DR. O.K. NARAYANAN, A.M. ORDER This appeal is filed by Revenue. relevant assessment year is 2001-02. appeal is directed against order of CIT(A) at Chandigarh dt. 19th Jan., 2005. It arises out of assessment completed under s. 143(3) of IT Act, 1961. 2. assessee company is engaged in business of manufacture and sale of food and healthcare products. assessee is brand owner of "Horlicks". assessee company has returned income of Rs. 132,15,75,339 f o r impugned asst. yr. 2001-02. While completing assessment, assessing authority has made certain disallowances/additions and thereby assessment was finally concluded on income of Rs. 147,29,65,974. 3. total central excise deposits in account-current of assessee and unutilised Modvat credit on 31st March, 2001, last day of previous year relevant to assessment year under appeal was Rs. 10,99,72,355. balance on last day of immediately preceding previous year, as on 31st March, 2000 was Rs. 9,96,24,284. differential amount of R s . 1,03,48,071 represented excess amount of credit available for adjustment as and when payments of excise duty become due. In its computation of income, assessee company has deducted this differential amount of Rs. 1,03,48,071 as excise duty payments. contention of assessee before assessing authority was that this balance available to credit of assessee amounted to payment of central excise duty, which should be allowed as deduction under s. 43B of IT Act, 1961. 4 . But assessing authority held that contentions of assessee company could not be accepted. She found that for immediately preceding asst. yr. 2000-01 also, assessee had made such claim, which was not accepted by Department. She also found that Department has not accepted decision of Tribunal Chandigarh Bench in case of Raj & Sandeep Ltd. vs. Asstt. CIT. She accordingly disallowed deduction of Rs. 1,03,48,071 and added same to income of assessee company. 5 . assessment order was taken in appeal before CIT(A). Among other grounds, ninth ground raised by assessee in its appeal before CIT(A) was that assessing authority has erred in not accepting claim of assessee that incremental balance of central excise duty lying in PLA and RG-23 [accounts register prescribed by Central Excise Rules] should be allowed as deduction under s. 43B, on basis of appellate orders passed for earlier assessment years. CIT(A) observed that same issue had come up for consideration before him in matter of same assessee for earlier asst. yr. 1998-99. issue was decided in favour of assessee for said asst. yr. 1998-99 vide his order dt. 27th Feb., 2004 in Appeal No. 316/P/2001-02. finding of CIT(A) for said asst. yr. 1998-99 has been referred to in following extract : "I have carefully considered submissions of assessee and arguments of AO. appellant has claimed deduction under s. 43B in respect of balance in PLA and RG-23 accounts, which represents payment made to excise authorities, which can be used by assessee to off set payment of duty on final product. Hon'ble Chandigarh Bench of Tribunal in case of Raj & Sandeep (supra), Delhi Bench of Tribunal in case of Modipon and Honda Siel (supra) held that balance in PLA/RG-23 qualifies for deduction under s. 43B of Act. My predecessor has also accepted claim of appellant. Considering legal and factual situation, I direct AO to allow claim of assessee under s. 43B of Act. This ground of appeal is allowed." 6. CIT(A), following order for earlier asst. yr. 1998-99 accepted contention of assessee company and directed assessing authority to give deduction for amount of Rs. 1,03,48,071, under s. 43B of Act towards payment of central excise duty. 7. Revenue is aggrieved by above decision and therefore filed second appeal before Tribunal. only issue raised in present appeal is whether CIT(A) is justified or not in accepting contention of assessee for deducting incremental balance in assessee's account-current in PLA and RG-23, under s. 43B of Act as payments of central excise duty. grounds raised by Revenue are following : "1. On facts and circumstances of case, learned CIT(A) vide appellate order No. 326/P/2003-04 dt. 19th Jan., 2005 has erred in law and on facts of case in allowing deduction under s. 43B of Act, being incremental balance with excise authorities in PLA and RG-23. 2. It is prayed that order of learned CIT(A) be cancelled and that of AO may be restored. 3. appellant craves leave to add or amend any grounds of appeal before appeal is heard or disposed of." 8. When this appeal was posted for hearing and disposal before regular Division Bench at Chandigarh, Bench found that divergent views have been expressed by Co-ordinate Benches of Tribunal on this issue and there is no judgment of any superior Court so as to settle divergent views expressed by different Benches of Tribunal. Bench found that Chandigarh Bench of Tribunal in case of Raj & Sandeep vs. Asstt. CIT in ITA No. 1853/Chd/1992, dt. 18th Feb., 1993, has held for asst. yr. 1989-90 that excise duty which is deposited in account-current by way of advance excise duty qualifies for deduction under s. 43B of Act. Tribunal further observed that in distinction to above decision, Delhi Bench of Tribunal in case of Maruti Udyog Ltd. vs. Dy. CIT (2005) 92 TTJ (Del) 987 : (2005) 92 ITD 119 (Del) has held that advance payment in cash of taxes or duties without incurring liability to pay such taxes or duties cannot be allowed as deduction under s. 43B of Act. Tribunal observed that first decision supports case of assessee whereas second decision supports case of Revenue. In view of above divergent views, Bench referred question before Hon'ble President of Tribunal for considering constitution of Special Bench to decide issue. 9 . On recommendation of regular Bench of Tribunal at Chandigarh dt. 26th Dec., 2006, Hon'ble President passed order under s. 253(4) constituting three Member Special Bench to hear and decide following issue : "Whether deduction for tax, duty, etc. is allowed on payment basis without incurring of prior liability to pay such amount under s. 43B of Act ?" 10. matter was thus placed before Special Bench consisting of three Members. When Bench was in session and preliminary arguments were placed before it, Bench found that apart from decisions of regular Benches of Tribunal which have resulted in divergent views, there are Special Bench decisions too on issue. Three instances of Special Benches have been observed by Bench. Those Special Benches consisting of Three Members each, had considered following cases : (i) KCP Ltd. vs. ITO (1991) 40 TTJ (Hyd)(SB) 528 : (1991) 38 ITD 15 (Hyd)(SB); (ii) Indian Communication Network (P) Ltd. vs. IAC (1994) 48 TTJ (Del)(SB) 604 : (1994) 49 ITD 56 (Del)(SB); (iii) Dy. CIT vs. CWC Wines (P) Ltd. (2004) 83 TTJ (Hyd)(SB) 1 : (2004) 89 ITD 1 (Hyd)(SB). 1 1 . As abovementioned Special Bench decisions also need to be considered while adjudicating issue placed before this Bench, it was suggested by Bench that it would be appropriate if case is heard by larger Bench comprising of at least 5 Members. This suggestion was placed before contending parties also. Revenue as well as assessee agreed that suggestion for larger Bench is proper and acceptable. matter was thus again placed before Hon'ble President, Tribunal. Hon'ble President, on recommendation stated above, reconstituted Special Bench with five members to consider and decide issue placed before it. 12. In course of preliminary hearing of issue, three Member Bench, which was constituted at first instance, had also occasion to consider exact nature of issue to be considered and decided especially in consider exact nature of issue to be considered and decided especially in light of facts of case involved in present appeal. In present case, assessee company has sought for deduction under s. 43B, two kinds of amounts, as advance payments of central excise duty. first one is actual amount of central excise duty remitted by assessee in treasury to credit of Central Excise Department and reflected in account-current. It is case where assessee company had actually made cash payments as advance payments of central excise duty. second one is Modvat credit available to assessee as on last day of relevant previous year i.e. as on 31st March, 2001. assessee is entitled for claiming Modvat credit while discharging its liabilities towards payment of central excise duties. assessee company was having certain amount of Modvat credit available for future set off in its Modvat account. Such Modvat credit balance available as on 31st March, 2001, according to assessee company amounted to payment of central excise duty and therefore Modvat credit also should be treated at par with advance payment of central excise duty for considering deduction available under s. 43B. Therefore, it has been stated before Special Bench in course of preliminary hearing, that issue referred before it needs to be considered in two segments as one relating to cash payment of advance duty and second relating to Modvat credit available to assessee. 13. In above scenario, issue referred to before five Member Special Bench has been fine tuned by Hon'ble President, in following questions : "1. Whether deduction for tax, duty, etc. is allowable under s. 43B of IT Act, 1961, on payment basis before incurring liability to pay such amounts ? 2. Whether Modvat credit available to assessee as on last day of previous year amounts to payment of Central excise duty under s. 43B ?" 1 4 . above questions were placed before Revenue and assessee to seek suggestions and also objections if any. learned CIT appearing for Revenue and learned counsel appearing for assessee fairly agreed that above split questions do reflect exact nature and dimension of issue placed before Special Bench. 1 5 . Shri R.K. Goyal, learned CIT appeared for Revenue and opened case. He argued at length on various factual and legal propositions relied on by Revenue. He stated that, basically ground raised by Revenue in this appeal is that CIT(A) has erred in allowing deduction under s. 43B of IT Act, 1961 of incremental balance maintained with central excise authority in PLA and RG-23. On question whether deduction for tax, duty etc. is allowable under s. 43B, on payment basis but before incurring liability to pay such amounts, learned CIT brought out contentions and arguments in following manner : 1. That s. 43B permits certain deductions only on actual payment of corresponding amounts. Sec. 43B is non-obstante clause. section provides for deduction of prescribed sums on actual payment only if those sums are "otherwise allowable under this Act". This rider embodied in s. 43B clarifies legal position that assessee cannot claim by way of expenditure, payments of taxes and duties only for fact that assessee has made payments of those taxes and duties. In addition to payment of such taxes n d duties, it is also necessary that those expenses should be "otherwise allowable" under provisions of IT Act, 1961, in computing business income. 2. That law is very clear on this subject that deduction of prescribed sums would be available to assessee only on basis of payment, either in relevant assessment year or in subsequent assessment year but no deduction would be available on such payments where corresponding liability was not incurred by assessee. 3. That before introduction of s. 43B, if assessee maintained accounts on accrual basis, deduction of prescribed sums would be available in computing business income if those liabilities were accrued during previous year relevant to assessment year, without actual payment thereof. Even when s. 43B has been introduced, rule of accrual of liabilities has not been dispensed with. accrual of liability has still been retained. Sec. 43B has made additional condition that deductions would be allowed, in addition to accrual of liability, only on actual payment of sums. Therefore, it is not proper in law to argue that advance payment of taxes and duties made by assessee even before accruing corresponding liability is eligible for deduction under s. 43B. 4. That s. 43B has increased number of conditions from one to two for deduction of prescribed sums. Instead of erstwhile single condition of accrual of liability. Sec. 43B has brought out dual condition viz., accrual of liability as well as actual payment against liability. That this position is very clear in words used in s. 43B in following manner : "..Notwithstanding anything contained in any other provisions of this Act, deduction otherwise allowable under this Act in respect of....." 6. That deduction "otherwise allowable under this Act", means deduction qualified to be allowed before considering question of payment. item must be permissible as deduction under any of enabling provisions; expenses, must be incurred or liability must be incurred. That, only for restriction brought in by s. 43B that cash must be actually paid, it does not mean that remaining and existing conditions provided in law have been dispensed with. All such conditions are still retained. further condition of actual payment is addition to existing conditions, which determine allowability of deduction in computing business income of assessee. 7. That six items have been provided in s. 43B to which restriction contained in that section regarding actual payment of cash before claiming deduction, do apply. six items are provided in cls. (a) to (f). Clause (a) reads that any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, shall be allowed irrespective of previous year in which liability to pay such sum was incurred by assessee, according to method of accounting regularly employed by him, only in computing income referred to in s. 28 of that previous year in which such sum is actually paid by him. sum actually to be paid by assessee is specified in law as "..any sum payable by assessee by way of tax....". It means sum which is not payable by assessee pertaining to previous year relevant to assessment year will not be allowed as deduction even if sum was paid in previous year. "Any sum payable" is one of most important limbs of statutory expression provided in s. 43B. expression "any sum payable" presupposes incurring of prior liability on assessee to make such payment. Unless liability to pay is incurred, it is not possible to say that any sum is payable by assessee. Therefore, incurring of liability before making payment is sine qua non for claiming deduction under s. 43B. 8. proviso to s. 43B allows assessee to claim deduction even if designated payment was made after close of relevant previous year, but before due date of filing of return under s. 139(1). While extending time to benefit of assessee as stated above, law has inserted proviso in following manner : "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub-s. (1) of s. 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return." expression "....in respect of previous year in which liability to pay such sum was incurred as aforesaid...." is speaking expression to be marked. law has made it very clear in simple terms that what is to be paid and for which evidence has to be furnished is in respect of payment for which liability was incurred in previous year. This shows that incurring of prior liability in previous year is essential in claiming deduction governed by provisions of s. 43B. additional requirement of making actual payment has not obliterated any other remaining requirements embodied in law relating to deduction of expenses in computing income from business. 9. That further, position has been explicitly made clear in statute by providing Expln. 2 to s. 43B. Explanation 2 reads that, for purposes of cl. (a), as in force at all material time, "any sum payable means sum for which assessee incurred liability in previous year even though such sum might not have been payable within that year under relevant law." factum that liability should be incurred during previous year has been reiterated in above Explanation which rules out any other interpretation to contrary. 10. Nowhere in scheme of s. 43B is there any whisper of situation where assessee can make advance payment of taxes or duties in previous year, even before incurring of liability and claim deduction in computing income from business. 16. In support of his arguments and contentions, learned CIT has relied on following decisions : (i) Srikakollu Subba Rao & Co. & Ors. vs. Union of India & Ors. (1988) 71 CTR (AP) 34 : (1988) 173 ITR 708 (AP) : Andhara Pradesh High Court has held that in order to apply provisions of s. 43B, not only should liability to pay tax or duty be incurred in accounting year but amount also should be statutorily payable in accounting year. (ii) IAC vs. Tata Press Ltd. (1991) 35 ITD 470 (Bom) : In this case, assessee company has claimed deduction in respect of payment of gratuity fund, superannuation fund, provident fund etc. for asst. yr. 1984-85. deduction was claimed on payment basis in view of newly inserted s. 43B. assessee's claim was notwithstanding fact that part of payments related to liabilities accruing not in relevant previous year but in subsequent previous year. claim of assessee was that payments relating to liabilities accrued in previous year and for liabilities accruing in subsequent year both should be allowed as deduction. Tribunal held that payments made against liabilities accruing in subsequent year cannot be allowed as deduction. provision contained in s. 43B is essentially restrictive in nature and not enabling one. (iii) KCP Ltd. vs. ITO (supra) : In this case very same issue was considered by Special Bench and has held that prepaid taxes where no demand has been raised or liability incurred could not be allowed as deduction. (iv) Dy. CIT vs. Amforge Industries Ltd. (2001) 73 TTJ (Mumbai) 806 : (2001) 79 ITD 49 (Mumbai) : In this case, Tribunal has again considered deductibility of excise duty and sales-tax paid in advance. Tribunal held that in order to claim under s. 43B, assessee must first incur liability of nature mentioned therein and only thereafter year of allowability would be determined on basis of year of actual payment. Tribunal held that taxes paid in advance before incurring liability would not be allowed as deduction under s. 43B. (v) Dy. CIT vs. CWC Wines (P) Ltd. (supra) : Special Bench has held that countervailing excise duty paid in advance for importing liquor cannot be allowed as deduction under s. 43B where goods have not been received during relevant previous year, which means advance payment of duty cannot be allowed as deduction before actually incurring corresponding liability. (vi) Maruti Udyog Ltd. vs. Dy. CIT (supra) : In this case, Tribunal has examined issue and has come to finding that advance payment of taxes or duties without incurring liability to pay such taxes or duties cannot be allowed as deduction under s. 43B. 17. In addition to above judicial pronouncements, learned CIT has also placed reliance on Circular No. 550 issued by CBDT on 1st Jan., 1990 [(1990) 86 CTR (St) 45], providing Explanatory Notes on provisions relating to direct taxes contained in Finance Act, 1989. It has been clarified therein that Expln. 2 has been provided in s. 43B to nullify rigors of certain judicial pronouncements [Srikakollu Subha Rao & Co. & Ors. vs. Union of India & Ors. (supra)] where Courts have held that in addition to incurring of liabilities, amounts also should be statutorily payable in previous year itself. circular has clarified that "any sum payable" shall mean any sum, liability for which has been incurred by taxpayer during previous year irrespective of date by which such sum is statutorily payable. 1 8 . learned CIT explained that scheme of s. 43B has to be understood both in text and context and harmonious interpretation has to be followed in order to arrive at rightful proposition. On rule of interpretation, he relied on decision of Dunlop India Ltd. vs. Asstt. CIT (1992) 41 ITD 582 (Cal) where Tribunal has held that in every interpretation both text and context are important. He has also made references to decision of Supreme Court in case of Allied Motors (P) Ltd. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC) and decision of Punjab & Haryana High Court in case of CIT vs. Madanlal & Bros. (2005) 195 CTR (P&H) 92 : (2005) 276 ITR 571 (P&H). He has also relied on decision of Special Bench of Tribunal, Chennai Bench in case of Kwality Milk Foods vs. Asstt. CIT (2006) 102 TTJ (Chennai)(SB) 1 : (2006) 100 ITD 199 (Chennai)(SB) where in para 15 of its order, Special Bench has held that if language of statute is plain, obvious meaning is to be applied; rules of interpretation are to be applied only to resolve ambiguities. 19. In light of above arguments and contentions, learned CIT submitted that taxes and duties paid by assessee before incurring liability to pay such amounts are not allowable as deductions under s. 43B as held by Tribunal Hyderabad Special Bench in case of KCP Ltd. vs. ITO (supra). 20. Shri Ajay Vohra, learned counsel appearing for assessee on other hand contended that s. 43B does not stand in way of claiming deductions in respect of taxes and duties paid in particular previous year but otherwise payable in subsequent assessment year. He explained that s. 43B is not restrictive or prohibiting section as sought to argue by Revenue but on other hand it is equally enabling provision where deductions are allowed on basis of actual payments of taxes and duties. detailed arguments and contentions placed by learned counsel are summarised in following manner : 1. Sec. 43B provides departure from method of accounting followed by assessee inasmuch as deduction of statutory liabilities in year of payment is introduced notwithstanding fact that liability in respect thereof may have accrued in another year. In effect s. 43B overrides method of accounting consistently followed by assessee and directs that deduction of statutory liabilities will be available only in year of payment. 2. assessee has claimed deduction under s. 43B in respect of balances on Personal Ledger Account (PLA) maintained with excise authorities. As amounts have irretrievably gone out of hands of assessee company, those payments are allowable deduction as contemplated in s. 43B. Sec. 43B provides that any sum payable on account of tax, duty etc. which is otherwise allowable, shall be allowed only in year of actual payment, irrespective of year in which liability to pay same was incurred. Consequently, where liability to pay excise duty may be incurred in later date, amount actually paid by assessee has to be allowed as deduction in year of payment itself. 3. statutory provisions of s. 43B and PLA and RG-23 maintained under Central Excise Rule clearly point out predominance of actual payment of duty as sole consideration while granting deduction in computation of income compared to year of accrual or incurring of liability or raising of demand. 4. Sec. 145(1) of IT Act recognizes two methods of accounting, either cash or mercantile system, to be regularly employed by assessee for purpose of computing income chargeable under head "Profits and gains of business or profession" or "Income from other sources". assessee is given choice to select either of two. assessee company being corporate body is fundamentally bound by provisions of Companies Act, 1956. Sec. 209(3) of Companies Act mandates that company shall maintain its accounts in mercantile system/accrual system. In IT Act, assessee has option; in Companies Act, assessee has no option. assessee therefore being company is following mercantile/accrual system of accounting. 5. impact of s. 43B is that above method of accounting regularly employed by assessee is overturned and deduction for payment of t x , duty etc. is given only on payment basis. This means, in respect of deducting those sums, IT Act provides only one method of accounting; i.e. cash method. Therefore, accrual system and consequently accrual of liability or incurring of liability all are ignored by provisions of s. 43B and in light of non obstante clause, mandate of cash accounting provided under s. 43B prevails over any other consideration. 6. Sec. 43(2) defines term "paid". It means actually paid or incurred according to method of accounting upon basis of which profits or gains are computed under head "Profits and gains of business or profession". 7. Reading of s. 145(1) and s. 43(2) along with s. 43B brings out unique situation as follows : That method of accounting for deducting taxes, duty etc. while computing business income is cash accounting as result of impact of s. 43B. Therefore, method of accounting for purpose of s. 43(2) is none other than cash accounting. When ss. 43(2) and 43B are read together, method of accounting for computation of business profit in respect of sums like taxes, duties, cess etc. is cash accounting and no other consideration should prevail in deducting those items other than consideration whether those sums have actually been paid by assessee. In other words s. 43B overrides all rules regarding method of accounting and decides issue of deducting prescribed sums only on actual payments without any conflict to s. 43(2). Cash system of accounting invariably means deduction of expenses in year of payment. 