1982 (4) TMI 149 - AT - Income Tax

Summary

Issues:
- Whether the amounts deleted by the Commissioner (Appeals) from the assessments for the years 1973-74 to 1976-77 should be included in the trading receipts of the assessee.
- Whether the assessee followed the mercantile system of accounting in relation to the sales tax collections and payments.
- Whether the revenue's contention that the assessee followed a cash system of accounting for sales tax is valid.

Analysis:

Issue 1:
The appeals by the revenue were against the assessments for the years 1973-74 to 1976-77. The contention was raised regarding the deletion of specific amounts from the assessments. The assessee, a private limited company, had credit balances in the 'deposit sales tax account' for these years. The revenue argued that these amounts should be included in the trading receipts of the assessee. The ITO added the sums to the assessments, relying on a Supreme Court ruling. However, the Commissioner (Appeals) disagreed, stating that the amounts could not be included as income until the liability to pay sales tax was determined. The Commissioner (Appeals) held that the collections were treated as a liability to the sales tax department and should not be netted off against the trading receipts.

Issue 2:
The revenue contended that the assessee did not follow the mercantile system of accounting for sales tax collections and payments. The revenue argued that the Andhra Pradesh High Court rulings on mercantile accounting did not apply in this case. However, the Commissioner (Appeals) found that the assessee had been following the mercantile system of accounting. The revenue's argument was based on the assumption that the assessee followed a cash system of accounting, which was refuted by the facts presented. The Tribunal agreed with the Commissioner (Appeals) that the assessee followed the mercantile method of accounting, especially concerning sales tax collections.

Issue 3:
The revenue claimed that the assessee followed a cash system of accounting for sales tax, contrary to the mercantile method. The Tribunal found no evidence to support the revenue's claim. Referring to relevant case law, including a Supreme Court ruling, the Tribunal held that even if the amounts collected were to be included in trading receipts, the assessee would still be entitled to a deduction. The Tribunal upheld the Commissioner (Appeals)'s decision that the additions made by the ITO were not sustainable, as the assessee followed the mercantile system of accounting.

In conclusion, the Tribunal dismissed the revenue's appeals, upholding the Commissioner (Appeals)'s decision regarding the treatment of the amounts in question and confirming that the assessee followed the mercantile system of accounting for sales tax collections and payments.