2000 (1) TMI 993 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of sales tax and excise duty u/s 43B.
2. Disallowance of ex-gratia payment.
3. Disallowance u/s 37(3) read with rule 6B.

Summary:

1. Deduction of Sales Tax and Excise Duty u/s 43B:
The main issue in this appeal is the learned Commissioner of Income-tax (Appeals)'s directions to the Assessing Officer to allow the assessee deduction of sales tax and excise duty amounting to Rs. 3,80,288 and Rs. 13,28,364 respectively. The assessee claimed these deductions on a cash basis as per section 43B, despite not debiting them to the Profit & Loss Account. The Assessing Officer disallowed the claim, stating no liability had accrued in the relevant year, but noted the amounts could be deducted in subsequent years when adjusted against liabilities. The CIT(A) allowed the deductions, relying on the Gujarat High Court judgment in Lakhanpal National Ltd. v. ITO (1986) 162 ITR 240. The Tribunal, however, found that section 43B could not be used to claim deductions not otherwise allowable under the Act. It emphasized that the liability must be incurred in the previous year for section 43B to apply. The Tribunal set aside the CIT(A)'s order and restored the assessment order, supporting the view with the ITAT Special Bench decision in KCP Ltd. v. ITO (1991) 38 ITD 15 (Hyd.).

2. Disallowance of Ex-gratia Payment:
The first ground of appeal concerned the deletion of a disallowance of Rs. 54,305 made by the Assessing Officer on account of ex-gratia payment. The Tribunal noted that a similar issue had arisen in the assessee's case for the Assessment Year 1987-88, where ITAT Bombay Bench 'E' allowed the assessee's claim. Respectfully following this precedent, the Tribunal rejected this ground of appeal.

3. Disallowance u/s 37(3) read with rule 6B:
The fourth ground of appeal involved the deletion of a disallowance of Rs. 1,36,231 made by the Assessing Officer u/s 37(3) read with rule 6B. The Tribunal found that this issue was covered by the judgment of the Hon'ble Bombay High Court in CIT v. Aliana & Sons (P.) Ltd. (1995) 216 ITR 690, which was in favor of the assessee. Consequently, this ground of appeal was also rejected.

Conclusion:
The appeal was partly allowed, with the Tribunal setting aside the CIT(A)'s order regarding the deduction of sales tax and excise duty and restoring the assessment order. The Tribunal upheld the CIT(A)'s decisions on the ex-gratia payment and the disallowance u/s 37(3) read with rule 6B.