8. Sec. 43B provides that items enumerated there under shall be allowed on actual payment irrespective of previous year in which liability t o pay such sum was incurred by assessee according to method of accounting regularly employed by him. expression "irrespective" infact removes any reference to time. expression "irrespective" means regardless of time. Therefore insistence that incurring of liability must be referred to particular previous year is uncalled for in administration of s. 43B. 9. careful reading of s. 43B does not bring out any sequence or order of events in which matters like incurring of liability, raising of demand, actual payment of duty or taxes should occur. screening of entire provisions contained in s. 43B does not bring out any rule that liability to pay such duty or tax must incur first and only thereafter payment of such duty or tax must be made/deducted. There is no such sequence of events that one particular event should alone happen at first instance and then only other event should follow. statute does not prescribe any proposition that preincurring of liability is condition to claim deduction of duty, taxes etc. where those items were paid by assessee. 10. Revenue authorities have given lot of importance to expression contained in s. 43B as "....a deduction otherwise allowable under this Act,..." contention of Revenue authorities that expression "otherwise allowable under this Act" means deduction available only for year of incurring liability is without any basis. correct interpretation of expression "otherwise allowable" is that item claimed as deduction needs to be expenditure allowable under provisions of IT Act in computing income. It does not mean that it should be attributable to particular assessment year. real implication of expression is that those items of expenditure which are not usually deductible in computing income of assessee cannot be claimed as deduction even if assessee has made actual payments of those items. expression "a deduction otherwise allowable" is used in general and permissive manner as explained above. 11. Revenue has also relied on proviso to s. 43B. text of proviso is that deduction shall be allowed under s. 43B even though payments were made after close of relevant previous year but before due date of filing of return under s. 139(1). law stated in proviso does not in any way alter character of s. 43B wherever payments have been made by assessee. proviso applies in case where liability has incurred but assessee has not paid amounts in said year and wants to claim deduction on making payment after close of previous year. Such situations happen in matter of sales-tax. Sales might be made in month of March. liability to pay sales-tax arises only in following month of April; after close of previous year. What is paid by assessee by way of sales-tax in month of April of succeeding previous year is liability actually incurred in month of March falling within immediately preceding previous year. Before introduction of proviso, Courts have held that in order to apply provisions of s. 43B, not only should liability to pay tax order to apply provisions of s. 43B, not only should liability to pay tax or duty be incurred in accounting year, but amount also should be statutorily payable in accounting year. [Srikakollu Subba Rao & Co. & Ors. vs. Union of India & Ors. (supra)]. It is to take care of such marginal situations and to mitigate genuine hardships of assessee as result of High Court judgment that proviso has been added to s. 43B. It is not in nature as argued by Revenue that payment should succeed incurring of liability. 12. Revenue has also placed much reliance on Expln. 2 to s. 43B. Explanation 2 provides that for purposes of cl. (a), any sum payable means, sum for which assessee has incurred liability in previous year even though such sum might not have been payable within that year under relevant law. By making reference to cl. (a), items covered by Expln. 2 are tax, duty, cess or fee. This should be read along with proviso already mentioned above. proviso to s. 43B and Expln. 2 go together. operation of Explanation is always governed by main provisions of law contained in relevant section. Explanation cannot overtake section as such. In present case Expln. 2 does not cover all sorts of payments. They cover only those payments within cl. (a) and also to be read along with proviso to s. 43B. 21. learned counsel further argued in following lines relying on respective judgment referred, thereto : 1. Consequence of s. 43B in matter of method of accounting has been succinctly explained by Tribunal Delhi 'B' Special Bench in case of Indian Communication Network (P) Ltd. vs. IAC (1994) 48 TTJ (Del)(SB) 604 : (1994) 49 ITD 56 (Del)(SB). In para 22 of decision (at p. 66 of report), Tribunal has stated that s. 43B was no doubt introduced to curb practice adopted by assessees to retain substantial funds by not depositing amounts into Government account and claiming deductions at same time; but it also brought out change in "method of accounting" regularly followed by assessee. This happened due to certain deductions being allowed on "actual payment" basis although earlier claim was allowed on "accrual" basis. 2. intention of legislature is to allow deduction in respect of any tax or duty in computing under s. 28, income of that previous year in which such sum is actually paid by assessee. This is considered by Gujarat High Court in case of Lakhanpal National Ltd. vs. ITO (1986) 54 CTR (Guj) 241 : (1986) 162 ITR 240 (Guj). Court has held that s. 43B opens with non- obstante clause which means that irrespective of other provisions, s. 43B will have overriding effect. Court observed that intention is made more specific by providing that it would be so irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by assessee. 3. judgment of Gujarat High Court in Lakhanpal National Ltd. (supra) is in favour of arguments advanced by assessee on question of true intent, purpose and implication of s. 43B. said judgment of Gujarat High Court was not challenged by Revenue before Supreme Court thereby accepting judgment of Gujarat High Court. interpretation placed on s. 43B in case of Lakhanpal National Ltd. case (supra) was directly followed by judgment of Bombay High Court in CIT vs. Bharat Petroleum Corpn. Ltd. (2001) 169 CTR (Bom) 119 : (2001) 252 ITR 43 (Bom) and also by Madras High Court in case of Chemicals & Plastics India Ltd. vs. CIT (2003) 179 CTR (Mad) 509 : (2003) 260 ITR 193 (Mad). 4. above decisions of three High Courts have been considered by Supreme Court in case of Berger Paints India Ltd. vs. CIT (2004) 187 CTR (SC) 193 : (2004) 266 ITR 99 (SC). Supreme Court observed that above three judgments rendered by three different High Courts have been accepted by Department which has brought in consistency of approach on issue involved under s. 43B. Court held that said consistency of view has to be followed and therefore judgment of Calcutta High Court in CIT vs. Berger Paints (India) Ltd. (2002) 174 CTR (Cal) 338 : (2002) 254 ITR 498 (Cal) was liable to be disapproved. uniform view reflected in decisions of three High Courts has been held by Supreme Court as valid reason to endorse said view and not to disturb consistency. Referring to Supreme Court judgments in Union of India vs. Kaumudini Narayan Dalal (2001) 168 CTR (SC) 3 : (2001) 249 ITR 219 (SC), CIT vs. Narendra Doshi (2002) 174 CTR (SC) 411 : (2002) 254 ITR 606 (SC) and CIT vs. Shivsagar Estate (2002) 177 CTR (SC) (2002) 254 ITR 606 (SC) and CIT vs. Shivsagar Estate (2002) 177 CTR (SC) 107 : (2002) 257 ITR 59 (SC), Court reiterated principle of consistency to be followed in matters of adjudication. If Revenue has not challenged correctness of law laid down by High Court and has accepted it in case of one assessee, it is not open to Revenue to challenge correctness in case of other assessees without just cause. In matter of s. 43B there being no such cause approved, decisions of three High Courts where principle has been upheld that deductions of tax, duty should be allowed under s. 43B in year of payment, irrespective of previous year are to be followed. decision of Supreme Court in Berger Paints (India) Ltd. (supra) settles issue raised before Special Bench which has upheld view advanced by assessee that deduction on payment basis should be allowed under s. 43B irrespective of previous year to which corresponding liability related to. 5. case of Revenue is that Explanation has stated that sum deductible on payment under s. 43B is sum for which liability has already been incurred. This is not correct interpretation of Explanation. Explanation was brought in statute book to tide over judgment of Andhra Pradesh High Court in case of Srikakollu Subba Rao & Co. & Ors. vs. Union of India & Ors. (supra). In said case Court has held that deduction under s. 43B would be available to assessee not only if amount has been paid in previous year, but also if amount becomes payable in very same previous year. intention of law was to give deduction on basis of payment of sum irrespective of fact whether sum has actually become payable or not in previous year. According to relevant law governing payment of tax, duty, cess or fee, amount would be payable only after close of previous year; but decision of Andhra Pradesh High Court adversely affected even such payments made in previous year but which became payable only after close of previous year. This anomaly has to be overcome. It is for that purpose Expln. 2 has been inserted. Explanation is to be governed by section in statute. It cannot override intended purpose of law stated in concerned section. It enables to explain situation arising from implementation of law stated in section. It does not bring any interpretation over and above spirit of law contained in particular section. In present case, Expln. 2 needs to be read along with proviso which enables assessee to claim deduction even if made after close of previous year, but if made before due date of filing of return. Explanation 2 is expression of proviso meant for undoing after effect of judgment of Andhra Pradesh High Court. proviso is means provided by statute, to accomplish objective of Explanation. Therefore they should be read together. 6. above position has been explained by Supreme Court in case of Allied Motors (P) Ltd. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC). Court has observed in said judgment that first proviso to s. 43B and Expln. 2 have to be read together as giving effect to true intention of s. 43B. Explanation 2 being retrospective, first proviso has also to be so construed. Without first proviso, Expln. 2 would not obviate hardship or unintended consequence of s. 43B. proviso supplies obvious omission. But for this proviso, ambit of s. 43B becomes unduly wide bringing within its scope those payments, which were not (sic) unintended to be prohibited from category of permissible deductions. Court has held therein that rule of reasonable construction must be applied while construing statute. 7. Calcutta High Court in case of Associated Pigments Ltd. vs. CIT (1999) 154 CTR (Cal) 56 : (1998) 234 ITR 589 (Cal) has considered this question of twin conditions argued by Revenue that payment also should be made and liability also should be incurred in previous year relevant to assessment year in which deduction is sought by assessee under s. 43B. In that case question placed before Hon'ble Court related to admissibility of deduction of two sums paid by assessee on account of purchase tax during assessment year in question but those sums being relatable to earlier accounting and assessment year. While considering case, Court held that no part of s. 43B or IT Act itself requires that when deduction is claimed on basis of s. 43B, assessee must satisfy twin test of both proving actual payment of duty, tax, cess in previous year in question as well as satisfying Department that due provision had been made in books in regard to such duty or tax for which payment was made later on. Court held that to introduce this double test would be writing words into section. arguments introduce this double test would be writing words into section. arguments of Revenue in light of first proviso and Expln. 2 to s. 43B that both conditions of liability as well as payment must be satisfied before claiming deduction under s. 43B is erroneous in light of above judgment of Calcutta High Court. 8. Allahabad High Court in case of CIT vs. C.L. Gupta & Sons (2003) 180 CTR (All) 530 : (2003) 259 ITR 513 (All) has considered very same issue in more real and direct manner. In that case, assessee paid t h e customs duty in March, 1987, but goods delivered and entered in accounts in April, 1987. payment fell in previous year ending 31st March, 1987 relating to asst. yr. 1987-88 and liability accrued in previous year ending on 31st March, 1988 relevant to asst. yr. 1988-89. assessment year in which payment was made preceded to assessment year in which liability was incurred. Court held that for purpose of claiming benefit of deduction of sum paid against liability of tax, duty, cess, fee etc., year of payment alone is relevant and is to be taken into account. Court categorically held that year in which assessee incurred liability to pay such taxes, duties etc. has no relevance and cannot be linked with manner of giving benefit of deduction under s. 43B. above decision of Allahabad High Court clearly endorses argument of assessee that incurring of liability mentioned in s. 43B, first proviso thereto and Expln. 2 thereunder are reflecting general liability of assessee carrying on business where liability arises for duties and taxes and expression does not mean outstanding liability as construed by Revenue. In light of general liability already stated, actual payment alone is sole criteria of deciding admissibility of deduction under s. 43B. 9. In order to get refund of excise duty from account-current, it is necessary for assessee to make formal claim and excise authority has to pass appropriate orders after recording reasons in writing. Cash refunds are made only under specified circumstances; otherwise refund due to assessee is always treated as credit available for future set off and adjustment of central excise duty. From nature of account-current maintained with Central Excise Department, frequency of payments made by assessee and lifting of goods from factory on continuous basis, it is very clear that money even if characterised as advance deposits paid by assessee to central excise through PLA and RG-23 in account-current, retain all characteristics of payment of actual central excise duty and therefore advance deposits cannot be treated as advance for future liability as construed in ordinary commercial sense. 10. Supreme Court has considered instance of money lying to credit of assessee but nevertheless not belonging to it, in case of CIT vs. New Horizon Sugar Mills (2004) 269 ITR 397 (SC). Court held that Molasses amount transferred to Molasses Reserve fund would not be income of assessee, as it had no control over that. 22. learned counsel further referred to various decisions rendered by different Benches of Tribunal in favour of assessee. 1. Tribunal Chandigarh 'B' Bench has considered issue in case of Raj & Sandeep Ltd. vs. Asstt. CIT in ITA No. 1853/Chd/1992 through their order dt. 18th Feb., 1993. Tribunal decided matter in following manner : ...."We, therefore, hold that excise duty which is deposited in account- current by way of advance excise duty and is actually paid in treasury qualifies for deduction under s. 43B.." 2. Tribunal Chandigarh Bench followed above decision in case of Asstt. CIT vs. Happy Forging Ltd. through their order dt. 8th Aug., 2005. 3. Tribunal Delhi Bench in case of Modipon Ltd. vs. IAC (1995) 52 TTJ (Del) 477 has held that excise duty paid as advance by way of deposit in Personal Ledger Account (PLA) cannot be disallowed under s. 43B. 4. Tribunal Agra Bench through their order dt. 18th Dec., 2000 in ITA No. 283/Del/1992 in case of Hind Lamps Ltd. vs. Dy. CIT [reported at (2000) 68 TTJ (Agra) 586'Ed.] has followed above decision and held that similar advance deposit made in account-current are allowable as deduction under s. 43B. 43B. 23. learned counsel thereafter tried to explain that how various judgments relied on by learned CIT are not really applicable to issue raised before us. 1. Tribunal Mumbai Bench in case of IAC vs. Tata Press Ltd. (supra) has held that advance payment of excise duty cannot be allowed as deduction under s. 43B. But decision does not consider how accrual of liability, one of basic rules of mercantile system of accounting, would be still valid in allowing deduction under s. 43B once system has been statutorily shifted to cash basis. 2. Revenue has relied on Special Bench decision of Tribunal Hyderabad Bench in case of KCP Ltd. vs. ITO (supra). said decision of Special Bench is no longer good law in light of decision of Gujarat High Court in case of Lakhanpal National Ltd. vs. ITO (supra) where Court has held that assessee shall be entitled to get benefit of deduction under s. 43B on actual payment, irrespective of year of payment and by virtue of overriding effect of s. 43B. 3. reliance placed by Revenue on decision of Andhra Pradesh High Court in case of Srikakollu Subba Rao & Co. & Ors. vs. Union of India & Ors. (supra) is also misplaced. It is not decision which interprets provisions of law contained in s. 43B. 4. decision of Tribunal Mumbai Bench 'E' in case of Dy. CIT vs. Amforge Industries Ltd. (supra) also does not flow from language used in s. 43B. 5. decision of Tribunal Hyderabad Special Bench in case of Dy. C I T vs. CWC Wines (P) Ltd. (supra) has placed reliance on decision of Andhra Pradesh High Court in case of Gopi Krishna Granites India Ltd. vs. Dy. CIT (2001) 170 CTR (AP) 603 : (2001) 251 ITR 337 (AP). issue raised before us in cl. (a) of s. 43B is to be considered. It is quite different from cl. (d) considered by High Court in said decision. sums payable under cl. (a) and sums payable under cl. (d) are different and distinct in nature and character. reference made to matching principle in said decision has no relevance once cash system is adopted for s. 43B. 6. Delhi Bench in case of Maruti Udyog Ltd. vs. Dy. CIT (supra), while considering issue has misdirected in its discussion regarding expression "incurring of liability". Tribunal has construed meaning of expression "liability incurred" equivalent to demand raised by Department as payable and outstanding at close of relevant previous year. Tribunal has given instant meaning to expression "incurring" whereas in fact expression implies liability running along with business of manufacturing carried on by assessee and thereby becoming liable to pay excise duty. 24. learned counsel further relied on following in support of his contentions : 1. In SLP (Sr. 2766 of 1993), in case of CIT vs. South India Research Institute, Supreme Court has considered judgment of Andhra Pradesh High Court in matter of s. 43B in context of special account maintained by assessee to pay excise duty. While dismissing special petition filed by Revenue in appeal against order dt. 27th Feb., 1991 of Andhra Pradesh High Court in ITC No. 126 of 1990, Supreme Court held as follows : "......In view of clear finding of fact to which reference has been made in impugned order of High Court, that assessee claimed deduction in respect of amount representing actual duty paid and so adjusted, there can be no doubt that High Court is right in taking view that no question of law arises out of Tribunal's order. There is thus no ground to interfere. special leave petition is dismissed...." matter considered by Supreme Court was dismissal of reference application by High Court on question whether amounts in special account maintained by assessee to pay excise duty as and when goods were removed, would partake character of excise duty and would hence be allowable under s. 43B of IT Act, 1961. This is straight decision of apex Court on subject matter considered here. 2. Tribunal Delhi Bench 'D' in case of Honda Siel Power Products Ltd. vs. Dy. CIT (2000) 69 TTJ (Del) 97 : (2001) 77 ITD 123 (Del) has considered nature of advance payments of Central excise duty for purpose of deduction under s. 43B. 3. Central Excise and Gold Control Appellate Tribunal (CEGAT), Zonal Bench at Chennai has considered nature of PLA in case of F. Fibre Bangalore (P) Ltd. vs. CCE, 120 ELT 579 (Chennai) (Trib.). In that case "the assessee debited duty in PLA for acquiring under r. 57F(2) and took credit back in PLA rather than taking same in RG-23A Part-II. As such, lower authorities directed assessee to pay duty in PLA and take credit back in RG-23A Part-II. This direction could not be adhered to since as on that date, unit was not functioning. revival also could not be done. contention of assessee before Tribunal was that as there was no loss of revenue, demand raised against it to make credit in PLA be set aside. Tribunal held that prayer of assessee was not acceptable. Rule 173G(1A) provides that where any amount is to be withdrawn from PLA account, then assessee has to make application to Commr. and only by obtaining permission from him, said amount can be withdrawn. Rule 173G(1) also prescribes that periodical credit in account-current can be made only by cash payment to treasury. Thus rule clearly lays down that credit of duty can be taken in PLA only either through cash deposit under T.R. 6 challan in treasury or by written permission to take credit by proper officer. In this case, appellant took credit back in PLA on their own clearing goods under r. 57F(2) which was wrong. When lower authorities directed assessee to rectify mistake by making debit entry in PLA and taking credit back in RG-23A Part II, assessee did not follow same on ground that unit was not functioning. Even if unit was not functioning, i.e. it was not producing excisable goods, it was still under excise control and relevant account-current and RG-23A Part-II were available with assessee. There was no merit in prayer raised by assessee". above decision of Tribunal explains true and strict nature of account-current maintained by assessee with excise authorities. Once payments are made in treasury to credit of assessee's account-current, even if those payments were advance payments, money ceased to be money of assessee. assessee cannot withdraw any credit from account-current without permission of concerned authorities. 2 5 . After concluding arguments on first question of advance payments of excise duty, arguments were made on second question whether Modvat credit available to assessee as on last day of previous year amounts to payments of central excise duty under s. 43B. 26. Shri Ajay Vohra, learned counsel brought out his arguments on above issue in following manner : (i) Modified Value Added Tax (Modvat) introduced from 1st March, 1986 by incorporating rr. 57A to 57J in Central Excise Rules, 1944, provides for credit of duty of central excise or additional duty of customs (countervailing duty), usually referred to as "input duty" paid on goods used in manufacture of final products can be utilised towards payment of duty of excise on final products. Before introduction of above scheme, wherever applicable, duty of central excise had to be paid at every point thereby cascading effect of multiple levy of duty would be burdened by ultimate consumer who consumes goods. In order to avoid escalation effect of multiple point levy, Modvat has brought scheme whereby excise duty paid by assessee on input goods would be available as credit to set off against excise duty payable on output goods. (ii) input credit available to assessee under Modvat is as good as payment of excise duty as it ultimately reduces net liability of assessee to pay Central excise duty on finished goods. If such credit is not available by way of Modvat, assessee has to pay Central excise duty to that extent also, by cash which means that availing of Modvat credit in pari materia amounts to payment of Central excise duty by way of cash. (iii) As Modvat credit availed by assessee is de facto payment of central excise duty, setting off Modvat credit must be treated as payment of excise duty in cash. consequence of above proposition is that unutilised credit balance of Modvat available to assessee on last day of previous year will be equivalent to advance payment of Central excise duty and all arguments advanced in support of deductibility of advance payment of Central excise duty will be mutatis mutandis applied to Modvat credit as well. That is unexpired Modvat credit is nothing but advance payment of Central excise duty and as advance payment of excise duty needs to be allowed as deduction under s. 43B for elaborate reasons already explained, Modvat credit also should be entitled to be deducted under s. 43B. 27. On true character of Modvat Credit, learned counsel invited our attention to decision of Supreme Court in case of CCE & Ors. vs. Dai Ichi Karkaria & Ors. (1999) 156 CTR (SC) 172 : (1999) 7 SCC 448. Court held that s. 4(4) of Central Excise Act, 1944, inter alia, provides that value of exciseable goods does not include amount of duty of excise payable on such goods. Modvat scheme is part of Central Excise Rule. It is to be held that determining cost of exciseable product covered by Modvat scheme, excise duty paid to raw material also covered by Modvat scheme is not to be included. learned counsel submitted that Court has declared that Modvat credit available to assessee is indefeasible right in favour of manufacturer and it is not contingent and it partakes character of excise duty itself. According to him, therefore, unexpired Modvat credit is nothing but excise duty paid by assessee and to be set off against running liability of central excise duty. 28. learned counsel relied on decision of Supreme Court in case of Eicher Motors Ltd. vs. Union of India 106 ELT 3 (SC). learned counsel pointed out that in said case Supreme Court has held that facility of Modvat credit is as good as tax paid. Therefore, unexpired Modvat credit available to assessee is to be treated as good as Central excise duty paid by assessee on account. learned counsel thereafter referred to decision of Tribunal Delhi Bench 'D' in case of Honda Siel Power Products Ltd. vs. Dy. CIT (supra). learned counsel has also relied on decision of Tribunal, Agra Bench in case of Hind Lamps Ltd. in ITA No. 283/Del/1993 dt. 18th Dec., 2000 (supra). 