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Issues Involved: Disallowance of depreciation claim and disallowance made under section 43B.
Issue-wise Detailed Analysis: 1. Disallowance of Depreciation: The assessee, a registered firm, filed its IT return for the assessment year 1984-85, disclosing an income of Rs. 1,55,000. The Income-tax Officer (ITO) disallowed half of the motor car expenses and half the depreciation on the motor car. The assessee argued that since one of the partners had a separate car, the firm's car was not used for personal purposes. However, the ITO rejected this contention, citing that the assessee voluntarily disallowed half of the motor car expenses, indicating the car was used for personal purposes. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the ITO's decision, reasoning that the voluntary disallowance by the assessee suggested the firm's car was used for personal purposes. The Tribunal agreed with the CIT(A), stating that the voluntary disallowance was a strong indicator that the firm's car was used for personal purposes, justifying the disallowance of half the depreciation. 2. Disallowance under Section 43B: The ITO disallowed Rs. 1,15,555 under section 43B, comprising Central Sales-tax, Sales-tax, Surcharge on Sales-tax, and a brought forward amount in the Sales-tax account. The assessee contended that the sales-tax collections were kept in a separate account and not claimed as a business receipt, arguing that section 43B should not apply. The assessee also argued that the liability to pay sales-tax arose in the accounting year, but there was time available under the relevant sales-tax law for payment, and the first proviso to section 43B, though introduced with effect from 1-4-1988, should be retrospective from 1-4-1984. The Tribunal considered whether the sales-tax collections should be treated as trading receipts. The Tribunal noted conflicting decisions from the Andhra Pradesh High Court on this issue and decided to follow the decision that sales-tax collections should be treated as trading receipts. The Tribunal held that the brought forward amount of Rs. 36,683 did not represent collections made in the accounting year and should not be disallowed under section 43B. The remaining amount of Rs. 78,882 was considered part of the trading receipts. 3. Application of Section 43B: The Tribunal evaluated whether section 43B applies even if the assessee did not claim any deduction for the outstanding sales-tax. The Tribunal held that the sales-tax collections should be shown on the credit side and the payments on the debit side of the Profit and Loss Account, and the provisions of section 43B should be applied in determining the real profits. The Tribunal agreed with the learned Standing Counsel for the Department that the provisions of section 43B should be applied even if the assessee did not claim any deduction, as it is necessary to arrive at the true profits and gains. The Tribunal also considered the retrospective nature of the first proviso to section 43B, noting conflicting judicial opinions. The Tribunal preferred the view that the first proviso is retrospective, following decisions from the Patna and Calcutta High Courts, which held that the proviso is clarificatory and intended to make the section workable. Conclusion: The Tribunal partly allowed the appeal, holding that the brought forward amount of Rs. 36,683 should not be disallowed under section 43B. The Tribunal directed that the amount representing the last month's collections, which was paid within the time allowed under the law, should be allowed as a deduction after due verification. The Tribunal's decision emphasized that the provisions of section 43B apply to ensure the correct computation of income, even if the assessee did not claim a deduction for the outstanding sales-tax collections.
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