2008 (2) TMI 337 - HC - Income Tax

Sales tax payments made by the assessee deduction is allowed only on actual payment - assessee itself conceded that it was a liability of the next financial year AO was justified in disallowing the claim in proceedings completed u/s 143(1) even if the claim of assessee was allowed by mistake by AO, the amount was assessable in the next year based on refund as provided under section 41(1) assessee s claim not allowable

Summary

Issues:
- Disallowance of sales tax payments made by the assessee under Section 143(1)(a) of the Income Tax Act.
- Interpretation of Section 43B in relation to the deduction of sales tax liability.
- Justification of the Assessing Officer in disallowing the claim and computing tax liability under Section 143(1)(a) of the Act.

Analysis:
1. Disallowance of Sales Tax Payments:
The case involved an appeal by the Revenue challenging the order of the Income Tax Appellate Tribunal confirming the cancellation of proceedings under Section 143(1)(a) by the C.I.T.(Appeals) regarding disallowance of sales tax payments made by the assessee. The Assessing Officer disallowed the claim of additional payment made towards sales tax payable for April 1994, as it was considered a liability of the next financial year. The CIT (Appeals) allowed the claim, stating that it was a debatable point. However, the High Court held that the amount paid by the assessee towards sales tax for the next financial year was not allowable as a deduction under Section 37(1) read with Section 145 of the Income Tax Act.

2. Interpretation of Section 43B:
The key contention revolved around the interpretation of Section 43B in relation to the deduction of sales tax liability. The Revenue argued that the amount paid towards sales tax liability for the next financial year is not an allowable deduction, while the assessee contended that it should be allowed under Section 43B(a) read with Explanation 2. The Court analyzed Section 43B, which mandates deductions only on actual payments, irrespective of the previous year in which the liability was incurred, provided the payment is made before the due date. The Court emphasized that Section 43B is supplementary to Section 145 and sets conditions for eligibility for deductions otherwise admissible under the Act, not for items not allowable under any provision of the Act.

3. Justification of Assessing Officer's Disallowance:
The Court further examined whether the Assessing Officer was justified in disallowing the claim and computing tax liability under Section 143(1)(a) of the Act. It was noted that the Assessing Officer had the authority to disallow deductions claimed as "prima facie inadmissible," based on the return and statement of accounts furnished by the assessee. Since the assessee admitted that the amount paid was towards sales tax liability for the next financial year, the Court concluded that the disallowance was justified. The Tribunal's confirmation of the first appellate authority's order allowing the claim was deemed erroneous, and the appeal was allowed, vacating the Tribunal's order and confirming the Officer's rejection of the rectification application under Section 143(1)(a) of the Act.