29. Shri R.K. Goyal, learned CIT also argued in forceful presentation that unexpired credit of Modvat account is no way similar to advance payment of central excise duty. learned CIT again reiterated that even advance payment of Central excise duty through actual payment of cash in treasury does not qualify deduction under s. 43B unless corresponding liability is incurred in previous year. He submitted therefore that even if unexpired credit in Modvat account is if at all treated as similar to advance payment of central excise duty, still it is not deductible for reason that advance payment of excise duty per se is not deductible under s. 43B. 30. Without prejudice to above contention, learned CIT submitted that Modvat is scheme whereby law exempts assessee from payment of Central excise duty on final products to extent duty was paid on raw material, if any. Therefore it does not amount to actual payment. It is only entitlement of assessee for claiming exemption from excise liability that may arise in future. unexpired Modvat credit cannot be equated to advance payment of excise duty by cash. Modvat credit is not coming out of payment of Central excise duty per se. It is coming out of purchase of raw materials. Where raw materials are exciseable, purchase cost also includes excise duty. In order to avoid cascading effect of excise duty, duty paid on earlier points is given as deductions in subsequent points. Therefore, it could be seen that it is case of exemption and not case of payment as construed by learned counsel appearing for assessee. 31. learned CIT referred to decision of Supreme Court in case of Eicher Motors Ltd. vs. Union of India (supra) which has been relied on by assessee's counsel. learned CIT pointed out that what Supreme Court has observed in said case was that facility of Modvat credit is as good as tax paid. Court has not stated that Modvat credit is nothing but payment of excise duty. observation of Supreme Court is to be seen in context of assessee setting off Modvat credit against demand of excise duty. In such circumstances, Modvat credit becomes as good as tax paid once set off is made. At point of time before setting of Modvat credit, it is not possible to hold that Modvat credit is as good as tax paid. It becomes as good as tax paid only when credit is set off against central becomes as good as tax paid only when credit is set off against central excise liability. But in case of unexpired credit of Modvat, there is no question of set off on last day of previous year and therefore there is no question of treating such unexpired credit as good as tax paid. It is only future entitlement of assessee and not payment of advance which could be used in future. This difference is obvious and has to be taken note of while appreciating scheme of Modvat credit. 32. On hearing both sides in detailed manner, we may now proceed to consider issues raised before us. We shall first look into question, "whether deduction for tax, duty, etc. is allowable under s. 43B of IT Act, 1961 on payment basis before incurring liability to pay such amounts ?" 33. In order to cover Central excise duty attributable to those goods lifted by assessee out of factory on continuous basis, it is necessary that assessee should keep sufficient credit balance in account-current so that every such removal is noted in account-current for debiting appropriate duty amount. nature of account-current, therefore, is that of running account in light of fact that activities carried on by assessee are also incessant and continuous. They both run together. As assessee has to meet central excise liability on continuous basis without any interruption, assessee has to maintain running account in form of account-current. It is to be seen that excess amount reflected in account-current amounts to nothing but payment of excise duty. credits available in such accounts cannot be considered "advances" as construed in ordinary commercial accounting sense. 34. similar issue was considered by Supreme Court in case of CIT vs. New Horizon Sugar Mills (supra). In that case assessee was required to set apart specific amounts towards Molasses Storage Reserve Fund, which could be utilised only for purpose of constructing Molasses Storage Tank. This appropriation was mandatory in light of Molasses Control Order as assessee was manufacturer of sugar. While examining nature of said money blocked in Molasses Storage Reserve Fund, Supreme Court held that money would not be income of assessee, as assessee had no control over that. deposits made by assessee in accounts-current f o r making payments of central excise duty are analogous to case considered by Supreme Court and ratio laid down in above judgment, we think, should apply to present case. 3 5 . Central Excise and Gold Control Appellate Tribunal (CEGAT), Zonal Bench at Chennai has considered nature of PLA in case of F. Fibre Bangalore (P) Ltd. vs. CCE (supra). In that case assessee debited duty in account-current and thereafter reversed debit by crediting back duty amount in very same PLA whereas assessee should have taken credit through RG-23A Part II. As there was no revenue effect prejudicial to Government, assessee pleaded that adjustment, even if improper may be condoned. But Tribunal held that any appropriation can be made only on permission of concerned authorities. Normally, money paid into those accounts irretrievable. In effect, for all practical purposes, deposits made by assessee in accounts-current amount to actual payment of central excise duty. 36. In light of nature and character of payments discussed in paragraphs above and also in light of decisions referred to therein, it is to be seen that, as far as assessee is concerned, payments made to credit of accounts-current are nothing but substantial/actual payments of Central excise duty. assessee has no option to pay or not to pay such deposits in that running account to meet liability of Central excise duty arising from time to time. payments of advance deposits in accounts-current are necessitated by mandate of law and not by option of assessee. advance payments of Central excise duty, therefore, satisfy character of exaction made by sovereign under authority of law. In circumstances, it is very difficult to accept contention of Revenue that advance payments of excise duty are not to be treated as actual payments of duty for purpose of deduction under s. 43B. 37. Sec. 43B has brought in change in normal rule of deduction of expense based on accounting method followed by assessee. normal principles and practices are done away. Accordingly, there is no force in argument of Revenue that deduction can be granted only if liability has incurred during previous year, even when payment was made by assessee. point coming out of above discussion is that rule of deduction under s. 43B is actual payment of liability. nature of account-current already examined brings home point that advance payments of excise duties are actual payments of duties. Therefore, when payments are understood as actual payments, those payments even if mentioned as advance payments need to be allowed as deduction under s. 43B. 38. above position is emerging out of language of statute itself. Sec. 43B provides for deduction of sums payable mentioned in cls. (a) to (f), only if actually paid; but shall be allowed irrespective of previous year in which liability to pay such sum was incurred by assessee. intention of legislature is apparent in above language used in s. 43B, that deduction in respect of tax or duty, which was actually paid by assessee has to be allowed as deduction without looking into year of incurring liability. Gujarat High Court has examined true meaning of above statutory language in case of Lakhanpal National Ltd. vs. ITO (supra). Court has held that deduction of tax or duty paid by assessee has to be allowed as deduction in year of payment, irrespective of previous year in which liability to pay such sum was incurred according to method of accounting regularly employed by assessee. 3 9 . As argued by learned counsel appearing for assessee, expression "irrespective of previous year" dispenses with concept of previous year, in matter of sums covered by s. 43B. expression "irrespective" means lacking relation, regardless of what is mentioned. Here subject mentioned is "previous year". It means deduction has to be allowed regardless of previous year. Any reference to time of incurring or accruing of liability is dispensed with by statute, while concentration is made on point of actual payment of sum to treasury of Government. 40. Supreme Court had occasion to consider very same issue of payment of duty vis-a-vis deduction under s. 43B in Berger Paints (India) Ltd. vs. CIT (supra). Court observed that judgments delivered by three High Courts viz., Gujarat, Bombay and Madras in cases of Lakhanpal National Ltd., Bharat Petroleum and Chemicals & Plastics (supra), respectively have been accepted by IT Department by not challenging those decisions before Supreme Court, and by accepting series of three judgments on very same issue, Department has accorded consistency of approach on this issue involved under s. 43B. Supreme Court held that Courts have to follow principle of consistency in matter of adjudication and further held that uniform view reflected in decisions of three High Courts has to be endorsed as otherwise it would be disturbing consistency without reasonable provocation. Supreme Court held in above case that deduction of tax, duty should be allowed under s. 43B in year of payment, irrespective of previous year in which liability was incurred. 41. In fact decision of Supreme Court in case of Berger Paints (India) Ltd. vs. CIT (supra) settles issue raised before Special Bench which has upheld view advanced by assessee that deduction on payment basis should be allowed under s. 43B irrespective of previous year to which corresponding liability related to. Supreme Court has approved judgments of High Courts of Gujarat, Mumbai and Madras not only on rule of consistency but also on merits of issue. Supreme Court has held that entire amount of excise duty/customs duty paid by assessee in particular accounting year is allowable under s. 43B of IT Act, 1961, as deduction in respect of that year, irrespective of amount of excise duty/customs duty included in valuation of assessee's closing stock at end of accounting year. It is not that Supreme Court has considered issue in case of Berger Paints (India) Ltd. vs. CIT (supra) alone. Revenue had taken up decision of Andhra Pradesh High Court rendered on this issue before Supreme Court in Special Leave Petition (SLP-SR. 2766 of 1993), in case of CIT vs. South India Research Institute. Supreme Court has examined judgment of Andhra Pradesh High Court in matter of s. 43B in context of special account maintained by assessee to pay Central excise duty. Supreme Court upheld finding of High Court that t h e claim of assessee for deduction of payments made to such special account has to be allowed as it represented actual duty paid by assessee. SLP of Department was dismissed. 42. Gujarat High Court in case of Lakhanpal National Ltd. vs. ITO (supra) has considered scope of s. 43B in case where assessee had claimed deduction for customs and excise duties paid in respect of raw materials imported and goods manufactured in accounting year. Bombay High Court in case of CIT vs. Bharat Petroleum Corpn. Ltd. (supra) has followed decision of Gujarat High Court and considered s. 43B in case where assessee has claimed deduction of excise and customs duty paid on closing stock. Madras High Court in case of Chemicals & Plastics (India) Ltd. vs. CIT (supra) followed decision of Bombay High Court in case of Bharat Petroleum Ltd. (supra) while examining case where assessee has not charged duty paid by it to P&L a/c but at same time claimed deduction under s. 43B. assessee in that case did not claim item in P&L a/c for reason that part of customs duty paid was in respect of raw materials which remained with assessee at end of year. In all above three cases, facts considered by High Courts are marginally different from facts of present case. In those cases, Courts were examining nature of excise duty and customs duty paid by assessees, but embedded in stock of goods not consumed and/or cleared. In present case, issue is that of advance payment of excise duty, per se. Courts while examining issues before them in those cases, have in fact examined law on subject in its entire perspective and have clearly held that advance payments of excise duty are deductible under s. 43B. 43. Gujarat High Court in case of Lakhanpal National Ltd. (supra) has in fact considered entire scheme of s. 43B and after long discussion, has held that "....there is no scope for any doubt that such sum can be allowed by way of deduction while computing income in previous year in which such sum is actually paid by assessee...." (p. 247). Supreme Court in case of Berger Paints (supra) has also considered Special Bench decision of Tribunal Delhi in case of Indian Communication Network (P) Ltd. vs. IAC (1994) 48 TTJ (Del)(SB) 604 : (1994) 206 ITR 96 (Del)(SB)(AT). said decision of Special Bench has been approved by Supreme Court. Court has reproduced relevant portion of order of Special Bench (pp. Court has reproduced relevant portion of order of Special Bench (pp. 103 and 104 of report) and endorsed view of Special Bench that excise duty payments must be deducted in year of payment irrespective of year of incurring of liability. What we find is that Supreme Court has considered decision of Delhi Special Bench dealing with very same issue and has approved decision that advance payments of excise duties need to be deducted in year of payment under s. 43B. Therefore, proposition argued by assessee company has not only been approved by various High Courts but also by Supreme Court and issue is squarely covered by decision of Supreme Court in case of Berger Paints (supra). 44. We may also examine relevancey of case laws cited by learned CIT (Departmental Representative) at time of hearing. He has placed reliance on decision of Andhra Pradesh High Court in case of Srikakollu Subba Rao & Co. & Ors. vs. Union of India & Ors. (supra). In that case Andhra Pradesh High Court has held that assessee should pay amount in previous year so also amount should become payable in very same year for claiming deduction under s. 43B. It is thereafter, proviso to s. 43B was inserted, to alleviate consequent difficulties. But it is to be seen that principal question placed before High Court in this case was constitutional vires of provisions of s. 43B. In fact, it was not decision which interprets provisions of law contained in s. 43B on its substantial merit. Anyhow, applicability of said decision has been undone by inserting of proviso to and Expln. 2 under s. 43B. Therefore that decision is not relevant in deciding present issue. Another decision relied on by Revenue is decision of Tribunal Mumbai Bench 'D' in case of IAC vs. Tata Press Ltd. observation of Tribunal in said case is that s. 43B is restrictive in nature and not enabling one. But this observation does not bring out true intent and purpose of s. 43B. expense becomes deductible or non deductible in light of enabling provisions like ss. 32, 36, 37 etc. Sec. 43B per se does not decide or otherwise restrict deduction of expense. Sec. 43B alone is not determinative of deductibility of expenditure. said section does not deal with deductibility, eligibility or restriction of expenses, as such. What exactly s. 43B deals with is question of actual deduction. It is not restrictive section but qualifying section. Restriction or otherwise of expenditure is prescribed in relevant section itself. Take for example s. 32. It appears that allowances are granted in computing business profits of assessee on satisfaction of prescribed conditions. deductibility of expenditure is one thing and actual deduction is something different. This distinction has not been considered in decision of Tata Press Ltd. (supra) 45. In said case, Tribunal has treated advance payment as "contingent liability". According to Tribunal, liability to pay duty may or may not happen in future. above observation of Tribunal has not taken into consideration one of basic postulates of accounting principle, viz., concept of "going concern". Accounting principles, practices and standards all are framed on above basic concept that business will run for quite long time and is not going to terminate its operation in near future. If concept of continuity is not there, one will have to consider every receipt as income and every payment as expenditure, irrespective of nature of receipt and payment. whole frame of accountancy is made on principle of "going concern". Accountancy provides rules for working out profit and loss of entity. These principles are incorporated in taxation law, as well. That is why s. 32 allows assessee to write off specified percentage in staggered manner as successive deduction of depreciation allowances; s. 35D provides for expenses to be written off for period of 10 years. Various deductions under Chapter VI-A provide for deduction for more than one assessment year, sometimes 5 assessment years to 10 assessment years. When that is case, basic rule is that business will continue for years to come and assessee will have to claim deduction on regular basis from assessment year to assessment year. When there is regularity of payment, it is not possible to hold that excise duty payable in month of April would be "contingent" in nature in immediately preceding month of March. 46. Another concern expressed by Tribunal in above case is that it will open floodgates for assessees to make advance payments of such liabilities for any number of subsequent years and claim deduction thereto in earlier year, if doing so proves advantageous to them. Whether assessee would misuse s. 43B for above purpose, is question of remote chance. would misuse s. 43B for above purpose, is question of remote chance. Usually, all tax avoidance schemes are practised by assessees without paying any money towards tax. If not impossible, it is highly improbable to presume that assessee would indulge in tax avoidance by actually paying money towards duties and taxes. Any such benefit arising to assessee is only incidental. 4 7 . Another case relied on by Revenue is decision of Tribunal Hyderabad Special Bench in case of KCP Ltd. vs. ITO (supra). As argued by learned counsel for assessee, we find that said decision may not be valid any more, in light of decision of Gujarat High Court in case of Lakhanpal National vs. ITO (supra), wherein Court has held that assessee shall be entitled to get benefit of deduction under s. 43B on actual payment, irrespective of year of payment by virtue of overriding effect of s. 43B. Likewise, decision of Tribunal Mumbai Bench 'E' in case of Dy. CIT vs. Amforge Industries Ltd. (supra) is also not relevant. 4 8 . Another Special Bench decision relied on by Revenue is decision of Hyderabad Special Bench in case of Dy. CIT vs. CWC Wines (P) Ltd. (supra). said decision has been taken by Special Bench by placing reliance on decision of Andhra Pradesh High Court in case of Gopi Krishna Granites India Ltd. vs. Dy. CIT (supra) wherein High Court has considered payments covered by cl. (d). In present case cl. (a) of s. 43B is to be considered. It is quite different from cl. (d) considered by High Court in said decision. sums payable under cl. (a) and sums payable under cl. (d) are different in nature and character. 49. Revenue has also relied on decision of Tribunal Delhi Bench in case of Maruti Udyog Ltd. vs. Dy. CIT (supra). In that case also, Tribunal has overwhelmingly discussed effect of expression "incurring of liability". While considering above, Tribunal has not read proviso to s. 43B together with Expln. 2 and also it has completely overlooked prominent expression of "irrespective of previous year". decision also has relied on various decisions mentioned above and which were held not relevant. 50. learned CIT has also relied on Circular No. 550, dt. 1st Jan., 1990 [(1990) 86 CTR (St) 45] issued by CBDT in context of Expln. 2 to s. 43B. Finance Act, 1989 has brought in Expln. 2 to s. 43B, according to which "any sum payable" shall mean any sum, liability for which has been incurred by taxpayer during previous year irrespective of date by which such sum is statutorily payable. In fact, circular deals with short question of distinction between liability incurred and payment due. It clarifies that even if sum is not due for payment during previous year deduction would be available if payment was made. There was judicial view that for claiming deduction, amounts also must be payable within previous year. Srikakollu Subba Rao & Co. & Ors. vs. Union of India & Ors. (supra). It created difficult situation for assessees; especially like payments of sales-tax etc. In order to remove difficulties, Expln. 2 was brought in, along with proviso to s. 43B. Proviso has made Explanation practicable and workable by stating that payments made even after close of previous year but made before due date of filing of return, will be deductible. It could be seen that circular deals with extended period of time by which certain belated payments could be claimed by assessee as deduction. circular nowhere deals with patent question of advance payment of duties and taxes and deduction thereof. 51. We have considered in detail arguments of both sides and authorities relied on by them; considered statutory provisions as well; examined exact nature of advance payment of excise duty, etc. We have found that generally those payments are not provisional or refundable. They are actually payments of central excise duty. We have examined legislative intent and purpose of s. 43B. assessees in past were not paying taxes, duties and other dues to Government in time. At same time, they were booking those items as expenses in their accounts on accrual basis on ground that they are following mercantile system of accounting. By doing so, they were claiming deduction and reducing taxable income. Concurrently in many cases, assessees were challenging very liability itself before Courts and Tribunals, finally resulting payments belated, deferred, and sometimes never made. In order to stop such exploitation practised by assessees, s. 43B has been brought in statute declaring that "well you claim deduction, but only on actual payment". law has made it clear that such payments are to be allowed as deductions in year of payment. Sec. 43B does not lay down any sequence or order of events in which liability has to be incurred and payment has to be made by assessee. Sec. 43B does not lay down any rule that liability to pay duty must incur first and only thereafter payment of such duty to be made so as to claim deduction under s. 43B. But Revenue tries to make out case that statute has prescribed such order of events. In fact there is no such prescription in statute. We have seen that expression "otherwise allowable" refers to declaration of permission in law that which are available as deductions on payment under s. 43B, are those expenses which are usually allowed by IT Act for purpose of computing income. We have seen that expression "any sum payable" does not mean "payment outstanding". In light of decision of Supreme Court in case of Allied Motors vs. CIT (supra), we have held that for purpose of s. 43B proviso thereunder and Expln. 