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Issues Involved:
1. Whether the Sales-tax payable, but which has not fallen due for payment under the Sales-tax Rules, can be allowed as an expenditure in spite of the retrospective introduction of Explanation to section 43B by the Finance Act 1989? 2. Inclusion of Rs. 63,278 for the purpose of disallowance u/s 37(3B). Summary: Issue 1: Sales-tax Payable and Section 43B The central question was whether sales-tax payable, but not yet due under Sales-tax Rules, can be allowed as an expenditure despite the retrospective introduction of Explanation 2 to section 43B by the Finance Act 1989. The Tribunal noted that section 43B was introduced to curb the practice of taxpayers claiming deductions on statutory liabilities like sales-tax and excise on an accrual basis while simultaneously challenging these liabilities in court and retaining the money. Section 43B mandates that deductions for such liabilities are allowed only in the year they are actually paid. The Tribunal referenced the Delhi High Court's decision in the case of Sanghi Motors, which upheld the disallowance of sales-tax deductions claimed on an accrual basis, emphasizing that deductions can only be claimed in the year of actual payment. The Tribunal also considered the Andhra Pradesh High Court's decision in Srikakollu Subba Rao & Co. v. Union of India, which interpreted section 43B to mean that the liability must be both incurred and statutorily payable within the same accounting year. The Finance Act 1987 introduced a proviso to section 43B effective from 1-4-1988, allowing deductions if the payment was made before the due date for filing the return. However, Explanation 2, inserted by the Finance Act 1989 with retrospective effect from 1-4-1984, clarified that "any sum payable" includes sums for which liability was incurred in the previous year, even if not statutorily payable within that year. The Tribunal concluded that the proviso to section 43B, effective from 1-4-1988, cannot be applied retrospectively to assessment years 1984-85 to 1987-88. Therefore, the disallowance of Rs. 41,902 was upheld, following the Delhi High Court's decision in Sanghi Motors. Issue 2: Disallowance u/s 37(3B) The assessee contested the inclusion of Rs. 63,278 for disallowance u/s 37(3B), arguing that these payments were commissions to agents rather than sales promotion expenses. The Tribunal agreed, noting that commissions paid to agents based on sales contracts are remuneration for effecting sales and not sales promotion expenses. This view was supported by previous Tribunal decisions in similar cases. Conclusion: The appeal was partly allowed. The Tribunal upheld the disallowance of sales-tax deductions under section 43B but allowed the assessee's claim regarding the inclusion of commission payments for disallowance u/s 37(3B).
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