination can it be said that furnishing of a 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 Section 43B of the Income-tax Act, 1961.
13. 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 the Board that when the tax effect is not more than Rs. 50,000, no appeal should be filed. He also brought to our notice a latest decision of the apex court in the case of Tamil Nadu Industrial Investment Corporation Ltd. v. CIT [1999] 237 ITR 889, 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 Section 145 of the Income-tax Act or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and is, therefore, validly issued under Section 119 of the Income-tax Act. As such the circular would be binding on the Department.
14. Mr. Mathur, learned counsel for the Revenue, also brought to our notice the decision of the apex court in the case of CIT v. Hero Cycles P. Ltd. [1997] 228 ITR 463, wherein their Lordships have taken the view that the circulars can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the court or even the assessee.
15. It is true that in the case of the Supreme Court, which has been referred to by Mr. Ranka, learned counsel for the assessee, their Lordships held that a circular has binding effect," but the issue before the 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 administratives instructions and in spite of these administrative instructions if the department prefers to file an appeal or make a reference to this court, in our view on such administrative instructions the appeal of the Department should not be dismissed or the reference should not be rejected. We do not find any infirmity in disposing of the appeal on the merits.
16. In the result, reopening of the assessment in the assessment years 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 a bank guarantee, therefore, we find no reason to interfere in the assessment years 1984-85 and 1985-86, So far as the assessment year 1987-88 is concerned, reopening has been held valid and we found that the furnishing of a bank guarantee is not tantamount to actual payment of the customs duty as required under Section 43B, therefore, that has been hit by the provisions of section 43b of the Act, 1961, and the Tribunal has committed error in allowing the deduction of customs duty liability on the basis of a bank guarantee furnished by the assessee.
17. In the result, the appeals for the assessment years 1984-85 and 1985-86 are dismissed, while the appeal for the assessment year 1987-88 is allowed.