1984 (2) TMI 148 - AT - Income Tax

Summary

Issues:
1. Whether a provision for purchase tax claimed by the assessee is an admissible deduction for the assessment year 1978-79.
2. Whether the liability for payment of purchase tax accrued during the accounting period even if it had to be discharged on a future date.
3. Whether subsequent notifications waiving the purchase tax affect the admissibility of the deduction claimed by the assessee.

Analysis:
1. The judgment involves an appeal by the department against the Commissioner (Appeals)'s decision to allow the assessee's claim for a provision of Rs. 3,53,398 for purchase tax as a deduction. The department contended that the liability was disputed by the assessee and that subsequent waivers of the tax rendered the deduction inadmissible. However, the Commissioner held that the liability to pay purchase tax existed during the relevant accounting period and allowed the deduction.

2. The department argued that since there was no quantification or demand for the tax amount during the accounting period, the liability could not be considered accrued. However, the Tribunal cited legal precedents to establish that the liability for sales tax accrues in the year of assessment, even if payment is due in the future. The Tribunal rejected the argument that disputing the liability could justify disallowing an accrued liability, emphasizing that the liability's existence during the accounting period is crucial for deduction.

3. The department also relied on subsequent notifications waiving the purchase tax to support disallowing the deduction. However, the Tribunal distinguished this case from precedents by highlighting that the liability existed during the relevant accounting period, making the deduction valid. Reference was made to a High Court decision emphasizing that the liability must be considered based on the law prevailing during the accounting period, regardless of subsequent waivers or notifications. The Tribunal concluded that the assessee's claim for deduction should be upheld based on the liability existing during the relevant assessment year.

4. Ultimately, the Tribunal dismissed both appeals, affirming the allowance of the deduction for the provision of purchase tax made by the assessee. The judgment underscores the importance of recognizing accrued liabilities during the relevant accounting period, irrespective of subsequent changes in tax laws or exemptions. It establishes that the admissibility of deductions is contingent upon the liability existing under the law prevailing during the assessment year, regardless of potential tax implications in subsequent years.