1986 (4) TMI 97 - AT - Income Tax

Issues Involved:
1. Deduction of sales tax liability.
2. Deduction of excise duty liability.
3. Deduction of sur-tax liability.

Issue-wise Detailed Analysis:

1. Deduction of Sales Tax Liability:
The assessee, a limited company engaged in the manufacture and sale of aluminium foils, claimed a deduction of Rs. 18,08,816 towards sales tax liability. The assessee's representative did not press this ground, and thus, it was found against the assessee.

The next contention was for a deduction of Rs. 14,40,705 out of the total sales tax liability. The assessee argued that this amount represented an additional demand covered by assessment orders received during the previous year under appeal. The ITO disallowed the claim, stating that the sales tax liability did not arise during the calendar year 1979, as the assessee followed a mercantile system of accounting. The CIT(A) upheld the ITO's decision, relying on the cases of Kedarnath Jute Mft. Co. Ltd. vs. CIT and CIT vs. V. Krishnan.

The Tribunal examined various precedents cited by the assessee, including Kedarnath Jute Mft. Co. Ltd., CIT vs. Royal Boot House, CIT vs. Nathmal Tolaram, CIT vs. Central Province Manganese Ore Co. Ltd., ITAT vs. B. Hill Co. (P) Ltd., and Addl. CIT v. Rattan Chand Kapoor. However, it concluded that the claim was inadmissible under the mercantile system of accounting, even if the demand notice was received during the previous year under consideration. The Tribunal upheld the CIT(A)'s order, emphasizing that the liability for sales tax related back to the year of sale, not the year of the demand notice.

2. Deduction of Excise Duty Liability:
The assessee claimed a deduction of Rs. 82,14,425 for excise duty liability of earlier years, which became ascertained in the relevant previous year. The claim included three items:
1. Demand notice dated 3-8-1979: Rs. 2,57,304
2. Demand notice dated 20-9-1979: Rs. 56,84,425
3. Estimated liability not covered by demand notice: Rs. 25,30,000

The ITO disallowed the claim, stating that the excise duty related to a period prior to the previous year under consideration. The CIT(A) allowed Rs. 2,57,304 as a deduction, as it was referable to the clearance of goods made during the previous year. However, the other two items were disallowed, as they related to periods before the previous year under consideration.

The Tribunal upheld the CIT(A)'s decision. It cited Kedarnath Jute Mfg., which established that statutory liability arises when the event attracting the duty occurs. The Tribunal found no nexus between the disallowed amounts and the previous year under consideration, distinguishing the facts from cases like Rajeshwari Distributors (P) Ltd. and Century Enka Ltd.

3. Deduction of Sur-Tax Liability:
The assessee's claim to deduct sur-tax liability while computing its income under the IT Act was disallowed. The Tribunal found this issue covered against the assessee by the decision in Molins of India Ltd. vs. CIT. Respectfully following this decision, the Tribunal upheld the CIT(A)'s order and rejected the ground.

Conclusion:
Both the assessee's and the Department's appeals were dismissed. The Tribunal upheld the CIT(A)'s decisions on all points, including the disallowance of the sales tax liability claim, partial allowance of the excise duty liability claim, and disallowance of the sur-tax liability claim.

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