1987 (9) TMI 75 - AT - Income Tax

Summary

Issues:
1. Interpretation of Section 43B of the Income Tax Act regarding the deduction of sales tax paid by the assessee.
2. Validity of the CIT's order under Section 263 of the IT Act regarding disallowance of the sales tax deduction.

Analysis:

The appeal in this case was filed by a partnership firm against the CIT's order under Section 263 of the IT Act for the assessment year 1984-85. The issue revolved around the deduction of sales tax paid by the assessee, which was not paid to the authorities within the previous year but within the permissible time frame allowed by the Sales Tax law. The CIT contended that the deduction should not have been allowed under Section 43B as the tax was paid outside the previous year. The CIT's order directed the ITO to disallow the claim of the assessee.

During the proceedings, the assessee argued that Section 43B applies only when the tax payable is not paid within the previous year. The assessee relied on a previous case to support this argument. On the other hand, the Department's representative supported the CIT's order, citing a different case law to justify their position.

Upon considering the arguments and facts, the tribunal analyzed Section 43B, which states that any sum payable by the assessee as tax or duty shall be allowed only when actually paid in the previous year. The tribunal noted that the tax should be payable but not paid in the specific previous year for deduction. In this case, where the law allowed a 30-day window for payment, the tribunal opined that the tax became payable on the last day of the permissible period as the assessee had the option to defer payment. Referring to previous cases, the tribunal concluded that Section 43B should not apply when the tax is paid within the time permitted by law.

The tribunal found that the CIT's order was based on an incorrect interpretation of Section 43B and lacked valid jurisdiction under Section 263. Consequently, the tribunal allowed the appeal, canceling the CIT's order and upholding the original assessment order in favor of the assessee.