Capitalization of Customs duty paid in fourth year.

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This query is : Resolved

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This discussion concerns the correct accounting treatment for customs duty and interest paid when export obligations under the EPCG scheme were not met. The core questions are whether the interest paid is an allowable expenditure under the Income Tax Act and if the customs duty itself can be capitalised as part of the asset's cost, even though the asset was put to use four years prior. The contributor seeks clarification on the technical correctness of capitalising the duty versus expensing it.

Raghu K

Raghu K (Querist)
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26 February 2020 The Assessee had imported a machine in F.Y.2015-16 and taken the benefit of EPCG scheme, got exemption from Basic Customs duty and Cess under the scheme. But in F.Y.19-20 the conditions of export obligation were not fulfilled and the Assessee has to pay Customs duty of 1,12,00,000/- along with Interest of Rs.67,20,000/-.
My questions are,
1) Is that interest amount of Rs.67,20,000/- allowed as expenditure under Income Tax Act.
2) Can I Capitalise the Customs duty paid in the 4th year, if so as per which provisions of PPE as already Asset was put to use 4 years back.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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21 May 2020 I think the custom duty levied needs to be capitalised and the interest part can be debited to PL each year with regards to the useful life of the asset.

Raghu K

Raghu K (Querist)
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25 May 2020 Sir,
The Asset is capitalised 4 years back and now if we Capitalise the customs duty then it will result in the increase in the value of Asset without increase in its performance and life, Is this technically correct treatment ?
or
Customs duty paid needs to be expensed out ?

Please clarify.

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