2008 (8) TMI 141 - HC - Income Tax

Addition u/s 43B Certificate produced by the assessee certified that the sales-tax amount collected by the assessee was not paid to Govt. but was converted into loan - Circular No.496 made clear that if the sales tax due to the Government is converted as a loan which may be repaid by the assessee subsequently by installments, the Dept. shall treat the sales tax dues as actually paid for all purposes additions were rightly deleted by CIT (A) & ITAT amount could not be disallowed

Summary

Issues:
1. Interpretation of Section 43B of the Income-tax Act, 1961 regarding sales tax collection.
2. Validity of the deletion of addition made by the Assessing Officer under Section 43B.
3. Consideration of supporting evidence by the Commissioner of Income-tax (Appeal).
4. Application of Circular No. 496 dated 25.09.1987 in determining tax liability conversion to loan.
5. Justification of the Tribunal's decision in confirming the deletion of the addition under Section 43B.
6. Impact of the State Government's resolution on the tax treatment.

Analysis:
The judgment by K.A. PUJ J. and BANKIM N. MEHTA JJ. addressed the issue raised by the revenue regarding the deletion of addition under Section 43B of the Income-tax Act, 1961 for assessment years 1987-88 & 1988-89. The Assessing Officer found that the assessee had collected sales tax but did not credit it to the profit and loss account. The assessee argued that since the amount was not credited, Section 43B did not apply. It was also claimed that the collected amount was converted into a loan under a State Government scheme, supported by a certificate and agreement produced during the appeal before the Commissioner of Income-tax (Appeal).

The Commissioner of Income-tax (Appeal) accepted the assessee's claim based on the documents provided, including a certificate from the State Government and a financial assistance agreement. The Commissioner, referring to Circular No. 496 dated 25.09.1987, deleted the addition made by the Assessing Officer under Section 43B. The revenue challenged this decision before the Income-tax Appellate Tribunal, which upheld the Commissioner's decision, emphasizing the presence of supporting evidence and the validity of the certificate and agreement.

The Court considered the previous decision in Commissioner of Income-tax v. Shree Talal Taluka Sahakari Khand Udyog Mandli Limited, which highlighted the treatment of sales tax converted into a loan as payment for tax purposes. The Court found that the assessee had complied with the requirements under Section 43B and Circular No. 496, thus affirming the decisions of the appellate authorities. The Court ruled in favor of the assessee, citing precedent and the adequacy of evidence provided, ultimately disposing of the reference without costs.

In conclusion, the judgment clarified the application of Section 43B in cases of tax liability conversion into a loan, emphasizing the importance of supporting evidence and compliance with relevant circulars and resolutions to determine tax treatment accurately.