2 have to be read and construed together. 52. Therefore, we hold that deduction for tax, duty etc. is allowable under s. 43B of IT Act, 1961 on payment basis before incurring liability to pay such amounts. Accordingly, first question is answered in affirmative and in favour of assessee. 53. next question to be considered is whether Modvat credit available to assessee as on last day of previous year amounts to payment of central excise duty under s. 43B ? 5 4 . forceful argument of learned counsel appearing for assessee is on basis of Supreme Court decision in case of Eicher Motors vs. Union of India (supra). argument of learned counsel is that Supreme Court has held that facility of Modvat credit is as good as tax paid. He argued that unexpired Modvat credit available to assessee is to be treated as good as Central excise duty paid by assessee on account. But we find that context in which observation was made by Supreme Court has to be noted of. observation of Supreme Court has been made in case where assessee has set off Modvat credit against demand of excise duty. When unexpired Modvat credit is set off against excise duty payable and thereby liability has been extinguished/reduced, that Supreme Court has held that setting off Modvat credit is as good as tax paid. above observation of Supreme Court become operative only when unexpired Modvat credit has actually been set off against Central excise duty payable by assessee. unexpired Modvat credit available in hands of assessee on last day of previous year is amount, which has not so far been set off against payment of excise duty. There is distinction between unexpired Modvat credit available in hands of assessee as well as set off of credit balance against actual liability. time lag between two points cannot be ignored. On actual set off of unexpired Modvat credit against liability towards payment of duty may be as good as tax paid but, unexpired Modvat credit before point of such set off cannot be treated as tax paid. Therefore, contention of learned counsel that unexpired Modvat credit must be treated as advance payment of excise duty is not tenable in law. 55. In case of unexpired Modvat Credit, there is no question of set off, on last day of previous year and therefore there is no occasion to treat unexpired credit as equivalent to tax paid. 56. In fact unexpired Modvat credit available to assessee is in nature of future entitlement which cannot be considered as equivalent to advance payment of duty. 57. In case of advance payment of central excise duty, there is de facto payment of duty by cash in Government treasury. payment is made towards central excise account; which we have already held as actual payment of excise duty itself. But in scheme of Modvat, there is no such payment of excise duty. credit is available to assessee under scheme of Modvat in order to minimise escalation effect of payment of excise duty by successive manufacturers. Therefore, excise duty paid at earlier point is set off against central excise liability at next point. Till set off is availed at next point, duty available for set off by assessee, is nothing but part of cost of materials purchased by him. That is not payment per se made towards excise duty but it was in fact payment made towards purchase cost. 58. Sec. 43 of IT Act, 1961 has provided definition of certain terms relevant to computation of income from profits and gains of business or profession. Sub-s. (2) of that section defines term "paid". Sec. 43(2) reads as below : '(2) "paid" means actually paid or incurred according to method of accounting upon basis of which profits or gains are competed under head "Profits and gains of business or profession".' 5 9 . definition states that "paid" means money actually paid by assessee or incurred by assessee and not anything else. In s. 43B, deduction is given only for those sums "actually paid" by assessee. conjoint reading of s. 43(2) and s. 43B supports argument of learned CIT that unexpired Modvat credit does not amount to actual payment of central excise duty. 60. credit balance as such does not amount to payment. credit balance becomes equivalent to payment only at point of time assessee exercises his option to set off credit balance against central excise liability and not before. 61. Therefore we hold that Modvat credit available to assessee as on last day of previous year does not amount to payment of Central excise duty under s. 43B. second question is answered in negative and against assessee. 6 2 . only two issues raised by Revenue in this appeal are questions considered and answered by us. Regarding first issue of advance payment of excise duty, we hold against Revenue and accordingly uphold order of CIT(A) in directing AO to deduct such advance payment under s. 43B. Regarding second question of unexpired Modvat credit, we hold that assessee is not entitled for claiming same as deduction under s. 43B. Accordingly order of CIT(A) on issue of unexpired Modvat credit i s set aside and disallowance if any made by assessing authority is restored. 63. In result, this appeal filed by Revenue is treated as partly allowed. We have gone through very detailed order of my learned brother Dr. O.K. Narayanan, A.M. We agree with him on answer to both questions. However, in order to highlight judicial precedents fully covering issue and to add few more decisions, I am writing this consenting order only on question No. 1. 2. relevant facts have already been noted by my learned Brother in his detailed order, and it is unnecessary to repeat them. To appreciate contention that liability must be shown to have been incurred before claim based on actual payment is made under s. 43B, we must bear in mind observations o f Frankfurter reproduced from decision of Supreme Court in case of United Bank of India vs. Abijit Tea Co. (P) Ltd. AIR 2000 SC 2957. Quotation of Frankfurter from his article. "Some reflections on reading of statutes" (essays on jurisprudence from Columbia Law Review), is thus "...The legislation as name, it seeks to obviate some mischief, to supply inadequacy, to effect change of policy, to formulate plan of Government. That aim, that policy is not drawn, like nitrogen out of air, it is evidenced in language of statute, as read in light of other external manifestations of purpose...". 2.1 To resolve controversy before us, we must consider heading of s. 43B, circumstances compelling legislature to introduce it (the mischief involved before its introduction) and purpose it was to serve. 2.2 Finance Minister while presenting Finance Bill, 1983, stated as under : "Several cases have come to notice where taxpayers do not discharge statutory liability such as in respect of excise duty, employer's provident fund, Employees State Insurance Scheme, for long period of time. For purpose of their income-tax assessment, they nevertheless claim liability as deduction even as they take resort to legal action, thus depriving Government all its dues while enjoying benefit of non-payment. curb such practices, I propose to provide that irrespective of method of accounting followed by taxpayers, statutory liability will be allowed as deduction in computing taxable profit only in year and to extent it is actually paid." purpose of legislation and mischief it sought to check is abundantly clear and needs no elaboration. Only thing to be highlighted is that there is no reference to any condition to establish, "accrual of liability" for claim of deduction. Only actual payment is insisted upon. 2.3 memorandum explaining provisions in Finance Bill of 1983 [see (1983) 33 CTR (TLT) 73 : (1983) 140 ITR (St) 160] is as under : "59. Under IT Act, profits and gains of business and profession are computed in accordance with method of accounting regularly employed by assessee. Broadly stated, under mercantile system of accounting income and outgo are accounted for on basis of accrual and not on basis of actual disbursements or receipts. For purposes of computation of profits and gains of business and profession, IT Act defines word 'paid' to mean 'actually paid or incurred' according to method of accounting on basis of which profits or gains are computed. 60. Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For purpose of their income-tax assessments, they claim liability as deduction on ground that they maintain accounts on mercantile or accrual basis. On other hand, they dispute liability and do not discharge same. For some reason or other, undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by assessee by way of tax or duty under any law for time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by assessee as employer by way of contribution to any provident fund, or superannuation fund or gratuity fund or any other fund for welfare of employees shall be allowed only in computing income of that previous year in which such sum is actually paid by him." I have underlined (italicised in print) relevant portion to emphasise that legislature intended to ante practice of claiming deduction of excise duty etc. on accrual basis under mercantile system of accounting by providing for actual payment. 2.4 relevant provisions of s. 43B for our purposes, with highlighted heading, are as follows : "43B. Certain deductions to be only on actual payment.'Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of' (a) any sum payable by assessee by way of tax, duty, cess, or fee, by whatever name called, under any law for time being in force, or......... shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in s. 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum referred to in cl. (a) or cl. (c) or cl. (d) which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub-s. (1) of s. 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return : Provided further... (Omitted w.e.f. 1st April, 2004). Explanation 1......... Explanation 2.'For purposes of cl. (a) as in force at all material times, 'any sum payable' means sum for which assessee incurred liability in previous year even though such sum might not have been payable within that year under relevant law. Explanation 3... Explanation 4..." 3 . Sec. 43B was considered by their Lordships of Supreme Court in case of Allied Motors (P) Ltd. vs. CIT (supra). About change, it has brought about in claim of deduction of statutory liability, their Lordships observed as under : "Prior to insertion of s. 43B in IT Act, 1961, income chargeable under head "Profits and gains" of business or profession was computable in accordance with method of accounting regularly employed by assessee as per s. 145 of IT Act, 1961. assessee who had adopted mercantile system of accounting would be entitled to account for his income and expenditure on basis of accrual and not on basis of actual receipt or disbursement. After insertion of s. 43B, however, even if assessee had regularly adopted mercantile system of accounting, amount of tax payable by assessee could be deducted only in year in which sum was actually paid and not in year in which assessee incurred liability to pay that tax." (underlined, italicized in print, by us to emphasise). 3.1 Their Lordship in above decision also explained why proviso to section should be treated as retrospective, like Expln. 2, which legislature specifically made retrospective w.e.f. 1st April, 1984. Their Lordship also held that proviso-I and Expln. 2 are required to be read together to obviate hardship or unintended consequences. 3 . 2 Consideration of Budget Speech, memorandum explaining provision, decision of Supreme Court, language of provision, and purpose of legislature, make it clear that "accrual of liability" is no where mentioned as condition to claim deduction of statutory liability. Only actual payment is to be shown. In fact earlier practice of claiming deduction on mercantile basis not paid in time has been sought to be curbed. Thus as tax mercantile basis not paid in time has been sought to be curbed. Thus as tax disincentive denial of deduction on basis of accrual of liability is very purpose of enactment. memorandum explaining provision has made specific reference to meaning of word "paid" under IT Act. We will explain this little later. 4. In case of Sanghi Motors vs. Union of India & Ors. (1991) 91 CTR (Del) 15 : (1991) 187 ITR 703 (Del) (overruled on another point), Hon'ble Delhi High Court, speaking through Justice B.N. Kirpal (as he then was), on effect of provision of s. 43B observed as under : "A reading of this section clearly shows that deduction can be claimed only in year in which payment is actually made. In other words, deduction cannot be allowed as per principles of mercantile system of accounting, namely, when liability arises but now it can be allowed only in year in which tax is actually paid. In present case, tax having been paid on 31st Jan., 1985, it would be in case of petitioner, in accounting year ending 31st Jan., 1985, and corresponding to asst. yr. 1987- 88, that deduction can be claimed." 4.1 In case of Indian Communication Network (P) Ltd. vs. IAC (supra), Special Bench held as under : "In accordance with system followed all along by assessee, customs duty and excise duty pertaining to goods unsold (raw materials and finished goods) were included as part of its closing stock. For asst. yr. 1984- 8 5 also, assessee had adopted same system and had included amount of Rs. 26,98,713 being customs duty and excise duty (on raw materials and finished goods) as part of closing stock. assessee originally returned total income of Rs. 14,22,830 for asst. yr. 1984-85 but filed revised return claiming deduction of sum of Rs. 26,98,713 being duties paid before 31st Dec., 1983, from closing stock and consequently from profits. Both AO and CIT(A) rejected claim on ground that no benefit of nature was contemplated by s. 43B of IT Act, 1961. On appeal to Tribunal, matter being posted before Special Bench : Held, that assessee was entitled to deduction of Rs. 26,98,713 and that opening stock for following year would stand reduced by same figure (see p. 114F). provisions of s. 43B of IT Act, 1961, disturb existing and accepted position of assessee's account. section stipulates full deduction of customs duty and excise duty in year of payment but by retaining part of amount paid as customs duty/excise duty in closing stock ultimate deduction is given only in part and, therefore, it is necessary to remove amount from closing stock. Removal of amount from figure of closing stock is not tantamount to "tinkering" of closing stock but allowing to assessee effective deduction to which it is entitled under s. 43B (see pp. 108B, 110G, 114C, D)." 4.2 In case of Lakhanpal National Ltd. vs. ITO (supra), assessee had paid excise duty of more than Rs. 5 crores and customs duty of more than Rs. 2 crores. Out of amount debited, deduction of following amounts was matter of controversy before High Court : (i) Stock of finished goods lying at various Rs. 29,80,439 depots : Rs. (ii) Customs duty paid as per statement : 1,24,94,085 4.3 According to AO, excise duty of Rs. 5.25 crores (including said sum of Rs. 29.80 lakhs) and customs duty of Rs. 2.78 crores (including aforesaid amount of Rs. 1.2 crore) paid during relevant year, were debited to P&L a/c. Therefore, two amounts referred to above were part of cost element in closing stock as per consistent and established principle of accounting. Therefore, excise and customs duty included in closing stock could not be allowed as deduction as entire amount paid during year has already been debited to P&L a/c with manufacturing expenses. case of assessee is noted by their Lordship as under: "At time of hearing, Mr. J.P. Shah, learned advocate appearing for petitioner, submits that any sum payable by assessee by way of tax or duty under any law for time being in force is allowable and as per mercantile method of accounting, it would be allowable at time when it becomes due and/or assessee would be liable to pay same and not on actual payment of tax or duty, but as per newly added provision of s. 43B of Act, it would be allowable only in computing income referred to in s. 28 of previous year in which sum is actually paid by assessee irrespective of previous year in which liability to pay such tax was incurred by assessee according to method of accounting regularly employed. He, therefore, submits that customs duty being paid in year 1983 on raw material imported during year, though raw material is consumed in year 1984, assessee would be entitled to get allowable deduction for asst. yr. 1984-85 (accounting year ending on 31st Dec., 1983) in computing taxable income of petitioner assessee." 4.4 objection of Revenue is noted as under : "Shri S.N. Shelat, learned advocate appearing for respondent, submits that words "otherwise allowable" used in s. 43B of Act would mean that it would not be allowable for asst. yr. 1984-85. He submits that s. 43B of Act does not enlarge scope of deduction. According to his submission, what is allowable under commercial principles under s. 43B of Act is made allowable deduction on actual payment being made. He further submits that it does not permit deduction in respect of amounts, which are not allowable under commercial principles only because they are paid. He further submits that it is not expenditure pertaining to goods sold in that year." 4.5 After considering provision of s. 43B, their Lordships held as under : "On perusal of language of s. 43B, it is clear that it opens with non- obstante clause which means that it controls operation of other provisions of Act and irrespective of other provisions, s. 43B will have overriding effect. Keeping this in mind, if we examine language of section, it clearly brings out intention of legislature that deduction in respect of any tax or duty under any law would be allowable deduction in computing income under s. 28 of that previous year in which such sum is actually paid by assessee. intention is made more specific by providing that it would be so irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by assessee. This clearly makes out that even if mercantile method of accounting is employed and liability to pay might have accrued which would give assessee right to obtain deduction, in view of specific language of section, assessee would not be entitled to get deduction merely on accrual of liability to pay tax or duty, but would be so entitled to get deduction only on actual payment of tax or duty. legislature has also taken care by providing Explanation that assessee shall not be entitled to any deduction under s. 43B of Act in respect of such sum in computing income of previous year in which such sum is clearly paid by him in case deduction in respect of any such sum was allowed in previous year. It is, therefore, clear that assessee shall not be entitled to get benefit twice, i.e., at time when liability arises and also at time when actual payment is made. In view of specific language of section that deduction of amount as mentioned in cls. (a) and (b) of s. 43B would be allowed in previous year in which such sum is paid, there is no scope for any doubt that such sum can be allowed by way of deduction while computing income in previous year in which such sum is actually paid by assessee. There is no dispute on point that amount of import duty and excise duty are allowable deductions. What is disputed on behalf of respondents that amount of customs and excise duty on value of closing stock of petitioner-assessee should not be permitted in asst. yr. 1984-85 (accounting year ending on 31st Dec., 1983), though actually paid in year 1983, because assessment of closing stock of year 1983 will be in subsequent previous year which would be in 1984 and relevant assessment year would be 1985-86. It is true that at time of making assessment for asst. yr. 1985-86, respondent will have to be careful in seeing that petitioner does not claim further deduction for sum for which deduction is already given. In this case, it is not contention of respondent that any sum payable under cl. (a) of s. 43B of Act was at any time claimed by way of deduction in any previous year prior to 1983. In fact, raw materials were imported and goods were manufactured in year 1983, and they were cleared also in year 1983. Therefore, their liability accrued in year 1983, and they also paid sum in year 1983. In that view of matter, Explanation to s. 43B of Act is also not attracted in present case. Mr. J.P. Shah, learned advocate appearing for petitioner, has invited our attention to computation of total income for asst. yr. 1985- 86 which is annexed to petition as Annex. I, wherein it has been pointed out that amount of excise duty of Rs. 29,94,439 paid on closing stock (in year 1983) on finished goods lying at various depots was added to net profit as per P&L a/c. Similarly, amount of Rs. 1,24,94,085 is also added. This further assures that petitioner-assessee does not intend, claiming double benefit for same amount. argument of Mr. S.N. Shelat that s. 43B of Act does not enlarge scope of deduction is correct inasmuch as it speaks about deduction otherwise allowable under this Act, but his argument is not that sum which is paid by way of import duty or liability to pay excise duty is not sum given under permissible deduction. Under mercantile method of accounting, as stated earlier, moment liability is incurred, it would be admissible deduction. What s. 43B of Act states is that irrespective of fact that liability is already incurred, that would be admissible deduction only when actual amount in that regard is paid. Therefore, it is clear that in year 1983, when goods including raw material were imported and finished goods lying at various depots were manufactured in year 1983 (including one under closing stock), liability to pay import duty and excise duty on said goods was incurred by petitioner-assessee. When that is so, it is also clear that deduction of said excise duty and import duty even on closing stock was allowable in accounting year 1983, but because of specific language of s. 43B of Act which has overriding effect, it could not have been claimed by way of deduction unless payment thereof was made and here, in this case, it is not case of respondent that payment of said duty is not made and, therefore, it is not allowable. Therefore, submission of Mr. Shelat that deduction in respect of amounts which are not allowable under commercial principles are claimed as deductions merely because they are paid, cannot be accepted." 4.6 learned Departmental Representative before us emphasized that in case of Lakhanpal National Ltd. (supra) liability to pay excise duty had accrued in year 1983 and sum was paid in year 1983. condition of accrual of liability as well as actual payment was proved. Therefore, case supported stand of Revenue. It was also contended that their Lordship accepted that s. 43B of Act does not enlarge scope of deduction. We are unable to accept this argument. In place of mere accrual, requirement of actual payment cannot be argued to have enlarged scope of section. decision cannot be read by taking one line from here and one from there. ratio of decision is to be considered and ratio about change brought about by s. 43B is recorded as under : "Under mercantile method of accounting, as stated earlier, moment liability is incurred, it would be admissible deduction. What s. 43B of Act states is that irrespective of fact that liability is already incurred, that would be admissible deduction only when actual amount in that regard is paid." 4.7 Their Lordship further emphasized : "The intention is made more specific by providing that it would be so irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by assessee. This clearly makes out that even if mercantile method of accounting is employed and liability to pay might have accrued which would give assessee right to obtain deduction, in view of specific language of section, assessee would not be entitled to get deduction merely on accrual of liability to pay tax or duty, but would be so entitled to get deduction only on actual payment of tax or duty." 4.8 As regards acceptance of Revenue's case, and arguments of Mr. S.N. Shelat, it is nobody's case that s. 43B enlarged scope of deduction. provision enables assessee to claim deduction on actual payment basis. arguments of counsel for Revenue were rejected by Court by observing. "Therefore submission of Mr. Shelat that in respect of amounts which are not allowable under commercial principles are claimed as deduction merely because they are paid, cannot be accepted." This exactly is case pleaded before us by Revenue. It has been argued that besides actual payment, assessee must establish accrual of liability before payment. On other hand, arguments advanced on behalf of assessee by Mr. J.P. Shah have been accepted and it has been further observed, "There is n o dispute on point that amount of import duty and excise duty are allowable deduction." 