Deductibility of Customs Duty Paid Under Protest: A Critical Analysis of the Keysight Technologies Ruling

The timing of tax deductions for statutory liabilities often creates friction between revenue authorities and business entities. A central point of contention arises when a statutory due is paid "under protest" or is subject to future adjustment, such as Extra Duty Deposits (EDD) in customs cases. Does such a payment qualify as an allowable deduction under Section 43B of the Income Tax Act, 1961, or must the assessee wait for final adjudication?

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently addressed this significant legal question in the case of Keysight Technologies India Private Limited Vs DCIT. The Tribunal held that customs duty paid under protest is eligible for deduction in the year of actual payment, reinforcing the supremacy of the "actual payment" principle enshrined in Section 43B.

Factual Matrix of the Case

The dispute arose from the assessment proceedings for the Assessment Year 2018–19. The assessee, Keysight Technologies India Private Limited, is a private limited company incorporated on 14.02.2014. The entity operates in the business of marketing, distributing, and providing after-sales support for electronic measurement products manufactured by its group entities. These specialized instruments serve critical sectors, including aerospace, defense, semiconductors, and communications.

The Customs Duty Liability

During the financial year relevant to the assessment year in question, the assessee imported goods from related parties. Under Indian customs regulations, specifically the instructions issued by the Central Board of Excise and Customs (CBEC), import prices declared in transactions between related parties must undergo scrutiny by the Special Valuation Branch (SVB).