1994 (9) TMI 107 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of earlier years' expenses.
2. Disallowance of expenditure on presentation articles under section 68.
3. Disallowance under section 43B of interest on arrears of sales tax.

Issue-wise Detailed Analysis:

1. Disallowance of earlier years' expenses:
The assessee initially filed a return of income declaring 'Nil' income, which was processed by the Assessing Officer (AO) under section 143(1)(a) of the Income-tax Act, 1961. The AO made adjustments, including a disallowance of Rs. 31,31,180 for earlier years' expenses. The assessee filed an application under section 154 of the Act for rectification, arguing that the adjustments were beyond the scope of section 143(1)(a). The AO found the assessee's plea correct upon verification and deleted the disallowance of Rs. 31,31,180.

2. Disallowance of expenditure on presentation articles under section 68:
The AO disallowed Rs. 6,10,803 for expenditure on presentation articles where the cost of each article exceeded Rs. 200. The assessee contested this disallowance, and the CIT(A) concluded that the AO was not justified in rejecting the assessee's contention. Consequently, the CIT(A) directed the AO to delete this addition.

3. Disallowance under section 43B of interest on arrears of sales tax:
The AO added Rs. 7,38,11,883 to the income of the assessee on account of interest on arrears of sales tax, invoking section 43B of the Act. The assessee argued that this interest should not be disallowed under section 43B, as it is not covered under the terms 'tax', 'duty', 'cess', or 'fee'. The assessee also contended that in the previous assessment year, a similar adjustment was deleted by the AO upon an application under section 154, making the issue debatable and thus outside the scope of section 143(1)(a).

The CIT(A) rejected the assessee's contention regarding the interest on arrears of sales tax, relying on the Supreme Court decision in Mahalakshmi Sugar Mills Co. v. CIT, which treated interest on arrears of cess as part and parcel of the tax liability. The Tribunal upheld the CIT(A)'s decision, stating that the interest on arrears of sales tax is indeed part of the tax liability and is therefore disallowable under section 43B if not paid in the relevant year.

Conclusion:
The Tribunal concluded that the CIT(A) was justified in rejecting the assessee's contention regarding the interest on arrears of sales tax. The interest on arrears of sales tax is considered part of the tax liability and is disallowable under section 43B if not paid in the relevant year. The appeal of the assessee was dismissed, affirming the adjustments made by the AO and upheld by the CIT(A).