5 . In case of CIT vs. Bharat Petroleum Corpn. Ltd. (supra), Bharat Petroleum Corporation had claimed deduction of Rs. 12,62,47,225 under head "Excise and customs duty paid" on closing stock as on 31st March, 1985. amount was not debited in P&L a/c but shown in balance sheet as "current assets" under caption "prepaid taxes". AO did not allow claim for deduction as amount was not debited in P&L a/c in respect of goods falling in closing stock nor amount was included in value of closing stock. first appeal of assessee was rejected. It is noted in report that Tribunal allowed appeal, "and held that entire amount was allowable deduction in view of fact that assessee had actually paid, during year in question, Rs. 12,62,47,225." High Court upheld decision with following finding: "Findings on question No. 1 : facts brought on record show that during financial year 1984-85 relevant to asst. yr. 1985-86, assessee actually paid sum of Rs. 12,62,47,225. said amount was part of closing stock as on 31st March, 1985. As per decision of Gujarat High Court in Lakhanpal National Ltd. vs. ITO (1986) 54 CTR (Guj) 241 : (1986) 162 ITR 240 (Guj), excise and customs duty paid and included in closing stock are allowable deductions from income. That, s. 43B does not bar such deductions. However, such deductions are subject to payment being added to opening stock in relevant subsequent year. We respectfully agree with judgment of Gujarat High Court in Lakhanpal National Ltd. case (supra). This is pure finding of fact. CIT(A) has also accepted that aforestated amount is part of closing stock. In view of concurrent finding of fact, no substantial question of law arises. Hence, first question is answered in affirmative, i.e., in favour of assessee and against Department." It is clear from facts available on record that deduction claimed related to prepaid taxes in respect of goods which were still with assessee and in closing stock. Tribunal allowed claim, "in view of fact that assessee had actually paid, during assessment year in question, Rs. 12,62,47,225." ratio is that deduction cannot be disallowed on ground that stock on which duty was paid was part of closing stock. There is no reference to any requirement of accrual of liability. Besides it is specifically noted that excise duty is "prepaid tax". In other words, it was advance excise duty paid by assessee. 6. In case of Chemicals & Plastics India Ltd. vs. CIT (supra), entire decision is being reproduced as under, to see what is ratio of decision: "Judgment R. Jayasimha Babu, J. : question referred at instance of assessee is, 'Whether, on facts and circumstances of case, customs duty and excise duty actually paid and shown as current assets in balance sheet and not charged to P&L a/c could be deducted under s. 43B in computing income of assessee ?' assessment year is 1984-85. assessee is engaged in manufacture of polyvinyl chloride, rigid PVC pipes and fittings and other items. assessee had, in previous year corresponding to asst. yr. 1984-85, imported materials required for manufacture of assessee's products. assessee had paid import duty of Rs. 35,09,826. According to assessee cost of imported materials inclusive of duty was taken to P&L a/c only on consumption basis. balance of import duty of Rs. 11,58,833 paid on raw consumption basis. balance of import duty of Rs. 11,58,833 paid on raw materials held as closing stock, was taken into balance sheet and shown as part of current assets. Schedule 15 of balance sheet set out current assets, loans and advances. In that schedule, under heading "Inventories" value of raw materials held in stock was shown. value of raw materials stated therein, according to assessee, includes this sum of Rs. 11,58,833. Similarly excise duty paid on finished goods held as closing stock was shown as part of inventory under current assets in balance sheet. assessee's claim under s. 43B of Act for deducting actual customs duty and excise duty paid on stock of raw material and finished goods was negatived by AO, CIT and finally by Tribunal, all of whom took view that as amounts paid towards customs duty and excise duty had not been shown separately in P&L a/c, deduction could not be given. Sec. 43B of Act which provides that certain deductions are to be only o n actual payment opens with non obstante clause in relation to any other provision in Act, and provides, inter alia that any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force shall be allowed irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him, only in computing income referred to under s. 28 of that previous year in which that sum is actually paid by assessee. first proviso permits such payment being made even after close of previous year, but prior to filing return of income under s. 139(1) of Act. assessee, therefore, is entitled to deduction of amount of duty paid in year in which payment was made. fact that part of customs duty was paid in respect of raw materials, which remained with assessee at end of year would not deprive assessee of benefit of claiming deduction in year in which duty had been actually paid. So also right of assessee to claim deduction for amount of excise duty paid in year in which it was paid is unaffected by fact that part of duty paid was in relation to finished goods which remained with assessee at end of year. Sec. 43B does not stipulate that before assessee could claim deduction i n that year, assessee should have shown amounts paid towards duty under separate head and that inclusion of duty element in valuation of current assets would disentitle assessee from claiming deduction under s. 43B. fact that duty paid was not charged to P&L a/c by itself would not disentitle assessee from claiming deduction under s. 43B. It is open to assessee to file adjustment statement before AO. Learned counsel for Revenue submitted that duty paid is legitimate charge on gross profits when gross profits have been properly ascertained by valuing closing stock as also opening stock including therein duty paid on such stock. view similar to one taken by us has been taken by Bombay High Court in case of CIT vs. Bharat Petroleum Corpn. Ltd. (2001) 169 CTR (Bom) 119 : (2001) 252 ITR 43 (Bom). assessee had filed before AO necessary adjustment statement. question referred to us is answered in favour of assessee." It is clear from above that deduction was allowed to assessee in respect of his claim under s. 43B and their Lordship has elaborated as to how deduction is to be allowed only on actual payment irrespective of previous year in which liability to pay such sum was incurred by assessee. 7 . application of s. 43B was again considered by their Lordship of Supreme Court in case of Berger Paints India Ltd. vs. CIT (supra). Their Lordship noted that Revenue had not challenged decision of Gujarat High Court in Lakhanpal National Ltd. (supra) which was followed by Bombay High Court in CIT vs. Bharat Petroleum Corpn. Ltd. (supra). Madras High Court in Chemicals & Plastics India Ltd. vs. CIT (supra) followed Bombay High Court. Special Bench decision of Tribunal in case of Indian Communication Network (P) Ltd. vs. IAC (supra) was also not challenged. Their Lordship held that having not challenged correctness of law laid down by High Courts, and accepted in case of one assessee, then it was not open to Revenue to challenge its correctness in case of other assessee without just cause. Their Lordship noted analysis and finding of decision of Lakhanpal National Ltd. case (supra) as under: "A reading of Gujarat High Court's judgment shows that judgment is not based merely on adjustments permissible under s. 141A, as is contended by Revenue, but that judgment proceeds on analysis of s. 43B and makes finding that entire amount of excise duty/customs duty paid by assessee in particular accounting year was allowable deduction in respect of that year irrespective of amount of excise duty/customs duty which was included in valuation of assessee's closing stock at end of accounting year. After coming to this conclusion, Gujarat High Court then proceeded to consider impact of s. 141A and granted appropriate relief thereunder. It is not possible for us to accept contention of Revenue that judgment of Gujarat High Court in Lakhanpal National Ltd.'s case (supra) is distinguishable on ground put forward. decision in Lakhanpal National Ltd.'s case (supra), which clearly laid down interpretation of s. 43B was followed by judgment of Madras High Court and Bombay High Court and was again followed by deduction of Special Bench of Tribunal, none of which have been challenged. In these circumstances, principle laid down in Union of India vs. Kaumudini Narayan Dalal (2001) 168 CTR (SC) 3 : (2001) 249 ITR 219 (SC), CIT vs. Narendra Doshi (2002) 174 CTR (SC) 411 : (2002) 254 ITR 606 (SC) and CIT vs. Shivsagar Estate (2002) 177 CTR (SC) 107 : (2002) 257 ITR 59 (SC) clearly applies. We see no "just cause" as would justify departure from principle. Hence, in our view, Revenue could not have been allowed to challenge principle laid down in Lakhanpal National Ltd.'s case (supra), which was followed by IAC in case of assessee in three assessment years in question." 7.1 In spite of above observations of apex Court, what was analysis and finding in case of Lakhanpal National Ltd. (supra), followed in other cases, learned Departmental Representative argued that above decisions were distinguishable and not applicable to facts of case. In all decisions, there was no dispute that liability to pay statutory amount had accrued and amounts were payable and deductions rightly claimed on actual payment basis. question involved before us was not involved in those cases. We do not find any substance in this argument of learned Departmental Representative. Object, purpose and import of s. 43B has been explained, emphasized and noted above. same was clearly stated and admitted to be t o allow deduction of six items mentioned in cls. (a) to (f) of section in year in which amount is actually paid, irrespective of previous year in which liability to pay such sum was incurred by assessee, according to method of accounting. In all cases discussed above, despite difference in facts, Courts noted main thrust of s. 43B of allowability of deduction of tax liability in year in which amount was actually paid and allowed deduction on mere finding that amount was actually paid. That is ratio of decided cases. 8. Besides, following rule is relevant relating to payment of duty: "Rule 173G. Procedure to be followed by assessee.'(1) Every assessee shall keep account-current with Commr. separately for each excisable goods falling under different chapters of Schedule to Central Excise Tariff Act, 1985 (5 of 1986), in such form and manner as Commr. may require, of duties payable on excisable goods and in particular such account (and also account in Form RG-23, if assessee is availing of procedure prescribed in r. 173K) shall be maintained in triplicate by using indelible pencil and double-sided carbon, and assessee shall periodically make credit in such account-current, by cash payment into treasury (so as to keep balance, in such account-current), sufficient to cover duty due on goods intended to be removed at any time and every such assessee shall pay duty determined by him for each consignment by debit to such account-current before removal of goods." Under proviso, assessee instead of 'several' can maintain single account. provision has been quoted only to show that manufacturing concerns with huge turnover like assessee or in three cases, pay excise duty through account as per excise rules. It is evident from above that excise (duty) paid in cases cited above, in relation to goods or raw material, which was part of closing stock could be paid as per above provision only and was merely advance duty paid through current account on goods not removed from factory. Facts here are similar and there is no justification for not treating matter as fully covered in favour of assessee. Therefore, there is no justification for not applying ratio of above cases. 8.1 Besides, there is direct decision of Calcutta High Court in case of Associated Pigments Ltd. vs. CIT (supra). Therein Court relating to deduction of sum on actual payment basis have observed as under : "Very simply put, our opinion is that there is no part of this section or IT Act itself which requires that when deduction is claimed on basis of s. 43B, assessee must satisfy twin test of both proving actual payment of due tax or cess in previous year in question as well as satisfying Department that due provision had been made in books in regard to such duty or tax for which payment was made later on. To introduce this double test would be writing words into section which neither Tribunal nor Court is entitled to do. In other parts of Act, where provision in books is given special status, and that is specifically called for but s. 43B is not one such section." 8.2 decision of Allahabad High Court in case of CIT vs. C.L. Gupta (supra) is also direct on point. Therein Court held as under : "Held, that amount of customs duty of Rs. 3,56,541 was paid by assessee in March, 1987, and, therefore, in terms of s. 43B it was deductible only in year in which it was actually paid i.e., for asst. yr. 1987-88, irrespective of year in which assessee incurred liability on basis of method of accounting regularly adopted by him and, therefore, in view of clear provision of law, deduction could not be allowed in asst. yr. 1988- 89." 9 . aforesaid decided cases have clearly laid down that deduction of items mentioned in s. 43B is to be allowed on actual payment under s. 28 in previous year in which such sums are actually paid by assessee irrespective of previous year in which liability to pay such sum was incurred, according to method of accounting. As noted above in case of Lakhanpal National Ltd. (supra), words "irrespective of previous year in which liability to pay such sum was incurred" were held to represent more specific intention of legislature. In light of specific and strong intention of legislature, we see no scope for argument that besides actual payment, assessee must also prove incurring of liability prior to payment to be entitled to deduction in year of payment. 9.1 As learned Departmental Representative has stressed his point vehemently and as some Benches of Tribunal have accepted them; herein after we deal with submissions of learned Departmental Representative (CIT). submissions in summarized form are as under : (a) That sum claimed as deduction on actual payment basis must be established to be, "a deduction otherwise allowable under Act". (b) In first proviso and Expln. 2 to s. 43B, specifically provide that sum claimed as deduction should be liability which is incurred in previous year, though it may be payable after end of previous year. 9.2 Accordingly, it was contended that in light of clear language of proviso, Explanation and opening sentence of s. 43B, it is not possible to claim deduction of amount without establishing that liability in respect of amount has been earlier incurred. argument is if assessee does not make actual payment of liability, which has been incurred, in previous year in respect of items mentioned in section, deduction would be allowed in following year/years when amount is actually paid. However, incurring of liability prior to payment is must. 1 0 . Before dealing with above arguments, we deem it necessary to consider provisions of s. 43(2) giving meaning to term "paid" for purposes of computing business income. Sec. 43(2) is as under : "Sec. 43(2) 'paid' means actually paid or incurred according to method of accounting upon basis of which profits or gains are computed under head 'Profits and gains of business or profession'." 10.1 connection of above provision with s. 43B is accepted by Revenue in memorandum explaining provision of s. 43B in Finance Bill, 1983 (reproduced above), in these words : "For purpose of computation of profits and gains of business and profession, IT Act define word 'paid' to mean 'actually paid or incurred' according to method of accounting on basis of which profits or gains are computed." 10.2 It is evident from above that "actually paid" is treated as equal to "incurred" i.e. incurring of liability, according to method of accounting followed by assessee for computing profits of business. It is further well known that under cash system, deduction is allowed when sum is "actually paid" whereas under mercantile system, it is allowed when liability is "incurred". It is clear from above discussion that mercantile system of accounting did not work well in respect of items, more particularly in respect of statutory liabilities and was abused. Therefore, provision of s. 43B was introduced to check above abuse. scheme is that deduction would not be allowed on incurring of liability where mercantile system is followed but "shall be" allowed in year in which amount is actually paid. It does not appeal to reason that even after introduction of s. 43B and its clear wording, legislature can intend to insist upon incurring of liability as condition for allowability of deduction. That as for as "paid" under IT Act is concerned "actually paid" is separated from word "incurred" by "or". whole idea of enactment is to change system and replace condition of allowability of deduction from incurring of liability to actual payment. Therefore, it is not possible to accept that simultaneously legislature insisted on incurring of liability, as per mercantile system of accounting. Having in mind provision of s. 43(2) and purpose of s. 43B, there is no question of asking assessee to prove actual payment as well as incurring of liability. learned Departmental Representative while pressing above line of reasoning did not take into account meaning of word "paid" as given in s. 43(2). 11. It would be appropriate to refer to certain pertinent observations of Courts and learned commentators about cash system of accounting. In Kanga & Palkhivala's Law and Practice of Income-tax, Eighth Edition, Vol. I at p. 1160, learned author has observed as under : "The cash system was described in Full Bench case, Dhakeshwar Prasad vs. CIT (1936) 4 ITR 71, 74 (Pat)(FB), by Sir Courtney Terrell CJ in these words : 'According to (cash basis) record is kept of actual receipts and actual payments, entries being made only when money is actually collected or disbursed, and if profits of business are accounted for in this way tax is payable on difference between receipts and disbursements for period in question'. xxxxxxx where accounts are kept on receipt basis, allowances must be granted in year of disbursement, irrespective of question when liability to pay same arose." 11.1 Useful reference can be made to following cases where deduction was allowed in year of disbursement, irrespective of year of accrual of liability : (a) CIT vs. Maharajadhiraja Kameshwar Singh of Darbhanga (1933) 1 ITR 94 (PC); (b) CIT vs. Jananamandal Ltd. (1989) 79 CTR (All) 43 : (1989) 180 ITR 420 (All); (c) Lal Umesh Bahadur Pal & Ors. vs. CIT 1974 CTR (SC) 135 : (1972) 86 ITR 751 (SC); (d) CIT vs. Bijoy Kumar Das (1972) 84 ITR 351 (Ori); (e) B.M.Kamdar, In re (1946) 14 ITR 10 (Bom)(FB); (e) B.M.Kamdar, In re (1946) 14 ITR 10 (Bom)(FB); (f) CIT vs. E.A.E.T. Sundararaj (1975) 99 ITR 226 (Mad); (g) CIT vs. Amalgamated Development Ltd. (1967) 65 ITR 395 (SC). 12. Having seen that under cash system of accounting, deduction is allowed only in year of disbursement, we now proceed to consider arguments of Revenue and first submission was that assessee must show that amount actually paid is deduction "otherwise allowable under Act". In other words assessee must show that it is liability which is deductible. Only in such circumstances, where amount is shown as payable and is actually paid in respect of taxes, duties etc. deduction can be allowed under s. 43B. 1 3 . We do not find any substance in above submission. We have already noted relevant observations from case of Lakhanpal National Ltd. (supra), how under cash system of accounting, deduction is allowed when amount is actually paid. It is not necessary that assessee must prove incurring of specific liability under any statutes referred to in different clauses of s. 43B. It must be expenditure connected and related to assessee's business deductible under s. 28 of Act. It should not be prohibited item totally unrelated to business of assessee. expression "a deduction otherwise allowable" only means statutory liabilities mentioned in s. 43B. implication of expression is that those items of expenditure which are usually deductible in computing business income of assessee. When above expression is read with cl. (a) of section, it becomes abundantly clear that clause is applicable in cases, where for computation of business income, taxes, duties, cess or fees levied by whatever name called, is required to be deducted. Similar is position under other cls. (b) to (f) of section. Clubbing of variety items in one clause and use of expression "under any law for time being in force" makes it clear that section envisages deduction of statutory payment on general basis. expression "a deduction otherwise allowable" reflects deduction on account of general liability fastened to assessee's business on account of duties, taxes, cess, fees by whatever name called arise in course of carrying on of business. expression does not mean any specific liability which is required to be incurred. 14. Turning now to reliance of learned Departmental Representative on proviso-I to s. 43B, we have already noted that said proviso was added to obviate unintended hardships caused to certain assessees. Even sales-tax collected in month of March and when same was payable in April of relevant year, could not be allowed, as deduction. Therefore, to remove hardships, proviso was added. This has been explained in detail in decision of Supreme Court in case of Allied Motors (P) Ltd. (supra). Their Lordship held as under : "Sec. 43B was, therefore, clearly aimed at curbing activities of those taxpayers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on ground that liability to pay these amounts had been incurred by them in relevant previous year. It was to stop this mischief that s. 43B was inserted. It was clearly not realized that language in which s. 43B was worked, would cause hardship to those taxpayers who had paid sales-tax within statutory period prescribed for this payment, although payment so made by them did not fall in relevant previous year. This was because sales-tax collected pertained to last quarter of relevant accounting year. It could be paid only in next quarter which fell in next accounting year. Therefore, even when sales-tax had in fact been paid by assessee within statutory period prescribed for its payment and prior to filing of IT return, these assessees were unwittingly prevented from claiming legitimate deduction in respect of tax paid by them. This was not intended by s. 43B. Hence, first proviso was inserted in s. 43B. amendment which was made by Finance Act of 1987 in s. 43B by inserting, inter alia, first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to assessee and which made provision unworkable or unjust in specific situation." proviso is exception to general rule and has limited application. If amount is paid before due date of filing of return in respect of liability incurred in previous year then provision of s. 43B is not applicable. This proviso thus covers specific situation. It cannot override clear intention and object of main section and, therefore, is of no help to Revenue. We quote below some decisions, which explain scope of proviso although language and purpose of proviso is very clear. 15. In case of Beharam Khurshid Pesikaka vs. State of Bombay AIR 1955 SC 123, it has been observed that office (object) and function of proviso is to except out of previous enactment in earlier part of section, something which but for proviso would have fallen within scope of enactment, unless context, stating and purpose of section warrants different construction. proviso is generally something engrafted on main enactment. It cannot normally be so interpreted as to setting at naught real object of main enactment. 