2009 (8) TMI 1197 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of deferment of sales tax.
2. Deletion of addition on account of prior period expenses.

Summary:

Issue 1: Deletion of addition on account of deferment of sales tax

The Assessing Officer (AO) disallowed Rs. 42.21 lakhs from the sales tax deferment shown as outstanding in the balance sheet, citing non-compliance with Section 43B of the Income-tax Act, 1961. The AO argued that the deferment was not converted into a loan during the previous year as required. The assessee contended that the Karnataka Government had amended Section 19-C of the Karnataka Sales Tax Act, treating the deferment as a loan, and cited Board Circular No.496 dt.25.9.1987, which allows such deferments to be considered as paid for the purposes of Section 43B. The CIT(A) accepted the assessee's argument, noting that the Karnataka Government had indeed provided for such deferment and directed the deletion of the disallowance. The Tribunal upheld the CIT(A)'s decision, referencing the Karnataka Sales Tax Act and supporting documents, confirming that the assessee met all conditions for the deferment to be treated as paid.

Issue 2: Deletion of addition on account of prior period expenses

The AO added Rs. 1,71,544 for prior period expenses, arguing that the expenses were crystallized in the past but billed and paid in the current assessment year. The CIT(A) allowed the expenses, stating they were crystallized during the assessment year under consideration. The Tribunal upheld this decision, referencing the case of Saurashtra Cement And Chemical Industries Limited v. Commissioner Of Income Tax (213 ITR 523), which allows expenses to be deductible in the year they crystallize under the mercantile system of accounting.

General Grounds:

Grounds No.3 and 4 were deemed general in nature and required no specific adjudication.

Conclusion:

The appeal of the Revenue was dismissed in its entirety.