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TMI Blog1984 (3) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... that the answer to the question has to be in accordance with the facts and circumstances of the case which, in fact, change the meaning of the question. In case, the assessee was keeping accounts on a cash basis and the sales tax had not been quantified, the answer to the question would obviously have been that the Tribunal was right. So, before answering the question, it is necessary to note the actual facts of the case. The sales tax in question was payable under the U.P. Sales Tax Act. The assessment year being 1967-68, an amount of Rs. 36,916 had been provided by making entries in the account as sales tax payable for that year. No doubt, this sales tax had not been paid in fact to the authorities during the year but it was payable be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eature of the mercantile system of accounting. Hence, the assessee while following the mercantile system would show the amount as already paid though not paid, and in the case of receipts would show the same as having been received though not yet received. This system of accounting has the effect of appropriating the credits and debits to the right year even if the actual receipts and payments may at a different point of time. There is nothing which the assessee did which appears to be inconsistent with these two judgments of the Supreme Court. It was urged by the learned counsel for the Department that what the Supreme Court meant was actual payment. But, that would mean that the assessee would be forced in this case to maintain the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was contested and could not be included in this particular year. In Chowringhee Sales Bureau P. Ltd. v. CIT [1977] 110 ITR 385, the Calcutta High Court has also had an opportunity to examine the question whether a deduction could be made on the mercantile system before the amount had been paid to the sales tax authorities and it has been held that on the mercantile system, this deduction can be allowed. So, the question whether an entry can be made at a particular time or not depends not only on whether the amount is paid but also on the system of accounting maintained by the assessee. We have recently had an opportunity to examine this matter in another case, Addl. CIT v. Rattan Chand Kapoor [1984] 149 ITR I (Delhi). In that case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales take place. The liability did arise in the year in which the assessee made the entry in this case, though the actual quantification and the final demand for the same might be postponed to another year. If there is a variation in the amount now entered by the assessee, as a result of the actual demand, then an adjustment in the accounts would be made at that time but the primary liability would be appropriated to the present year; the entry was rightly made and, therefore, the deduction has to be allowed. In the circumstances, we would answer the question referred to us in the negative, in favour of the assessee and against the Department. We also note that the question has to be read in the light of the facts particularly the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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