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TMI Blog1983 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ess collections over payments made cannot be treated is the assessee's income and should not, therefore, be assessed to tax ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is adopting the mercantile system of accounting especially when the assessee is debiting the said amount as and when it pays sales tax to the Government ? " The assessee is a company engaged in the business of manufacture and sale of paper cones and allied products used as textile accessories. In the course of assessment proceedings for the assessment year 1976-77, the ITO noticed that the accounts of the assessee disclosed an excess collection of Rs. 14,138 by way of sales tax over and abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax account also on the basis of the mercantile system, he is entitled to seek deduction of the entire sales tax liability, notwithstanding the fact that the entire amount of sales tax liability has not been discharged during the year of account. In this view, the Appellate Assistant Commissioner allowed the appeal and deleted the addition of Rs. 14,138 representing the excess collection of sales tax available with the assessee. As against the order of the appellate authority, the Revenue filed In appeal to the Appellate Tribunal. Before the Tribunal, the Revenue contended that the assessee was following cash system of accounting in respect of sales tax and hence the excess disclosed in the accounts over and above the payments actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax have to be treated as income of the assessee in view of the decision of the Supreme Court in Chowringhee Sales Bureau Private Limited v. CIT [1973] 87 ITR 542. But the question is whether the assessee is entitled to deduct in computing the total income, the accrued liability towards sales tax. In CIT v. E. A. E. T. Sundararaj [1975] 99 ITR 226, this court has held that if the assessee has adopted the cash basis in maintaining the sales tax account, the excess amount retained in the hands of the assessee after the actual payments to the Sales Tax Department cannot be deducted. But that decision will not apply to a case where the assessee maintained the accounts on the mercantile basis so far Ls the sales tax collections and payments are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax in some detail, without merely endorsing the finding of the appellate authority on the question of the method of accounting. However, as we find that the appellate authority has given germane reasons for disagreeing with the finding of the ITO that the method of accounting adopted by the assessee is cash basis, we are not in a position to differ from the finding rendered by the appellate authority which has been accepted by the Tribunal. There cannot be any dispute that if the assessee maintained mercantile system of accounting so far as sales tax is concerned, then the entire sales tax accrued liability has to be deducted and not only the actual sales tax paid to the Sales Tax Department. In this view, we do not think that the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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