15.1 In case of Tahsildar Sing vs. State of Uttar Pradesh AIR 1959 SC 1012 apex Court held that it is cardinal rule of interpretation that proviso to provision of statute only embraces field which is covered by main provision. territory of proviso is to carve out exception to main enactment and to exclude that which otherwise would have been within section; proviso is not normally construed other than as subtraction of main section and as introducing qualification or exception to enacting part. 15.2 In case of CIT vs. Indo Mercantile Bank Ltd. (1959) 36 ITR 1 (SC), their Lordship of Supreme Court observed as under : "The proper function of proviso is that it qualifies generality of main enactment by providing exception and taking out as it were, from main enactment, portion which, but for proviso, would fall within main enactment. Ordinarily, it is foreign to proper function of proviso to read it as providing something by way of addendum or dealing with subject which is foreign to main enactment." 15.3 There are umpteen authorities laying down same proposition that proviso is exception to main provision and should be so read. It cannot control main section. Therefore, reliance of Revenue on proviso is of no avail. 1 6 . learned Departmental Representative has also placed strong reliance on Expln. 2 to s. 43B. said Explanation was added to deal with specific situation. situation had arisen on account of decision of Hon'ble Andhra Pradesh High Court in case of Srikakollu Subba Rao & Co. vs. Union of India & Ors. (supra) wherein it was held as under : "In order to apply provisions of s. 43B, not only should liability to pay tax or duty be incurred in accounting year but amount also should be statutorily payable in accounting year. Sec. 43B itself is clear to this extent. It refers to 'sum payable' in cls. (a) and (b). amendment w.e.f. 1st April, 1988, permitting deduction of taxes and duties paid before filing of IT returns makes this clear. Where writ petitions were filed against disallowance of (i) market cess and (ii) disallowance of sales-tax payable for month of March, 1984, under s. 43B : Held, (i) that sales-tax payable for month of March, 1984, could not be disallowed under s. 43B." 17. Above decision, according to CBDT, was contrary to intention of legislature. It was defeating very purpose of section. Therefore to supersede and override, decision, Expln. 2 was added to section. This has been implicitly admitted in circular of CBDT referred to in decision of Supreme Court in case of Allied Motors (P) Ltd. (supra). However, Expln. 2, cannot be employed to govern main section. It has very limited application and specific purpose to serve, of superseding view taken by Court, and should be construed accordingly. If Explanation is not given restricted meaning and taken to be inserted merely to override decision of Hon'ble High Court, it would lead to absurd results which might defeat very purpose of s. 43B. said Explanation to appreciate argument is as under : "Explanation 2.'For purposes of cl. (a), as in force at all material times, 'any sum payable' means sum for which assessee incurred liability in 'any sum payable' means sum for which assessee incurred liability in previous year even though such sum might not have been payable within that year under relevant law." significant words in provisions are "previous year" which is defined in s. 3 of Act to mean "the financial year immediately preceding assessment year" (proviso is not relevant and is being not considered). Therefore literal construction of Explanation would mean that statutory liability incurred in previous year has to be cleared by "actual payment" in previous year, to be eligible for deduction such statutory amount might not be payable in previous year. Such steps would lead to great hardships is clearly admitted by legislature and situation was sought to be improved by adding proviso which is exception to rule. exception obviously cannot serve purpose of section. Therefore, if assessee makes payment after period of filing return under s. 139(1), then he would never be entitled to claim deduction despite actual payment as envisaged. Besides wording of Expln. 2 are contradicting main section, which provides, "irrespective of previous year in which liability to pay such sum was incurred". If meaning of "any sum payable" is included, section would lead to absurd reading and would be unworkable as under : "43B. Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of' (a) sum for which assessee incurred liability in previous year e v e n though such sum might not have been payable within that previous year'....... shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in s. 28 of that previous year in which such sum is actually paid by him." [Portion (a) is going in different direction than main section and it is not possible to reconcile them]. very purpose of s. 43B as discussed earlier, is to allow deduction i n assessment year relevant to previous year in which amount is actually paid. Even Departmental Representative has not disputed that liability should be shown to have been incurred earlier than actual payment not necessarily in same previous year. If Expln. 2 is read literally, it can lead to absurd results and hardships and in some case might become unworkable. It will, therefore, be most reasonable to read Expln. 2 as governing particular situation arising on account of view taken by High Court, as discussed above. 17.1 In this connection, besides relying upon decision of Supreme Court in case of Allied Motors (P) Ltd. (supra) and other decisions referred to earlier, we may note following decisions : (i) In case of Bengal Immunity Co. Ltd. vs. State of Bihar AIR 1955 SC 661, Supreme Court held that intention of adding Explanation is to clear up ambiguity if any, in section. It is subordinate part of section included for purposes for arriving at particular conclusion in matter of interpretation of statute. Again case of State of Bombay vs. United Motors (India) Ltd. 4 STC 133 (SC), their Lordship of Supreme Court held that if language of Explanation shows purpose and construction consistent with purpose can be reasonably placed upon it, that construction will be preferred as against any other construction which does not fit in with description or avowed purpose. 18. learned Departmental Representative had vehemently contended that it would not be possible to ignore Expln. 2 defining "any sum payable" while considering impact and application of s. 43B. said Explanation cannot be treated as "redundant". We are unable to accept this situation. We are not treating Expln. 2 as redundant but only trying to reconcile it with main section. rule of harmonious construction requires that all relevant provisions of statute should be read together and then attempt made to reconcile them and take reasonable view suggested by language employed. However, what is to be done where one portion of provision like Expln. 2 here is contradicting other provision and is leading to absurd results. To avoid above and to achieve object of section, Expln. 2 is being given restricted meaning as discussed above. pertinent question is whether such treatment can be given to "defining" provision. answer is yes if defining provision is inconsistent with what is called sole (sic-soul) of section or leading/positive portion of section. sole (sic-soul) of provision is one, which reflects intention of legislature, and contains mandate Courts are required to carry. sole (sic- soul) or leading part of s. 43B is reflected in following language : "Shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in s. 28 of previous year in which such sum is actually paid by him." aforesaid provision emphasizes following points : (i) That deduction of sums covered by cls. (a) to (f) shall be allowed in computing income under s. 28 of previous year in which such sum is actually paid. (ii) This is irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him. There is, therefore, no justification to examine previous year in which liability to pay sum was incurred when mandate is "irrespective of previous year in which liability was incurred" and claim is to be allowed on basis of actual payment. To do otherwise would be to do violence to words "irrespective of previous year" in which liability was incurred and disregard mandate of section. 19. In our considered opinion, only way to harmonise different parts of s. 43B which according to Supreme Court is not happily worded is to give limited and restricted meaning to proviso (i) and Expln. 2, as discussed above. argument that effect must be given to Expln. 2, and find previous year in which liability was incurred in preference to clear command of section, "irrespective of previous year in which liability to pay was incurred" cannot be "irrespective of previous year in which liability to pay was incurred" cannot be accepted in light of law discussed below, where even defining word "transfer" in Transfer of Property Act was ignored as it was found to be inconsistent with other provisions : 19.1 In case of Chief Inspector of Mines & Anr. vs. Lala Karam Chand Thapar AIR 1961 SC 838, Supreme Court noted observations of Lord Chancellor in case of Institute of Patent Agents & Ors. vs. Joseph Lockwood (1894) AC 347, to following effect : "No doubt, said he, "there might be some conflict between rule and provision of Act. Well there is conflict sometimes between two sections to be founding same Act. You have to try and reconcile them as best as you may. If you cannot, you have to determine which is leading provision and which is subordinate provision, and which must give way to other. That would be so with regard to enactments and with regard to rules which are to be treated as if within enactment. In that case probably enactment itself would be treated as governing consideration and rule as subordinate to it." 19.2 In case of State of Gujarat vs. Chaturbhuj Maganlal (1976) 3 SCC 54, their Lordships held : "Where language of statutory provision is susceptible of two interpretations, one which promotes objects of provision, comports best with its purpose and preserves its smooth working, should be chosen in preference to other which introduces inconvenience and uncertainty in working of system. This rule will apply in full force where provision confers ample discretion on Government for specific purpose to enable it to bring about effective result." 19.3 In case of Chief Justice of A.P. vs. Dixitulu 1979 (2) SCC 34, Constitution Bench of Hon'ble Supreme Court observed as under : "Where two alternative constructions are possible, Court must choose one which will be in accord with other parts of statute and ensure its smooth, harmonious working, and eschew other which leads to absurdity, confusion or friction, contraction and conflict between its various provisions, or undermines, or tends to defeat or destroy basic scheme and purpose of enactment. These canons of construction apply to interpretation of our Constitution with greater force, because Constitution is living, integrated organism, having soul and consciousness of its own. pulse beats emanating from spinal cord of its basic framework can be felt all over its body, even in extremities of its limbs." 19.4 In case of Smt. Laxmi Devi vs. Sethani Mukand Kanwar & Ors. AIR 1965 SC 934, dispute was whether transfer in favour of auction purchaser for consideration without notice of charge was protected under second part of s. 100 of Transfer of Property Act. It was held that in light of provisions of s. 2(d) of Transfer of Property Act, providing that nothing herein contained shall be deemed to affect save as otherwise provided by s. 57 and Chapter IV of this Act, auction purchase is "transfer" by operation of law or by any execution of decree or order of Court of competent jurisdiction. However, s. 5 of Transfer of Property Act defines transfer of property to mean act by which living person conveys property to one or more other living persons. Apparently this section does not include auction purchase and resultantly excluded altogether auction purchaser who had sought protection under s. 100 of Transfer of Property Act. 19.5 Supreme Court excluded application of s. 5 defining "transfer" with following observations : "In our opinion, positive provision contained in s. 2(d) must prevail over definition of "transfer of property" prescribed by s. 5. No doubt, purpose of definition is to indicate class of transfers to which provisions of Transfer of Property Act are intended to be applied; but definition of this kind cannot override clear and positive direction contained in specific words used by s. 2(d). As we have already seen, result of saving clause enacted by s. 2(d) is to emphasise fact that provisions of s. 57 and those contained in Chapter IV must apply to transfer by operation of law. Such positive provision cannot be made to yield to what may appear to be effect of definition prescribed by s. 5, and so, we are inclined to hold that notwithstanding definition prescribed by s. 5, latter part of s. 100 must be deemed to include auction sales." 2 0 . In light of clear object of s. 43B, found from its heading, its language, mischief it sought to cover and various decisions of Courts, it has to be held that deduction in respect of statutory payment is to be allowed in previous year in which amount is actually paid. section itself commands that actual discharge of liability is to be insisted upon irrespective of previous year in which liability to pay was incurred. It would be acting contrary to purpose and spirit of section if we start examining question as to in which previous year liability to pay was incurred. Therefore, in our considered opinion, s. 43B allows deductions as are allowable in case of cash system of accounting and there is no need to establish incurring of liability to pay amount in question. 2 1 . Revenue authorities had expressed apprehension that assessees can adopt device to hoodwink Revenue by paying taxes and duties and thus avoid payment of income-tax. This contention can hardly be appreciated. We have not come across any case where device of payment of taxes, duties and cess was adopted to avoid payment of income-tax. Such device is neither practical nor possible. This can be illustrated with example. 21.1 income of assessee is Rs. 1 crore and he is liable to pay tax @ 35 per cent on total income. assessee pays Rs. 1 lakh as excise duty to reduce its total income which thereafter is worked out at Rs. 99 lakhs. Now what assessee has saved is 35 per cent of Rs. 35,000 after shelling out Rs. 1 lakh. How assessee is benefited by payment of duty or tax ? Therefore, contention that payment of taxes, cess etc. can be adopted as device, is required to be stated to be rejected. 22. assessee is maintaining current account and is making payment as per statutory provision of r. 173G of Excise Rule r/w s. 37(ib) of Central Excise Act. It is payment made as per requirement of statute and, therefore, we do not see how such payment can be disallowed. In case payment made is refunded for any reason, same can be brought to tax in accordance with provisions of s. 41(1) of IT Act. However, if deduction is not allowed to assessee, in assessment year relevant to previous year in which amount is actually paid, assessee would not be entitled to get deduction in any subsequent year on account of s. 43B. Therefore, interpretation placed by Revenue on provision of s. 43B cannot be accepted for reasons given above. 23. As entire appeal has been referred to us for disposal, we note down relevant facts of case relating to amounts involved. In P&L a/c, assessee has shown total sales of Rs. 90,093.29 lakhs including sales of excisable goods. It has further debited excise duty at Rs. 9,817.70 lakhs in P&L a/c. above detail is available at p. 63 of paper book, as under : Year ended 31-3-2001 (Rs. lakhs) Excise duty : 12179.90 Add : Excise duty on closing stock (includes excise duty payable on finished goods not cleared from bonded 910.12 warehouse Rs. 317.62 lakhs (previous year : Rs. 355.26 lakhs) Less : Excise duty on opening stock (including excise duty on finished goods not cleared from bonded (957.68) warehouse Rs. 355.26 lakhs (previous year : nil) Less : Modvat credit availed during year : (2314.64) 9817.70 It is clear from above that assessee is making regular bulk manufactures and paying excise duty by making deposit in current account. Against above deposits, assessee is taking out goods and in period goods on which duty of Rs. 9,817.70 lakhs was payable, were taken out of factory and adjustments were made in account. adjusted figures were taken to P&L a/c. However, amount paid in current account being more, assessee claimed t h e deduction of entire amount paid and, therefore, further deduction of Rs. 1,03,48,071, as per following details : Particulars (Rs.) (Rs.) Deposit with excise 4821804 authorities in PLA Deposit with excise 105150551 109972355 authorities in RG-23 (Part II) Less : Excise deposit as on 31-3-2000 claimed as 99624284 deduction in asst. yr. 2000-01 Amount now allowable 10348071 under s. 43B above amount represented excise duty paid and not adjusted in period ending 31st March, 2001. It is statutory requirement to make deposit in current account first and thereafter clear goods. Excise Department does not insist on adjustment of each clearance of goods with each deposit. assessee has merely to show that aggregate amount of duty payable on goods taken out (cleared) is less than total amount credited in current account and there is sufficient balance in account. It is submitted that even for income-tax purposes, adjustment of entry to entry be not made as some goods for which duty was paid last year, were cleared in period under consideration. Otherwise entire claim relating to excise duty will have to be rewritten, resulting in lot of wastage of time and energy. Therefore, claim of deduction is pressed on account of actual duty paid in relevant period in bona fide manner. Above claim was not considered by AO. CIT(A) allowed entire claim and, therefore, did not go into question of accrual of liabilities qua claim. But details would have to be examined and reworked if stand of Revenue is ultimately to prevail. We hold accordingly. For all above reasons, question No. 1 is answered in favour of assessee. I have gone through proposed orders. Since I could not persuade myself to agree with reasoning and conclusion partly arrived at in proposed orders, I would like to give my reasons in regard to issue raised before Special Bench. In para 13 of proposed order, issues before Special Bench have been identified as under : "1. Whether deduction for tax, duty, etc. is allowable under s. 43B of IT Act, 1961, on payment basis before incurring liability to pay such amounts ? 2. Whether Modvat credit available to assessee as on last day of previous year amounts to payment of central excise duty under s. 43B ?" In regard to second issue, I agree with conclusion arrived at in proposed order that Modvat credit available to assessee as on last day of previous year does not amount to payment of central excise duty under s. 43B. In regard to first issue, I give my reasons as well as conclusions as under. issue involved herein is relating to interpretation of provision of s. 43B of IT Act, 1961. In order to appreciate relevance of s. 43B in computing profits and gains of business, it will be useful to refer to scheme of taxation under provisions of Act to serve prelude to interpretation of s. 43B of IT Act, 1961 (hereinafter shortly referred to as 'the Act'). 2 . IT Act, 1961 is Act of Parliament providing charge of tax on income of every person. Sec. 4 of Act is charging section which reads as under : "4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to provisions (including provisions for levy of additional income-tax) of, this Act in respect of total income of previous year of every person : Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of income of period other than previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-s. (1), income-tax shall be deducted at source or paid in advance, where it is so deductible or payable under any provision of this Act." As is seen from s. 4 quoted above, income-tax is tax in respect of total income of previous year of every person. 'Person' is defined under s. 2(31) of Act as under : "2. In this Act, unless context otherwise requires,' (31) "person" includes' (i) individual, (ii) HUF, (iii) company, (iv) firm, (v) AOP or BOI, whether incorporated or not, (vi) local authority, and (vii) every artificial juridical person, not falling within any of preceding sub-clauses. Explanation'For purposes of this clause, AOP or BOI or local authority or artificial juridical person shall be deemed to be person, whether or not such person or body or authority or juridical person was formed or established or incorporated with object of deriving income, profits or gains;" Sec. 14 of Act gives heads of income which reads as under : "14. Heads of income'Save as otherwise provided by this Act, all income shall, for purposes of charge of income-tax and computation of total income, be classified under following heads of income : A. Salaries. C. Income from house property. D. Profits and gains of business or profession. E. Capital gains. F. Income from other sources." 3 . assessee before us derives income from profits and gains of business or profession and is accordingly assessable as such. Sec. 28 of Act provides categories of income chargeable to income-tax under head "Profits and gains of business or profession". Sec. 29 of Act provides as to how profits and gains of business or profession are to be computed. said section reads as under : "29. Income from profits and gains of business or profession, how computed'The income referred to in s. 28 shall be computed in accordance with provisions contained in ss. 30 to 43D." 4 . Before we consider s. 43B and make attempt to understand meaning of section, it will be relevant to refer to s. 145 of Act. said section reads as under : "145. Method of accounting'(1) Income chargeable under head "Profits and gains of business or profession" or "Income from other sources" shall, subject to provisions of sub-s. (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by assessee. (2) Central Government may notify in Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where AO is not satisfied about correctness or completeness of accounts of assessee, or where method of accounting provided in sub-s. (1) or accounting standards as notified under sub-s. (2), have not been regularly followed by assessee, AO may make assessment in manner provided in s. 144." It is evident from provision of s. 145 r/w s. 29, quoted above, that income chargeable under head "Profits and gains of business or profession" has got to be computed in accordance with either cash or mercantile system of accounting regularly employed by assessee. There are certain exceptions provided under s. 145 when AO can reject method of accounting or book results reference to which at this stage is not relevant for purpose of controversy involved before us. When s. 29 is read in conjunction with s. 145, it becomes abundantly clear that whereas income chargeable under head "Profits and gains of business or profession" is to be computed in accordance with cash or mercantile system of accounting regularly employed by assessee, same is subject to modification as provided under provisions of ss. 30 to 43D of Act. Sec. 43B regulates allowance of deduction in respect of certain items specified thereunder. Sec. 43B is reproduced hereunder : "43B. Certain deductions to be only on actual payment'Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of' (a) any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, or (b) any sum payable by assessee as employee by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees, or (c) any sum referred to in cl. (ii) of sub-s. (1) of section, or (d) any sum payable by assessee as interest on any loan or borrowing (d) any sum payable by assessee as interest on any loan or borrowing from any public financial institution or State financial corporation or State industrial investment corporation, in accordance with terms and conditions of agreement governing such loan or borrowing, or (e) any sum payable by assessee as interest on any loan or advances from scheduled bank in accordance with terms and conditions of agreement governing such loan or advances, or (f) any sum payable by assessee as employer in lieu of any leave at credit of his employee, shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in s. 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub-s. (1) of s. 