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Issues involved:
The issue involves whether the assessee is entitled to deduction of Rs. 2,22,161 towards the sales tax liability for the assessment year 1971-72. Summary: The assessee, a limited company engaged in the business of manufacturing and selling steel tubes, was liable to pay sales tax under the Central Sales Tax Act, 1947 for the year 1962-63. The Sales Tax Officer completed the assessment to the best of his judgment and made an additional demand of Rs. 11,02,698, which was later reduced to Rs. 2,22,161 by the Sales Tax Tribunal. The assessee claimed this amount as a business expenditure for the assessment year 1971-72, but the Income-tax Officer initially disallowed the deduction. However, in appeal, the assessee succeeded, but the Tribunal reversed the decision. The mercantile method of accounting was employed by the assessee, where entries are posted in the books of account on the date of the transaction, regardless of the payment date. The Appellate Tribunal held that the assessee was not entitled to the deduction in the assessment year 1971-72. The counsel for the assessee argued that the obligation to pay tax arose from the sale transaction in 1962-63, and the right of the Revenue to realize the tax continued until the amount was quantified. Referring to relevant legal precedents, it was contended that the liability for payment of tax is independent of the assessment and can be claimed as a deduction under section 37 for the year when the liability was finally determined by the Sales Tax Tribunal in the second appeal. The High Court concluded that an assessee following the mercantile system of accounts can claim a deduction in the year when the sales tax liability was ultimately determined by the Sales Tax Tribunal in the second appeal. The question was answered in favor of the assessee, with no order as to costs.
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