CIT, LUDHIANA vs. M/S.RAM LUBHAYA & SONS

ITR/35/1989HC Punjab & HaryanaPHHC01022571198916 October 2006Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE RAJESH BINDAL2 pages

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What did the High Court hold?

The High Court held that the view taken by the Tribunal was correct and in consonance with the law laid down by this Court. The Tribunal had allowed the assessee's claim for deduction of the accrued sales tax liability for the assessment year 1983-84, relying on the mercantile system of accounting followed by the assessee. The Court referred to its earlier Division Bench judgment in CIT v. United India Woollen Mills (1981) 132 ITR 457, which held that accrued liabilities of the accounting period must be allowed as a deduction when the assessee follows the mercantile system. This view was reiterated in a subsequent judgment in Sirsa Industries v. CIT and another (1989) 178 ITR 437, which overruled a contrary view in Sirsa Industries v. CIT and another (1984) 147 ITR 238, relied upon by the lower authorities. The revenue did not show any contrary view. Therefore, the question of law was answered against the revenue and in favour of the assessee.

What were the facts?

The assessee, M/s Ram Lubhaya & Sons, Ludhiana, followed the mercantile system of accounting. For the assessment year 1983-84, the assessee claimed a deduction of Rs. 4,44,245/- on account of sales tax liability that had accrued during the year. The Assessing Officer disallowed this claim, and the Commissioner of Income Tax (Appeals) affirmed the disallowance. The assessee appealed to the Income Tax Appellate Tribunal, which allowed the claim. The revenue referred a question of law to the High Court of Punjab and Haryana at Chandigarh arising from the Tribunal's order dated 22.09.1987 in I.T.A. No.10/Chandi/87.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the assessee’s claim for Rs.4,44,245/- on account of Sales-tax in the assessment year 1983-84, in spite of the fact that the same represented an undischarged liability in the relevant year? (Question of law) Assessee's contention: The assessee, following the mercantile system of accounting, contended that an accrued liability for sales tax in the relevant accounting period should be allowed as a deduction. The Tribunal accepted this contention. Revenue's contention: The revenue argued that the sales tax liability represented an undischarged liability in the relevant year, implying it should not be allowed as a deduction. The Assessing Officer and CIT(A) had disallowed the claim on this basis.

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Cause title — parties, addresses and appearances

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.R. No.35 of 1989 Date of decision: 16.10.2006 The Commissioner of Income Tax, (Central), Ludhiana ---Applicant Vs. M/s Ram Lubhaya & Sons, Ludhiana. -----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MR JUSTICE RAJESH BINDAL Present: Mr. S.K. Garg Narwana, Advocate for the revenue. -----

ORDER: Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated 22.09.1987 in I.T.A. No.10/Chandi/87 in respect of assessment year 1983-84:- “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the assessee’s claim for Rs.4,44,245/- on account of Sales-tax in the assessment year 1983- 84, in spite of the fact that the same represented an undischarged liability in the relevant year?”

The assessee followed mercantile system of accounting, who made a claim for deduction of liability towards the sales tax accrued for the assessment year 1983-84. This was disallowed by the Assessing Officer, which view was affirmed by the CIT(A). On further appeal, the Tr

The order continues below.

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