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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
The appeal filed by the assessee is directed against the order dated 27. 02. 2015 possible by learned CIT(A)-33, Mumbai and it relates to the assessment year 2007-08. The solitary issue urged in this appeal relates to disallowance of sales tax liability u/s 43B of the Act, which is credited to the Balance Sheet without debiting corresponding provision for its payment to the Profit and Loss account.
I heard the parties and perused the record. The assessee is following Mercantile system of accounting. The Ld CIT noticed that the Balance sheet of the assessee disclosed the sales tax credit payable amount of Rs.12,04,566/-. The assessee did not make any provision for payment of the assessee and also did not disallow it as required under section 43B of the Act. Hence, he revised the assessment order u/s 263 of the Act and directed the AO to add the above said amount to the total income of the assessee. In the set aside proceedings,
2 Kadam Menon Colour Craft assessee placed reliance on the following case law to contend that the disallowance is not required to be made under section 43B of the Act.
(a) DCIT Vs. Maharashtra Scooters Ltd (1997) (228 ITR (AT)78) (b) India Carbon Ltd Vs. IAC (1993)(200 ITR 759)(Gau)
The AO did not agree with the submissions of the assessee and accordingly disallowed the amount, referred above. The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal before the Tribunal.
The learned AR reiterated the contentions made before the tax authorities and also heavily placed reliance on the decision rendered by honourable Guwahati High Court in the case of India Carbon Ltd, referred supra. On the contrary the Learned DR submitted that the Sales tax receipts are considered as “trading receipts” as per the decisions rendered by Honourable Supreme Court in the case of Chowringhe Sales bureau private limited 87 ITR 542 and Sinclair Murray & Co 97 ITR 615. Accordingly he submitted that the Sales tax collected by the assessee is liable to be assessed under section 43B of the Act, if it has not been paid within the due date prescribed in section 43B of the Act. The Ld D.R submitted that the legal position shall remain the same, even if the assessee has not debited the profit and loss account with the provision for payment of tax liability.
Having heard the rival submissions, I am of the view that the decision rendered by Learned CIT(A) does not call for any interference. It is an admitted fact that the assessee is following Mercantile system of accounting. The Sales tax collected by the assessee is treated as trading receipts as per the decisions rendered by Honourable Supreme Court, referred above, which were relied upon by Learned DR. The Honourable Supreme Court has held in the case of CIT versus Nagi Reddy 202 ITR 253 that the Sales tax liability is liable to be 3 Kadam Menon Colour Craft disallowed under section 43B of the Act, if the assessee is maintaining his accounts under Mercantile system of accounting, i.e., under Mercantile system of accounting, it is obligatory to make provision for the liability to pay Sales tax. Hence even if the assessee has not made any provision towards payment of Sales tax liability in the books of account, the same is liable to be disallowed under section 43B of the Act.
The learned AR submitted that the assessee has paid the sales tax liability in the month of March 2008 and hence the said payment is allowable as deduction in computing the income of the succeeding year as per the provisions of sec. 43B of the Act. The learned AR submitted that the assessee has already moved a petition in this regard before the assessing officer, but the assessing officer has not given any effect thereto. Accordingly the learned AR, as an alternative contention, submitted that the assessing officer may be directed to allow the deduction of Sales tax payments made in the succeeding year, if the issue under consideration is decided against the assessee in the instant year.
I find merit in the alternative submissions made by the assessee. As per the provisions of section 43B of the Act, the Sales tax disallowed u/s. 43B of the Act on account of non-payment shall be allowable as deduction in the year in which the same is paid. Accordingly the impugned Sales tax liability, which is disallowed in the instant year, is liable to be allowed as deduction in the year in which it is paid. Accordingly we direct the assessing officer to allow the sales tax payments in the year in which paid, since I have confirmed the disallowance made during the year under consideration.
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In the result the appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 13.7.2016