1988 (9) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 43B of the Income Tax Act.
2. Applicability of Section 43B to sales-tax liability.
3. Timing of sales-tax payment and its impact on tax deductions.

Summary:

Interpretation of Section 43B:
The appeal raises an interesting question about the interpretation of Section 43B. The appellant, a registered firm, filed a return of income for the assessment year 1984-85. The ITO noticed a liability towards sales-tax amounting to Rs. 1,69,909 and added this amount to the total income of the assessee u/s 43B. The CIT(A) upheld this addition, relying on Supreme Court decisions in Kedarnath Jute Mfg. Co. Ltd. v. CIT and Chowringhee Sales Bureau (P.) Ltd v. CIT, stating that the liability that accrues during the year must be debited to the P & L account.

Applicability of Section 43B to Sales-Tax Liability:
The assessee argued that the sales-tax for March 1984 was payable in April 1984 as per the Goa, Daman and Diu Sales Tax Act and Rules. The CIT(A) did not accept this argument and upheld the addition. The assessee contended that the sales-tax was not claimed as an expense and was payable in the next month, thus should not be disallowed u/s 43B. The Tribunal noted that Section 43B was not on the statute book when the Supreme Court delivered its judgments in Kedarnath Jute Mfg. Co. Ltd. and Chowringhee Sales Bureau (P.) Ltd.

Timing of Sales-Tax Payment:
The Tribunal considered the Andhra Pradesh High Court's decision in S. Subba Rao & Co. v. Union of India, which dealt with a similar issue. The High Court observed that Section 43B applies only if the tax or duty is statutorily payable in the accounting year. The Tribunal also referred to decisions of various benches, including the Bangalore Bench in Fourth ITO v. Sanjay Sales Syndicate, which supported the assessee's case. The Tribunal concluded that the sales-tax liability for March 1984, payable in April 1984, could not be disallowed u/s 43B as it was not statutorily payable during the accounting year.

Final Judgment:
The Tribunal held that there was no justification for the addition of Rs. 1,69,909 by the ITO. The amount was shown in the sales-tax account, not debited in the P & L account, and no provision was made. The sales-tax liability for March 1984 was payable in April 1984 as per the relevant sales-tax provisions. Therefore, Section 43B could not be invoked to make this addition. The appeal of the assessee was allowed, and the order of the CIT(A) was reversed.