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Issues Involved:
1. Addition of Rs. 16,86,799 credited to levy sugar sale suspense account. 2. Addition of Rs. 64,534 credited to sales tax set-off account. Issue 1: Addition of Rs. 16,86,799 credited to levy sugar sale suspense account The appellant, a company engaged in the manufacture of sugar and confectionery, contested the addition of Rs. 16,86,799 to its income. The Income Tax Officer (ITO) added this amount, stating it was received by the company as the difference between the government-notified price and the price paid, and should be taxed as income since the appellant follows the mercantile system of accounting. The Commissioner (Appeals) upheld the ITO's decision, reasoning that the amount constituted actual profit realized from sales as per the account books and that the provision of a bank guarantee was a contingent liability. The Commissioner noted that no overriding title diverted the additional price to the equalisation fund, and the amount was part of the sale proceeds and thus taxable income. The appellant argued that their right to the amount was disputed, as their writ petition challenging the government's price fixation was pending before the Bombay High Court. The appellant received the amount under a court order, pending the final decision, and thus had no right, title, or interest in it. Additionally, the Levy Sugar Price Equalisation Fund Act, 1976, imposed a statutory obligation to pay over any excess realization to the fund, further jeopardizing the appellant's title to the amount. The Tribunal noted that the amount was received under court orders and was subject to the final decision of the High Court. The provisions of the Levy Sugar Price Equalisation Fund Act established that the appellant's title to the amount was in serious doubt and jeopardy. The Tribunal referenced the Calcutta High Court decision in CIT v. Hindusthan Housing & Land Development Trust Ltd., which held that an amount in dispute and pending final adjudication could not be considered income. The Tribunal concluded that the amount of Rs. 16,86,799 could not be regarded as income that accrued or arose to the appellant during the relevant year and thus could not be brought to charge. The addition was deleted. Issue 2: Addition of Rs. 64,534 credited to sales tax set-off account The ITO added Rs. 64,534 to the appellant's income, stating it was a set-off receivable from the sales tax authorities and should be considered income as the appellant follows the mercantile system of accounting. The Commissioner (Appeals) upheld the ITO's action, noting that the appellant had taken credit for the amount based on the set-off due as per the sales tax return filed. The Commissioner allowed for adjustments if the final set-off determined was less. The appellant contended that the amount was shown as a liability under sundry creditors in the balance sheet and was provisional, pending final sales tax assessment. The appellant argued that the amount could not be treated as income until the sales tax assessment was completed and the refund granted. The Tribunal noted that the amount was shown as a liability and included in sundry creditors. The appellant followed a regular method of accounting by transferring the amount to the profit and loss account upon finalization of the sales tax assessment. The Tribunal applied the same principles as in the earlier issue, concluding that a mere credit entry did not constitute a receipt of income. The set-off was a claim pending determination by the sales tax authorities. The Tribunal deleted the addition of Rs. 64,534, holding that it did not represent income in the relevant year. Conclusion: The appeal was allowed, and both additions were deleted from the appellant's income.
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