Indian Metal & Ferro Alloys Limited Vs CIT Bhuwaneshwar
Date-04th March 2022
Forum- Orissa High Court

Sub-Whether deposit of electricity duty in no-lien escrow account satisfies the conditions of payment for the purpose of Section 43B of the Income-tax Act 1961 and thus eligible for deduction. Also whether details of the expenses incurred on stay, hotel etc have to be given for claim of expenditure on foreign travel of the Directors/

The Orissa High Court Chief Justice bench in this case was considering a question whether electricity duty paid in a no lien escrow account amounted to actual payment of electricity duty and hence eligible for deduction u/s 43B of Income-tax Act,1961. The Court noting the circulars issued in this regard observed that the purpose of Section 43B was to ensure that the liability could be claimed as a deduction only when the assessee has parted with money without any recourse to it thereafter. The no-lien escrow amount meant that the state government did not had access to the money. The court interpreted the phrase “actually paid” in Section 43B by observing that if the payer has paid but the payee has not received the money, then it cannot amount to “actually paid”. Finally relying on the decision Somaiya Organics (India) Ltd. v. State of Uttar Pradesh [2001] 123 STC 623 (SC), that a bank guarantee is only a promise by the bank to pay to the beneficiary the amount under certain circumstances as indicated in the bank guarantee and that furnishing of a bank guarantee will not tantamount to making payment, the matter was decided in favour of the department.

Also , regarding the foreign travel expenses of four directors, the disallowance of 20% on estimate was confirmed as the full details and break up of the expenditure was not given.

Ramesh Patodia
10-03-2022