1994 (7) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of loss in respect of Tractor Spares Division amounting to Rs. 1,85,405.
2. Disallowance of unpaid sales-tax liability of Rs. 5,80,687 under Section 43B.

Detailed Analysis:

1. Disallowance of Loss in Tractor Spares Division:

The primary issue concerns the disallowance of a claimed loss of Rs. 1,85,405 in the tractor spares division by the assessee. The Assessing Officer (AO) noted that the assessee's turnover for tractor spares was Rs. 2,71,861, resulting in a 68% trading loss. The assessee attributed this loss to the discontinuation of the Escort tractors agency and the subsequent sale of old stock at low prices. However, the AO found discrepancies, such as the lack of quantitative details, unavailability of supporting books of accounts, a qualified audit report, and an unperformed bank reconciliation. Consequently, the AO disallowed the loss claim.

Upon appeal, the CIT(A) upheld the AO's decision, highlighting that the audit report was qualified, the stocks were certified only by management, and the loss occurred before the relevant assessment year. The CIT(A) suggested that the loss, if any, should be adjusted in the year it was incurred, not the current assessment year.

The assessee's counsel reiterated that the old and obsolete stock had no value, and despite an offer of Rs. 8,000 from a dealer in 1983, the stock remained unsold and was written off in the current year. The Departmental Representative pointed out inconsistencies in the opening stock values, suggesting that the maximum possible loss should be Rs. 81,075.

After reviewing the facts, the Tribunal noted that the dealership termination and stock issues dated back to 1983. The assessee had not maintained day-to-day quantitative records and provided conflicting methods of stock valuation. The Tribunal concluded that the maximum acceptable loss for the dead stock should be Rs. 40,000, considering the historical stock values and the offer received from a dealer.

2. Disallowance of Unpaid Sales-Tax Liability under Section 43B:

The second issue pertains to the disallowance of an unpaid sales-tax liability of Rs. 5,80,687 under Section 43B. The AO disallowed this liability as it was unpaid at the close of the year, and the CIT(A) upheld this decision, relying on previous Tribunal and Delhi High Court rulings.

The assessee's counsel argued that the Ahmedabad Bench of the Tribunal consistently viewed that the proviso to Section 43B has retrospective effect, allowing for sales-tax liability to be paid within the time allowed for filing the return under Section 139(1). This view was supported by the Tribunal's decision in Chandulal Venichand vs. ITO and subsequently approved by the Gujarat High Court.

The Tribunal found that the sales-tax liability related to February and March 1985, paid in April and May 1985, within the time allowed for filing the return. Thus, the Tribunal held that Section 43B provisions were not applicable, and the disallowance was directed to be deleted.

Conclusion:

The appeal was partly allowed. The Tribunal accepted a loss of Rs. 40,000 for the dead stock in the tractor spares division and deleted the disallowance of the unpaid sales-tax liability of Rs. 5,80,687 under Section 43B.