Per Shri M.C. Agarwal, Judicial Member - This is an assessee’s appeal against an order dated 26th December, 1986 passed by the Commissioner of Income-tax, Meerut, under section 263 of the Income-tax Act, 1961 holding that the ITO wrongly allowed a deduction of Rs. 1,47,05,868 in computing the assessee’s income for assessment year 1984-85 and directing the ITO to make a fresh assessment withdrawing the said deduction.

2. We have heard the learned counsel for the assessee and the learned departmental representative and have perused the material placed before us.

3. The assessee is a manufacturer of computers and for that purpose it imports certain components on which it pays customs duty. The assessee has also to pay excise duty on the computers manufactured by it. In the year under consideration the accounting year for which ended on the 30th June, 1983, the assessee paid Rs. 3,38,96,607 towards custom duty and Rs. 58,90,731 towards excise duty. At the end of the accounting year the assessee had a closing stock valued at Rs. 4,36,41,459. In this valuation was included customs duty amounting to Rs. 1,24,31,024 in respect of imported components included in the closing stock and excise duty of Rs. 22,74,844 paid in respect of goods manufactured and remaining unsold so as to form part of the closing stock. On that basis the Trading and Profit and Loss Account prepared by the assessee showed a net profit of Rs. 57,45,485 and the assessee filed a return showing an income of Rs. 27,34,500.

4. Section 43B of the Income-tax Act, 1961 was brought on the statute book by the Finance Act, 1983 w.e.f. 1-4-1984. The relevant portion of that provision is as below :

"43B. 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 or duty 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,

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."

Taking some clue from the aforesaid provision the assessee filed a revised return before the ITO on 14-3-1986 declaring a loss of Rs. 49,74,200. The assessee, inter alia, claimed that it should be allowed a deduction in respect of excise duty amounting to Rs. 22,74,844 and customs duty amounting to Rs. 1,24,31,024 in determining its taxable income for the year under consideration. The ITO allowed the assessee’s claim by observing as below :

"As discussed above, the assessee has made the claim of abovementioned customs duty at Rs. 1,24,53,914 and excise duty at Rs. 22,74,844 in the revised return under section 43B. During the proceedings, the assessee filed another chart in which customs duty has been worked out at Rs. 1,47,21,143 and excise duty at Rs. 22,74,844. The changes in the calculation is on account of higher element of customs duty as against what was submitted along with the return. The customs duty element in the stock has been worked out by applying the basic custom duty rate with surcharge and additional duty in the different components considering certain incidental charges (photo copies of certain bills of entries have been filed and kept in folder III). Customs element in all the components was claimed at higher value except for Display Tubes, Diods, Connectors, Transistors, etc., where the claim was reduced from Rs. 26,45,063 to Rs. 26,22,173. Since the method adopted by the assessee is based on effective rates and the figures derived can never be said to be absolutely correct, as an abundant caution, I allow the claim as made in the revised return and