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return. Explanation 1.'For removal of doubts, it is hereby declared that where deduction in respect of any sum referred to in cl. (a) or cl. (b) of this section is allowed in computing income referred to in s. 28 of previous year (being previous year relevant to assessment year commencing on 1st day of April, 1983, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. Explanation 2.'For purposes of cl. (a), as in force at all material times, "any sum payable" means sum for which assessee incurred liability in previous year even though such sum might not have been payable within that year under relevant law. Explanation 3.'For removal of doubts it is hereby declared that where deduction in respect of any sum referred to in cl. (c) or cl. (d) of this section is allowed in computing income referred to in s. 28 of previous year (being previous year relevant to assessment year commencing on 1st day of April, 1988, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. Explanation 3A.'For removal of doubts, it is hereby declared that where deduction in respect of any sum referred to in cl. (e) of this section is allowed in computing income referred to in s. 28 of previous year (being previous year relevant to assessment year commencing on 1st day of April, 1996, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. Explanation 3B.'For removal of doubts, it is hereby declared that where deduction in respect of any sum referred to in cl. (f) of this section is allowed in computing income, referred to in s. 28, of previous year (being previous year relevant to assessment year commencing on 1st day of April, 2001, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. Explanation 4.'For purposes of this section,' (a) "public financial institutions" shall have meaning assigned to it in s. 4A of Companies Act, 1956 (1 of 1956); (aa) "scheduled bank" shall have meaning assigned to it in Explanation to cl. (iii) of sub-s. (5) of s. 11; (b) "State financial corporation" means financial corporation established under s. 3 or s. 3A or institution notified under s. 46 of State Financial Corporation Act, 1951 (63 of 1951); (c) "State industrial investment corporation" means Government company within meaning of s. 617 of Companies Act, 1956 (1 of 1956), engaged in business of providing long-term finance for industrial projects and eligible for deduction under cl. (viii) of sub-s. (1) of s. 36." 5. Legislative history, context and background In case of Imperial Chit Funds (P) Ltd. vs. ITO (1996) 133 CTR (SC) 505 : (1996) 219 ITR 498 (SC), their Lordships of Supreme Court held that due importance must be given to legislative history, context and background that led to enactment. This principle was reiterated by Hon'ble Supreme Court in case of Indian Hotels vs. ITO (2000) 162 CTR (SC) 310 : (2000) 245 ITR 538 (SC). 6 . Thus, in order to understand and appreciate legislative intent or to ascertain object or purpose behind legislation, speech made by Minister or mover of Bill in Parliament can be taken into consideration. This principle was laid down by Hon'ble Supreme Court in case of Sole Trustee, Loka Shikshana Trust vs. CIT 1975 CTR (SC) 281 : (1975) 101 ITR 234 (SC). In case of Shashikant Laxman Kale vs. Union of India (1990) 86 CTR (SC) 201 : (1990) 185 ITR 104 (SC), their Lordships of Hon'ble Supreme Court held that it is permissible to look into Statement of Objects and Reasons of Bill for limited purpose of appreciating background and antecedents and factual matrix leading to legislation. Hon'ble Supreme Court in case of Hemalatha Gargya vs. CIT (2003) 182 CTR (SC) 107 : (2003) 259 ITR 1 (SC) held that speech of Finance Minister while introducing Bill can be relied upon to ascertain intention behind enactment. 7. following passage from decision of Hon'ble Supreme Court in case of RBI vs. Pearless General Finance & Investment Co. Ltd. (1987) 61 Comp Cas 633, 692 (SC) sums up principle as under : "Interpretation must depend on text and context. They are basis of interpretation. One may well say if text is texture, context is what gives colour. Neither can be ignored. Both are important. That interpretation is best which makes textual interpretation match contextual. statute is best interpreted when we know why it was enacted. With this knowledge, statute must be read, first as whole and then section by section, clause by clause, phrase by phrase and word by word. If statute is looked at in context of its enactment, with glasses of statute maker provided by such context, its scheme, sections, clauses, phrases and words may take colour and appear different than when statute is looked at without glasses provided by context. With those glasses we must look at Act as whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit in scheme of this entire Act." 8 . Keeping in view above principles of interpretation, it is considered necessary to trace legislative intent and history behind enactment of s. 43B. Sec. 43B was inserted by Finance Act, 1983 w.e.f. 1st April, 1984 applicable for and from asst. yr. 1984-85. scope and effect of originally inserted s. 43B have been elaborated in following portion of CBDT Circular No. 372, dt. 8th Dec., 1983 : "(xxvi) Disallowance of unpaid statutory liability'Sec. 43B.'35.1 Under s. 145 of IT Act, 1961, profits and gains of business or profession are computed in accordance with method of accounting regularly employed by assessee. Broadly stated, under mercantile system of accounting, income and expenditure are accounted for on basis of accrual and not on basis of actual receipts or disbursements. For purposes of computation of profits and gains of business or profession, s. 43(2) of IT Act defines word "paid" to mean "actually paid or incurred" according to method of accounting on basis of which profits or gains are computed. 35.2 Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For purposes of their income- tax assessments, they claim liability as deduction on ground that they maintain accounts on mercantile or accrual basis. On other hand, they dispute liability and do not discharge same. For some reason or other, undisputed liabilities also are not paid. 35.3 To curb this practice, Finance Act, 1983, has inserted new s. 43B to provide that deduction for any sum payable by assessee by way of tax or duty under any law for time being in force or any sum payable by assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees shall irrespective of previous year in which liability to pay such sum was incurred, be allowed only in computing income of that previous year in which such sum is actually paid by assessee. 35.4 section also contains Explanation for removal of doubts. T h e Explanation provides that where deduction in respect of any sum aforesaid is allowed in computing income of any previous year, being previous year relevant to asst. yr. 1983-84, or any earlier assessment year, in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under s. 43B in respect of such sum on ground that sum has been actually paid by him in that year. In other words, assessee who has already been allowed deduction of liability on account of tax or duty or in respect of any sum payable as contribution to any fund for asst. yr. 1983-84, or any earlier year in which liability to pay was incurred, cannot, in respect of that liability, be allowed deduction in asst. yr. 1984-85, or any subsequent year on ground that he has actually made payment towards such liability in that year." There was amendment in s. 43B by Finance Act, 1987 which may not be relevant for purpose of present controversy. Finance Act, 1988 made another amendment in s. 43B. scope of amendment was explained by CBDT vide Circular No. 528, dt. 16th Dec., 1988 [(1989) 76 CTR (St) 69]. said circular and amendment is also not relevant for purpose of present controversy. Finance Act, 1989 made yet another amendment in s. 43B by virtue of which 2nd proviso to s. 43B was substituted w.e.f. 1st April, 1989 by new proviso. new Expln. 2 was inserted to operate retrospectively w.e.f. 1st April, 1984. Explanation 2 to s. 43B was renumbered as Expln. 3 w.e.f. 1st April, 1989 and Expln. 3 was renumbered w.e.f. 1st April, 1989 as Expln. 4. scope and effect of amendments has been elaborated vide Circular No. 550, dt. 1st Jan., 1990 [(1990) 86 CTR (St) 45] of CBDT as under : "Amendment to provisions relating to certain deductions to be allowed only o n actual payment,'15.1 Under existing provision of s. 43B of IT Act, 1961, deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. objective behind these provisions is to provide for tax disincentive by denying deduction in respect of "statutory liability" which is not paid in time. Finance Act, 1987, inserted provision of s. 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in previous year will be allowed as deduction, if it is actually paid by due date of furnishing return under s. 139(1) of IT Act, in respect of assessment year to which aforesaid previous year relates. This proviso was introduced to remove hardship caused to certain taxpayers who had represented that since sales-tax for last quarter cannot be paid within previous year, original provisions of s. 43B will unnecessarily involve disallowance of payment for last quarter. 15.2 Certain Courts have interpreted provision of s. 43B in manner which may negate very operation of this section. interpretation given by these Courts revolves around use of words "any sum payable". interpretation given to these words is that amount payable in particular year should also be statutorily payable under relevant statute in same year. Thus, sales-tax in respect of sales made in last quarter was held to be totally outside purview of s. 43B since same is not statutorily payable in financial year to which it relates. This is against legislative intent and, therefore, by way of inserting Explanation, it has been clarified that words "any sum payable" shall mean any sum, liability for which has been incurred by taxpayer during previous year irrespective of date by which such sum is statutorily payable." is statutorily payable." Finance Act, 1990 made yet another amendment in s. 43B by virtue of which cl. (d) of s. 43B was amended. said amendment is also not relevant for purpose of present controversy. 9. Hon'ble Supreme Court in case of Allied Motors (P) Ltd. vs. CIT (supra), had occasion to explain intent and purpose of incorporation of s. 43B and certain subsequent amendments. In my view, it will be useful to reproduce relevant portion from judgment which apart from giving history of amendments also indicates legislative intention behind incorporation of s. 43B : "Prior to insertion of s. 43B in IT Act, 1961, income chargeable under head "Profits and gains" of business or profession was computable in accordance with method of accounting regularly employed by assessee as per s. 145 of IT Act, 1961. assessee who had adopted mercantile system of accounting would be entitled to account for his income and expenditure on basis of accrual and not on basis of actual receipt or disbursement. After insertion of s. 43B, however, even if assessee had regularly adopted mercantile system of accounting, amount of tax payable by assessee could be deducted only in year in which sum was actually paid and not in year in which assessee incurred liability to pay that tax. Hence, assessee (as in present case), who had collected sales-tax in last quarter of previous accounting year and deposited it in treasury within statutory period falling in next accounting year, would not be entitled to claim any deduction for it. sales-tax so collected will form part of assessee's income. To obviate this kind of unexpected outcome of s. 43B, first proviso was added in s. 43B by Finance Act of 1987. proviso makes it clear that section will not apply in relation to any sum which is actually paid by assessee in next accounting year, if it is paid on or before due date for furnishing return of income in respect of previous year in which liability to pay such sum was incurred and evidence of such payment is furnished by assessee along with return. proviso, however, was not on statute book when assessments were made in respect of these assessees, since assessments pertain to assessment years prior to insertion of proviso in s. 43B. assessee, however, contended that proviso should be given effect to retrospectively from date when s. 43B became part of IT Act, 1961, as it is intended to obviate unexpected hardships in application of s. 43B. To understand circumstances in which s. 43B came to be inserted IT Act and mischief which it sought to prevent, it is necessary to look at memorandum explaining provisions in Finance Bill of 1983 [see (1983) 33 CTR (TLT) 73 :(1983) 140 ITR (St) 160] : '59. Under IT Act, profits and gains of business and profession are computed in accordance with method of accounting regularly employed by assessee. Broadly stated, under mercantile system of accounting income and outgo are accounted for on basis of accrual and not on basis of actual disbursement or receipts. For purposes of computation of profits and gains of business and profession, IT Act defines word 'paid' to mean 'actually paid or incurred' according to method of accounting on basis of which profits or gains are computed. 60. Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc. for long periods of time, extending sometimes to several years. For purpose of their income-tax assessments, they claim liability as deduction on ground that they maintain accounts on mercantile or accrual basis. On other hand, they dispute liability and do not discharge same. For some reason or other, undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by assessee by way of tax or duty under any law for time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees shall be allowed only in computing income of that previous year in which such is actually paid by him.' Budget Speech of Finance Minister for year 1983-84, reproduced in (1983) 33 CTR (TLT) 1, 4 : (1983) 140 ITR (St) 31, is to same effect. Sec. 43B was, therefore, clearly aimed at curbing activities of those taxpayers who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on basis of liability to pay these amounts had been incurred by them in relevant previous year. It was to stop this mischief that s. 43B was inserted. It was clearly not realized that language in which s. 43B was worded, would cause hardship to those taxpayers who had paid sales-tax within statutory period prescribed for this payment, although payment so made by them did not fall in relevant previous year. This was because sales-tax collected pertained to last quarter of relevant accounting year. It could be paid only in next quarter which fell in next accounting year. Therefore, even when sales-tax had in fact been paid by assessee within statutory period prescribed for its payment and prior to filing of IT return, these assessees were unwittingly prevented from claiming legitimate deduction in respect of tax paid by them. This was not intended by s. 43B. Hence, first proviso was inserted in s. 43B. amendment which was made by Finance Act of 1987 in s. 43B by inserting, inter alia, first proviso, as remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to assessee and which made provision unworkable or unjust in specific situation. Looking to curative nature of amendment made by Finance Act, 1987, it has been submitted before us that proviso which is inserted by amending Finance Act of 1987, should be given retrospective effect and be read as forming part of s. 43B from its inception. This submission has taken support from decisions of number of High Courts before whom this question came up for consideration. High Courts of Calcutta, Gujarat, Karnataka, Orissa, Gauhati, Rajasthan, Andhra Pradesh, Patna and Kerala appear to have taken view that proviso must be given retrospective effect. Some of these High Courts have held that "sum payable" under s. 43B(a) refers only to sum payable in same accounting year, thus excluding sales-tax payable in next accounting year from ambit of s. 43B(a). Delhi High Court has taken contrary view holding that first proviso to s. 43B operates only prospectively. We will refer only to some of these judgments. Explanation 2 was added to s. 43B by Finance Act of 1989 with retrospective effect from 1st April, 1984. memorandum explaining reasons for introducing Expln. 2, states, inter alia, as follows [(1989) 76 CTR (St) 63 : (1989) 176 ITR (St) 123]: '24. Under existing provision of s. 43B of IT Act, deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. objective behind these provisions is to provide for tax disincentive by denying deduction in respect of statutory liability which is not paid in time. Finance Act, 1987, inserted proviso to s. 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in previous year will be allowed as deduction, if it is actually paid by due date for furnishing return under s. 139(1) of IT Act, 1961, in respect of assessment year to which aforesaid previous year relates. This proviso was introduced to remove hardship caused to certain taxpayers who had represented that since sales-tax for last quarter cannot be paid within that previous year, original provision of s. 43B will unnecessarily involve disallowance of payment for last quarter. Certain Courts have interpreted provision of s. 43B in manner which may negate very operation of this section. interpretation given by these Courts revolves around use of words 'any sum payable'. interpretation given to these words is that amount payable in particular year should also be statutorily payable under relevant statute in same year. This is against legislative intent and it is, therefore, proposed, by way of clarificatory amendment and for removal of doubts, that words 'any sum payable', be defined to mean any sum, liability for which has been incurred by taxpayer during previous year irrespective of date by which such sum is statutorily payable'." 10. With legislative history and background that led to enactment of s. 43B in mind, I now proceed to look at language of s. 43B. Sec. 43B starts with non-obstante clause. First let us appreciate and understand effect of non-obstante clause in provision of Act. In case of Woodward Governor India (P) Ltd. vs. CIT (2001) 168 CTR (Del) 394 : (2002) 253 ITR 745 (Del), Hon'ble Delhi High Court held that clause beginning with "notwithstanding anything" is sometimes appended to section in beginning with view to give enacting part of section, in case of conflict, overriding effect over provisions of Act mentioned in non-obstante clause. Their Lordships further held that true effect of non-obstante clause is that in spite of provision or Act mentioned therein, enactment following it will have full operation or that provisions embraced in non-obstante clause will not be impediment for operation of enactment. In case of Bharat Hari Singhania vs. CWT (1994) 118 CTR (SC) 125 : (1994) 207 ITR 1 (SC), Hon'ble Supreme Court held that scope and purport of non obstante clause has to be ascertained by reading it in context of provisions and consistent with scheme of enactment. 11. With above principle of law in mind, I continue to consider language of s. 43B which starts will non obstante clause. It reads, "notwithstanding anything contained in any other provision of this Act", meaning thereby that if there is anything contrary provided under any other provision of Act, s. 43B will prevail over such general provision of Act. It is noticed earlier that s. 145 mandates that AO shall compute profits and gains of business of assessee in accordance with method of accounting (cash or mercantile) regularly employed by assessee. Under mercantile system of accounting, liability is provided in books of account as and when it is incurred. So in respect of excise duty, which is subject-matter of dispute before us, assessee would ordinarily be entitled to deduction in respect of accrued liability notwithstanding fact that assessee had disputed liability or not paid such duty. Hon'ble Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) held that assessee following mercantile system of accounting is entitled to deduction in respect of accrued statutory liability notwithstanding fact that assessee is contesting liability. Some taxpayers were getting deduction even without making payments. I have elsewhere quoted statement of objects for incorporation of s. 43B from which it is evident that s. 43B was incorporated to discourage such taxpayers from claiming deduction on account of accrued liabilities without making payments of such taxes, duties etc. When we read s. 145 in conjunction with s. 43B, it becomes abundantly clear that s. 145, which mandates assessment of profits and gains of business in accordance with method of accounting adopted by assessee, is modified by s. 43B in respect of liabilities referred to in that section to extent indicated therein. Sec. 43B provides that "notwithstanding anything contained in any provision of this Act", deduction otherwise allowable under this Act in respect of (a) "any sum payable" by assessee by way of tax, duty, cess or fee by whatever name called, under any law for time being in force, shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in s. 28 of that previous year in which such sum is actually paid by him. Sec. 43B mandates that deduction is permissible to assessee in respect of "any sum payable" by assessee by way of tax, duty, etc. in previous year in which such sum is actually paid by him irrespective of previous year in which liability is incurred. 12. contention advanced on behalf of assessee before us is that s. 43B provides for deduction of any sum referred to in various clauses of Act to be deductible in year of payment and that it is not necessary that such payment made should be towards liability accrued under mercantile system of accounting in any previous year. On other hand, stand of Department is that incurring of liability prior to payment is sine qua non for allowance of deduction under s. 43B. In my considered view, contentions advanced on behalf of both parties on true interpretation of s. 43B appear to be only partially correct. I have elsewhere reproduced object and purpose behind incorporation of s. 43B. It is seen that s. 43B was incorporated to curb general tendency of claiming deduction in respect of statutory liabilities etc. on basis of accrual of liability without making payments. Sec. 43B intends to put curb on tendency of without making payments. Sec. 43B intends to put curb on tendency of taxpayers to claim deductions without making payments. Sec. 43B does not and is not intended to enlarge scope of deductions, thereunder. Interpreting provision of s. 43B, their Lordships of Gujarat High Court in case of Lakhanpal National Ltd. vs. ITO (supra), held that s. 43B of IT Act does not enlarge scope of deduction as it speaks about deduction otherwise allowable under Act. Explaining words 'deduction otherwise allowable under this Act', their Lordships at p. 247 of judgment held as under : "...The argument of Mr. S.N. Shelat that s. 43B of Act does not enlarge scope of deduction is correct inasmuch as it speaks about deduction otherwise allowable under this Act, but his argument is not that sum which is paid by way of import duty or liability to pay excise duty is not sum given under permissible deductions." said judgment of Hon'ble Gujarat High Court was not challenged b y Revenue. Subsequently, Bombay High Court in case of CIT vs. Bharat Petroleum Corporation Ltd. (supra), and Madras High Court in case of Chemicals & Plastics India Ltd. vs. CIT (supra), echoed same view as expressed by Gujarat High Court in case of Lakhanpal National Ltd. (supra). aforementioned decisions of three High Courts have been considered by Hon'ble Supreme Court in case of Berger Paints India Ltd. vs. CIT (supra). In that case their Lordships of Supreme Court observed that above three judgments rendered by three different High Courts have b e e n accepted by Department which has brought in consistency of approach on issue involved under s. 43B. claim of Revenue that deduction should not be allowed to assessee unless liability has accrued in previous year in which deduction is claimed was not accepted by Hon'ble Supreme Court in case of Berger Paints India Ltd. (supra). To this extent claim of Revenue is not accepted. So, however, contention advanced on behalf of assessee that words 'irrespective of previous year in which liability has accrued under system of accounting regularly employed by assessee' has done away with condition of accrual of liability for allowance of deduction in year of payment is also not well founded. In my considered view, s. 43B has got to be understood in light of legislative intent and object of enactment to give true meaning of words used in section. Sec. 43B refers to deduction otherwise allowable under Act in respect of "any sum payable" by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force. So subject matter of deduction under s. 43B is deduction, otherwise allowable under Act in respect of any sum payable by assessee by way of tax etc. What is meaning of "any sum payable" by assessee by way of tax etc. was subject matter of consideration before Andhra Pradesh High Court in case of S. Subba Rao & Co. vs. Union of India (supra). Their Lordships of Andhra Pradesh High Court in that case held that s. 43B would be attracted only in case of such deductions in respect of which assessee has incurred liability in previous year and were also payable under relevant statute in same year. Their Lordships further held that s. 43B would be inapplicable in such cases where assessee has incurred liability under system of accounting regularly employed by assessee but payment had not become due under relevant statute. legislature felt that interpretation given by Hon'ble Andhra Pradesh High Court would defeat purpose of enactment of s. 43B and accordingly Expln. 