1997 (2) TMI 193 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance under section 43B in respect of sales tax set off.
2. Disallowance under rule 6D of Income-tax Rules.
3. Disallowance of entertainment expenses under section 37(2A) of Income-tax Act.

Detailed Analysis:

1. Disallowance under section 43B in respect of sales tax set off:

The primary issue in these appeals was the disallowance under section 43B related to sales tax set off. The Assessing Officer disallowed the sales tax collected but not paid to the Government account under section 43B, and this disallowance was confirmed by the CIT(Appeals). The assessee argued that the disallowance was not in order, citing decisions from ITAT in the cases of ITO v. Texmac Engineers and Maharashtra Scooters. The Tribunal, however, agreed with the findings of the authorities, stating that the sales tax collected but not paid should be treated as a trading receipt and taxed, as per section 43B, which mandates deductions only on actual payment. The Tribunal emphasized that the marginal note to section 43B, "certain deductions to be only on actual payment," and the non obstante clause, "notwithstanding anything contained in any other provisions of this Act," indicated that statutory liabilities must be discharged to claim deductions. The Tribunal referenced the Supreme Court's decision in Sajjan Mills Ltd. v. CIT, which highlighted the importance of actual payment for deductions. The Tribunal concluded that the sales tax collected but not paid could not be allowed as a deduction under section 43B.

2. Disallowance under rule 6D of Income-tax Rules:

The second issue pertained to the disallowance under rule 6D of Income-tax Rules. The assessee contended that the authorities erred in making disallowances on a trip-by-trip basis instead of considering all trips made during the previous year to determine the admissible amount under rule 6D. The Tribunal agreed with the assessee, referencing the ITAT decision in S.V. Ghatalia v. Second ITO, which stated that all trips made during the previous year should be considered together. The Tribunal directed the authorities to recompute the disallowances accordingly.

3. Disallowance of entertainment expenses under section 37(2A) of Income-tax Act:

The third issue involved the disallowance of entertainment expenses under section 37(2A). The assessee had disallowed Rs. 48,600, but the Assessing Officer disallowed Rs. 1,02,204. The Tribunal found that the assessee did not provide details of the entertainment expenses, making it difficult to reach a conclusion. The Tribunal noted that customary expenses on tea, coffee, etc., should not be considered as entertainment expenses. The Tribunal set aside this issue and restored it to the Assessing Officer to obtain details, give the assessee an opportunity to explain, and redecide the issue in accordance with the law.

Separate Judgments:

Judicial Member's Opinion:

The Judicial Member disagreed with the Accountant Member, stating that the issue was one of accounting income and not disallowance under section 43B. The Judicial Member argued that the sales tax set off should be accounted for as income in the year of the sales tax assessment and not before. The Judicial Member referenced the decisions of the Ahmedabad and Bombay Benches of the Tribunal, which supported this view, and concluded that section 43B did not apply to sales tax set off.

Third Member's Opinion:

The Third Member agreed with the Judicial Member, stating that the issue involved accounting income and should be accounted for in the year of the sales tax assessment. The Third Member concluded that section 43B did not apply to sales tax set off and that the amount should be deemed to have been paid when deducted from sales tax dues. The Third Member answered the questions referred to him, affirming that the issue involved accounting income, which should be accounted for in the year of the sales tax assessment, and that section 43B was not applicable.

Conclusion:

The appeals were allowed in part, with the Tribunal directing the authorities to recompute disallowances under rule 6D and to redecide the issue of entertainment expenses after obtaining details from the assessee. The Tribunal concluded that the disallowance under section 43B for sales tax set off was not legally valid, agreeing with the Judicial Member and the Third Member that the issue involved accounting income, which should be accounted for in the year of the sales tax assessment.