1992 (3) TMI 145 - AT - Income Tax

Summary

Issues:
- Disallowance of provision for purchase tax for assessment years 1981-82, 1982-83, and 1983-84.
- Interpretation of liability for purchase tax on sea foods like shrimps, prawns, etc.
- Applicability of Supreme Court judgment in M/s Sterling Foods vs. State of Karnataka on purchase tax exemption.
- Reasonable apprehension of liability for purchase tax based on pending assessments.

Analysis:
The case involved three appeals by the assessee against the CIT(A)'s consolidated order for the assessment years 1981-82, 1982-83, and 1983-84. The primary issue was the disallowance of provisions made for purchase tax liability on sea foods. The CIT(A) dismissed the appeals based on the Supreme Court judgment in M/s Sterling Foods vs. State of Karnataka, which held that purchases of sea foods for export are exempt from purchase tax. The assessee argued that the Kerala High Court's decision in Neroth Oil Mills, pending appeal, created a reasonable apprehension of liability for purchase tax. The Tribunal considered the assessee's provision for purchase tax in its accounts and balance sheets, noting the ongoing assessments by sales-tax authorities.

The Tribunal analyzed previous decisions, particularly a case involving The Karthika Marine Industries Pvt. Ltd., where a similar provision for purchase tax was allowed as a deduction due to a reasonable apprehension of liability. The Tribunal emphasized that until final assessments are made by the sales-tax authorities, the assessee's apprehension of liability is valid. The Tribunal distinguished the facts from the Sterling Foods case and upheld the provision for purchase tax deduction based on the pending assessments and reasonable apprehension of liability. Consequently, the Tribunal allowed all three appeals by the assessee, overturning the disallowance of provisions for purchase tax liability.

In conclusion, the Tribunal's decision was based on the principle that the assessee's provision for purchase tax was allowable as a deduction due to the ongoing assessments, reasonable apprehension of liability, and the similarity of facts to previous cases where such deductions were permitted. The Tribunal's ruling favored the assessee's position, considering the unresolved nature of the liability for purchase tax on sea foods pending final assessments by the sales-tax authorities.