2 was inserted by Finance Act, 1989 w.e.f. 1st April, 1984. I have quoted Expln. 2 elsewhere in this order and since controversy revolves around meaning of words 'any sum payable', it will be worthwhile to repeat Expln. 2 as under : "Explanation 2.'For purposes of cl. (a), as in force at all material times, "any sum payable" means sum for which assessee incurred liability in previous year even though such sum might not have been payable within that year under relevant law." Explanation 2 operative from 1st April, 1984 coins definition for purpose of cl. (a) of s. 43B as in force at all material times expression 'any sum payable' so as to mean sum for which assessee incurred liability in previous year even though such sum might not have been payable within that previous year under relevant law. If contention advanced on behalf of assessee that incurring of liability is not necessary for allowance of deduction is accepted, then Expln. 2 to s. 43B would become redundant. Their Lordships of Supreme Court in case of Grasim Industries Ltd. vs. Collector of Customs (2002) 128 STC 349 (SC) held that no word or expression used in any statute can be said to be redundant or superfluous. Their Lordships of Supreme Court in case of K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) also held as under : "A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where plain literal interpretation of statutory provision produces manifestly absurd and unjust result which could never have been intended by legislature, Court may modify language used by legislature or even do some violence to it, so as to achieve obvious intention of legislature and produce rational construction." Thus, interpretation advanced on behalf of assessee is not acceptable. Their Lordships in case of CIT vs. Mangalore Ganesh Beedi Works (1992) 101 CTR (Kar) 128 : (1992) 193 ITR 77 (Kar) and in case of CIT vs. Maschmeijer Aromatics (India) (P) Ltd. (1995) 127 CTR (Mad) 221 : (1995) 214 ITR 22 (Mad), held that Explanation is intended to either explain meaning of certain phrases and expressions contained in statutory provision or depending upon its language it might supply or take away something from content of provision. Their Lordships of Supreme Court in case of CIT vs. Plantation Corpn. of Kerala Ltd. (2000) 164 CTR (SC) 502 : (2001) 247 ITR 155 (SC), held that Explanation at times is added by way of abundant caution, to clear any mental cobwebs surrounding meaning of statutory provision spun by interpretative process to make position beyond controversy or doubt. Their Lordships of Supreme Court in case of Dilip N. Shroff vs. Jt. CIT (2007) 210 CTR (SC) 228 : (2007) 291 ITR 519 (SC) defined object of Explanation to statutory provision as under : "The object of Explanation to statutory provisions is : (a) to explain meaning and intendment of Act itself; (b) where there is any obscurity or vagueness in main enactment, to clarify same so as to make it consistent with dominant object which it seems to subserve; (c) to provide additional support to dominant object of Act in order to make it meaningful and purposeful; (d) Explanation cannot in any way interfere with or change enactment or any part thereof, but where some gap is left which is relevant for purpose of Explanation, in order to suppress mischief and advance object of Act, it can help or assist Court in interpreting true purport or intendment of enactment; (e) it cannot, however, take away statutory right with which any person under statute has been clothed or set at naught working of Act by becoming hindrance in interpretation of same." contention advanced on behalf of assessee that it is not necessary for assessee to establish that any payment made by him is towards liability on account of any tax, duty etc. is also negatived by Hon'ble Gujarat High Court in case of Lakhanpal National Ltd. (supra). In said case, their Lordships repelling contention held as under : "The argument of Mr. S.N. Shelat that s. 43B of Act does not enlarge scope of deduction is correct inasmuch as it speaks about deduction otherwise allowable under this Act, but his argument is not that sum which is paid by way of duty or liability to pay excise duty is not sum given under permissible deductions. Under mercantile method of accounting, as stated earlier, moment liability is incurred, it would be admissible deduction. What s. 43B of Act states is that irrespective of fact that liability is already incurred, that would be admissible deduction only when actual amount in that regard is paid. Therefore, it is clear that in year 1983, when goods including raw material were imported and finished goods lying at various depots were manufactured in year 1983 (including one under closing stock), liability to pay import duty and excise duty on said goods was incurred by petitioner-assessee. When that is so, it is also clear that deduction of said excise duty and import duty, even on closing stock was allowable in accounting year 1983 but because of specific language of s. 43B of Act, which has overriding effect, it could not have been claimed by way of deduction unless payment thereof was made and here in this case it is not case of respondent that payment of said duty is not made and, therefore, it is not allowed. (Emphasis, italicized in print, supplied) This judgment, as pointed out earlier, has been followed by Bombay High Court in case of CIT vs. Bharat Petroleum Corporation Ltd. (supra), and Madras High Court in case of Chemicals & Plastics India Ltd. (supra), and Hon'ble Supreme Court in case of Berger Paints India Ltd. vs. CIT (supra) has approved above three judgments. 13. When language of s. 43B is read in light of decision of Gujarat High Court in case of Lakhanpal National Ltd. (supra), it becomes abundantly clear that deduction in respect of any tax etc. under s. 43B is permissible in year of payment in respect of liability incurred by assessee in any previous year. In my view, allowance of deduction in respect of advance payment of tax, etc. without accrual of liability is not contemplated under s. 43B. In case before us, assessee had made payment in advance in PLA and RG-23A (accounts register prescribed by Central Excise Rules) account to be adjusted against any future liability that may accrue to assessee on manufacture/removal of goods. It is not disputed that amount paid in advance has been adjusted towards liability incurred in subsequent assessment year. When it is settled that deduction is permissible to assessee in respect of any liability incurred in any previous year in respect of excise duty in year of payment irrespective of year in which liability has been incurred, it becomes abundantly clear that both conditions for grant of deduction under s. 43B stand satisfied on date on which liability of assessee for excise duty has accrued and advance payment is adjusted against such accrued liability. In my view, after accrual of liability and adjustment out of advance, both conditions required for claim of deduction under s. 43B are satisfied. Firstly, liability has been incurred by assessee in any previous year and secondly payment has been made by assessee towards that liability. Once both conditions for grant of deduction under s. 43B are satisfied, assessee is entitled to deduction. So, however, year in which deduction is permissible is to be determined with reference to year of payment. To extent liability has been adjusted out of advance payment, both conditions being satisfied, deduction will be permissible to assessee in respect of liability though incurred in subsequent assessment year, in year of payment i.e. year under appeal. It is, however, clarified that deduction is not permissible to assessee merely on account of payment having been made in year under appeal but deduction is permissible to assessee because liability has been incurred in subsequent assessment year and payment made by assessee has been adjusted against liability. So, in respect of liability incurred in subsequent assessment year, assessee has to get deduction in year of payment and year of payment is year under appeal before us. deduction is permissible to assessee to extent advance payment has been adjusted towards liability of subsequent assessment year. As pointed out earlier, s. 43B provides for deduction in respect of deduction otherwise allowable irrespective of previous year in which liability has been incurred, in year of payment. Therefore, notwithstanding fact that liability towards excise duty has been incurred in subsequent assessment year, deduction is permissible to assessee in year of payment which in this case precedes incurring of liability. 14. question may arise as to how assessee can claim deduction pertaining to previous year when liability towards excise duty is incurred in subsequent assessment year ? In my considered view, there is mechanism provided under said s. 43B for claiming deduction. assessee maintains books of account on mercantile system of accounting. Sec. 43B does not oblige assessee to change system of accounting regularly followed by him. On other hand, s. 43B mandates adjustment at time of filing of return. As pointed out earlier, s. 145 of Act makes it obligatory upon AO to compute profits and gains of business in accordance with method of accounting regularly employed by assessee unless case falls under exceptions provided thereunder. So, however, certain adjustments as provided under ss. 30 to 43D are to be made in computation sheet to be attached with return of income after making adjustment to profits and gains as determined in accordance with method of accounting followed by assessee. In case of Chemicals & Plastics India Ltd. vs. CIT (supra), Madras High Court has also pointed out that it is open to assessee to file adjustment statement before AO for claiming deduction under s. 43B. Therefore, in this case, when assessee files return, liability towards excise duty in normal circumstances would accrue in respect of goods manufactured/removed up to date of filing of return of income. At time of filing of return, assessee is aware of liability having accrued upto that date. Now, if liability has already been incurred by assessee against which advance payment of excise duty has also been paid both conditions required to be satisfied for grant of deduction under s. 43B stand fulfilled and assessee would be entitled to claim deduction in respect of amount adjusted towards liability notwithstanding fact that liability has accrued in subsequent assessment year. Needless to repeat, s. 43B provides for deduction in year of payment irrespective of previous year in which liability is incurred. 1 5 . It may be pertinent to mention that proviso to s. 43B, reproduced hereunder for ready reference, also provides for departure to general rule enacted in s. 43B : "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub-s. (1) of s. 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return." proviso makes exception to main s. 43B in such cases where in respect of accrued liability in previous year payment is made before due date for filing of return and proof of such payment is attached with return of income. above proviso was inserted to remove hardship that was faced by taxpayers in such cases where for none of their fault payment in respect of liability incurred in previous year was required to be made in subsequent assessment year. For example, in case of last quarter of sales-tax liability, liability accruing upto ending March of previous year is generally payable within next month that would fall in subsequent year. But for above proviso, assessee would get deduction as per provision of s. 43B in subsequent year and not in previous year notwithstanding fact that there was no default on part of assessee. liability had been incurred in previous year and payment had been made by assessee within stipulated time under statute. If s. 43B were to operate without aforementioned proviso inserted w.e.f. 1st April, 1988 and held to be applicable retrospectively by Hon'ble Supreme Court in case of Allied Motors (P) Ltd. (supra), then assessee would be deprived of deduction in previous year. Such was not intention of legislature and that is why proviso was inserted to obviate unintended hardship faced by taxpayers. above proviso also supports view that subject matter for deduction under s. 43B is accrued liability and payment is condition for deduction. 1 6 . In present case, as per system of accounting regularly employed by assessee, i.e. mercantile system of accounting, deduction would be permissible only in subsequent assessment year when liability towards excise duty accrued to assessee. When provisions of s. 43B are applied in this case, assessee gets benefit of deduction in advance i.e. in t h e year of payment though liability has accrued in subsequent assessment year. There is thus no hardship to assessee. It would be appropriate and in accord with spirit of s. 43B to allow deduction to assessee in subsequent year in which adjustment of prepaid taxes is made. In fact, this was contention advanced on behalf of Revenue. So, however, there is no provision for allowance of deduction under s. 43B in year of adjustment. It would be pertinent to mention that in case of sales-tax deferred payment scheme, CBDT has issued Circular No. 496, dt. 25th Sept., 1987 [(1988) 68 CTR (St) 109] by virtue of which deduction is allowed to assessee in respect of deferred payment of sales-tax if under provisions of relevant sales-tax law such deferred payment is considered actual payment. Hon'ble Supreme Court in case of CIT vs. Gujarat Polycrete (P) Ltd. (2001) 165 CTR (SC) 402 : (2000) 246 ITR 463 (SC), held that CBDT Circular No. 496, dt. 25th Sept., 1987 providing for allowance of deduction in respect of sales-tax deferred payment would apply only if State Government had amended its Sales-tax Act to provide that sales-tax that was deferred under incentive scheme framed by it would be treated as actually paid so as to meet requirements of s. 43B of IT Act, 1961. Their Lordships of Supreme Court held that Tribunal had not taken notice to ascertain as to whether under Gujarat Sales-tax Act, 1969 there was such amendment. Therefore, as to whether Tribunal was right in law and on facts in directing allowance of deduction gave rise to question of law which was to be considered by Gujarat High Court, held Supreme Court. 17. There is no such circular of CBDT providing for deduction of excise duty in year of adjustment of advance payments of excise duty. Therefore, deduction has got to be allowed to assessee in year of payment as provided under s. 43B subject to condition that liability to that extent has accrued in any previous year. Once advance payment is adjusted against accrued liability in any previous year, one of conditions required to be satisfied under s. 43B that deduction should be otherwise allowable under Act in any previous year stands satisfied. second condition to be satisfied for allowance of deduction under s. 43B of actual payment is also satisfied. Though condition of accrual of liability is satisfied in subsequent previous year of year of payment. Sec. 43B mandates that deduction would be permissible to assessee, subject to above two conditions being satisfied in year of payment. In this case, mere payment of excise duty in advance would not be permissible as deduction unless amount is adjusted towards liability incurred in any previous year not necessarily year of payment (s. 43B provides'irrespective of previous year in which liability is incurred). Once liability has been incurred even in subsequent assessment year, deduction is permissible to assessee in year of payment. 18. It is also pertinent to mention that payment made by assessee in advance in PLA a/c under Excise Rules is not irretrievable. amount is required to be kept in advance in account to be adjusted against future liabilities as and when incurred on manufacture/removal of goods. If for some reason or other assessee stops manufacturing of goods and is no longer required to make payment of excise duty or exemption is granted from levy of excise duty on goods manufactured by assessee, advance in PLA a/c becomes refundable to assessee. Reference may also be made to decision of Andhra Pradesh High Court in case of CIT vs. South India Research Institute in SLP (Sr. 2766 of 1993). Their Lordships of Supreme Research Institute in SLP (Sr. 2766 of 1993). Their Lordships of Supreme Court rejected SLP filed against above judgment of Andhra Pradesh High Court and held as under : "In view of clear finding of fact to which reference has been made in impugned order of High Court, that assessee claimed deduction in respect of amount representing actual duty paid and so adjusted, there can be no doubt that High Court is right in taking view that no question of law arises out of Tribunal's order. There is thus no ground to interfere. special leave petition is dismissed." Hon'ble Supreme Court did not interfere with decision of Andhra Pradesh High Court as there were clear findings that amount paid by assessee and claimed as deduction was representing actual duty paid and so adjusted. said decision of Hon'ble Supreme Court and decision of Andhra Pradesh High Court do not advance case of assessee. On other hand, it supports view that deduction is permissible to assessee under s. 43B only once amount has been adjusted towards actual duty accrued. 19. Reference may also be relevant to decision of Central Excise and Gold Control Appellate Tribunal (CEGAT), Zonal Bench at Chennai, in case of F. Fibre Bangalore (P) Ltd. vs. CCE (supra). In that case, assessee debited duty in PLA acquiring under r. 57F(2) and took credit back in PLA rather than taking same in RG-23A Part-II. As such, lower authorities directed assessee to pay duty in PLA and take credit back in RG-23A Part-II. This direction could not be adhered to since as on date of said order, unit was not functioning. revival of said order was also not expected. contention of assessee before Tribunal was that as there was no loss of revenue, demand raised against it to make credit in PLA be set aside. Tribunal held that prayer of assessee was not acceptable. It was held that r. 173G(1A) provides that where any amount is to be withdrawn from PLA account, then assessee has to make application to Commr. and only by obtaining permission from him, said amount can be withdrawn. Tribunal rejected prayer of assessee. In my view, said decision of CEGAT does not advance case of assessee that amount paid in advance in PLA a/c is irretrievable. Tribunal has explained that assessee has to seek permission for transfer of account from PLA. In my view, mere fact that permission is required to be obtained from concerned authorities for adjustment or refund of any advance payment of excise duty which is no longer required to be kept in account does not support contention of assessee that said advance is irretrievable and has got to be considered to be payment towards accrued liability. 20. It is pertinent to mention that under Central Excise Act, 1944 (1 of 1944), liability towards excise duty accrues on manufacture of goods and same is payable on removal of goods. Sec. 3 of Central Excise Act, 1944 provides that'(1) there shall be levied and collected in such manner as may prescribed,'(a) duty of excise, to be called Central Value Added Tax (CENVAT) on all excisable goods excluding goods produced or manufactured in special economic zones, which are produced or manufactured in India as and at rates, set forth in First Schedule to Central Excise Tariff Act, 1985 (5 of 1986). Sec. 4 of said Act provides for valuation of excisable goods for purposes of charging of duty of excise. It is, therefore, evident that unless goods are manufactured by assessee, liability to pay excise duty is not incurred. mere fact that under Excise Rules, assessee is required to keep sufficient money in advance in PLA a/c to meet liability towards payment of excise duty on removal of goods does not justify inference that such advance takes colour of accrued liability. It has earlier been mentioned that mere fact that assessee cannot withdraw advance payment of excise duty in PLA a/c without permission of excise authority also does not convert advance kept by assessee in PLA a/c into accrued liability towards excise duty. 2 1 . In my considered view, there is also no merit in contention advanced on behalf of assessee that s. 43B mandates deduction in respect of certain liabilities on basis of cash system of accounting. If legislature intended so, it would have provided for same in statute. words in s. 43B "in previous year in which such sum is actually paid by him" cannot be read to mean that deduction shall be allowed to assessee on cash system of accounting. Hon'ble Supreme Court in case of Grasim Industries Ltd. vs. accounting. Hon'ble Supreme Court in case of Grasim Industries Ltd. vs. Collector of Customs (supra) held that in interpreting statute we should not concentrate too much on one word and pay too little attention to other words. No provision in statute and no word in any section can be construed in isolation. Every statute is edict of legislature. When words are clear, there is no scope for Court to take upon itself task of amending or altering statutory provision. Thus, in my view, words "in previous year in which sum is actually paid" cannot be stretched to be read as "on basis of cash system of accounting". 22. It may also be pointed out that definition of word 'paid' under s. 43 is also not relevant for interpretation of s. 43B. Firstly, definition under s. 43(2) of word 'paid' is made applicable to ss. 28 to 41 and s. 43. legislature in its wisdom has consciously excluded s. 43B from applicability of definition under s. 43(2). Sec. 43(2) reads as under : "Sec. 43 :'In ss. 28 to 41 and this section unless context otherwise requires.' (2) 'Paid' means actually paid or incurred according to method of accounting upon basis of which profits and gains are computed under head "Profits and gains of business and profession." It is thus evident from language of s. 43(2) that definition of "paid" has no role in interpretation of s. 43B. I am conscious of fact that in Memorandum Explaining Provisions in Finance Bill, 1983 with reference to s. 43B, reference has been made to definition of word 'paid' under s. 43. So, however, it merely explains reasons for incorporation of s. 43B because of definition and it does not enlarge scope of definition to be applicable to s. 43B. On basis of analysis, I proceed to record my conclusion as under : assessee at p. 208 of paper book had proposed following question of law : "A. What is effect of insertion of s. 43B ? (i) Whether s. 43B is only disabling provision/prohibitive section ? (ii) Whether there must be accrual of liability in first instance to claim deduction under s. 43B in (subsequent) year of payment ? (iii) If payment is made in advance of incurring liability, when should deduction of such liability be allowed ? B. Whether deposit in PLA/unutilized balance in RG-23A (Part-II) amounts to payment of duty, entitling assessee to claim deduction thereof in terms of s. 43B of Act ? In my considered view, answer to above questions on basis of analysis and reasoning is as under : A. (i) Sec. 43B is not enabling provision but regulatory provision in regard to certain deductions specified therein. (ii) Existence of liability in any previous year either preceding or subsequent to date of payment is condition precedent for allowance of deduction under s. 43B. (iii) When payment is made in advance of incurring liability, deduction would be permissible in year of payment only after amount is adjusted against liability incurred by assessee. B. deposit in PLA/unutilized balance in RG 23A (Part-II) does not amount to payment towards incurred liability in terms of s. 43B of IT Act, 1961. Thus, my opinion in regard to two issues referred to in para 13 of proposed order is as under : (1) deduction for tax, duty etc. is not allowable under s. 43B of IT Act, 1961 merely on payment basis before incurring liability. assessee would be entitled to deduction in year of payment after incurring liability in any previous year. (2) Modvat credit available to assessee as on last day of previous year does not amount to payment of central excise duty under s. 43B. 23. I hold accordingly. *** DEPUTY COMMISSIONER OF INCOME TAX v. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD.