1983 (1) TMI 135 - AT - Income Tax

Summary

Issues:
- Whether liability for purchase tax amounting to Rs.2,35,538 was allowable in the computation of income for the assessment year 1977-78.

Analysis:
1. The appeal by the revenue and the cross objection by the assessee were consolidated for disposal. The cross objection sought no relief but confirmation of the order made by the CIT(A) in favor of the assessee, hence dismissed as infructuous. The only issue in the revenue's appeal was the allowance of liability for purchase tax amounting to Rs.2,35,538 in the computation of income for the assessment year 1977-78.

2. The assessee, a registered firm, was engaged in purchasing paddy, husking it, and selling the produce. The Government of Punjab introduced a purchase tax, which the assessee contested through legal proceedings. The demand notices for the purchase tax were received by the assessee for the accounting periods relevant to the assessment years 1975-76 and 1976-77, totaling Rs.2,35,538.

3. The assessee followed the mercantile system of accounting and claimed a deduction for the purchase tax amount in the year it was paid. The revenue contended that the deduction should only be allowed in the year the liability accrued, citing relevant case laws to support their position. The assessee, on the other hand, relied on different judgments and authors to justify their claim.

4. The tribunal analyzed various judicial precedents and legal provisions to determine the allowability of the purchase tax deduction. It was observed that under the mercantile system of accounting, an assessee could claim a deduction in the year the liability became enforceable, even if not debited earlier. The tribunal highlighted the practical implications of disallowing the deduction and emphasized the commercial practices involved.

5. Considering the conflicting views on the issue, the tribunal referred to the principle of adopting an interpretation favoring the assessee in case of ambiguity in taxing provisions. It concluded that the assessee's case was distinguishable from previous cases, and the deduction for the purchase tax amount was rightly allowed by the CIT(A). Therefore, the tribunal upheld the CIT(A)'s order and dismissed the revenue's appeal and the assessee's cross objection.

6. In conclusion, both the appeal by the revenue and the cross objection by the assessee were dismissed, affirming the decision to allow the deduction for the purchase tax liability in the computation of income for the assessment year 1977-78.