BHARAT TRADING CO Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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K.C. Srivastava, Accountant Member -
(1.) THIS appeal by the assessee is against the order of the AAC relating to the assessment year 1975-76. Though the assessee had taken two grounds, one relating to the refusal to renew the registration of the firm and the other relating to the addition of Rs. 31,845, before us, the learned counsel for the assessee submitted that he was only pressing Ground No. 2 regarding quantum. The reason for the above submission of the counsel is that the two grounds relate to two different orders passed under separate sections and separate appeals are provided against each. We, therefore, proceed to consider the assessee's appeal insofar as it relates to the addition of Rs. 31,845.
(2.) The ITO found that the assessee-firm had received a refund of Rs. 31,845 from the sales tax authorities, Jammu, which represented 5 per cent of the sales deposited as sales tax in the earlier year. The assessee had collected sales tax at 12 per cent on the total sales of Rs. 6,50,318 and the same had been paid to the sales tax department. The assessee had, however, challenged the rate applicable and ultimately it was decided that sales tax was leviable at 7 per cent and not at 12 per cent. The gross amount of sales tax paid at 12 per cent was Rs. 76,429.44 which had been paid in the previous year. In the current year the assessee received sales tax refund of Rs. 31,845. The assessee showed this refund on the credit side of the balance sheet. The ITO was of the view that the refund received was to be assessed as the assessee's income in the current year. It was submitted on behalf of the assessee that though the refund had been received from the sales tax authorities, it represented the assessee's liability to pay back the sales tax collected from different parties. It was also pointed out that an amount of Rs. 4,172 was refunded to S.R. Enterprises, Jammu, in the relevant year. It was also contended that the other two amounts of Rs. 8,113 and Rs. 19,560 was payable to Solar, Srinagar, and Speedways, Jammu. It was pointed out that the accounts of these parties had not been settled due to certain controversies and the refund of these parties could not be given. The ITO did not accept the contention of the assessee that the amount of refund represented the assessee's liability to different customers. He held that the receipt of sales tax refund was a trading receipt in the hands of the seller and deduction from income was admissible only to the extent of sales tax paid. Reference was made to the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT  87 ITR 542. A reference was further made to the decision of the Allahabad High Court in the case of Jagat Narain Durga Prasad v. CIT  76 ITR 214 where it was held that the sales tax refunded to the assessee formed the income of the assessee in the year in question. The ITO, therefore, added Rs. 31,845 to the assessee's income.
When the matter came before the AAC, the same arguments were repeated and the AAC upheld the finding of the ITO that the deduction of sales tax would be available to the assessee as and when he paid the amounts, which are stated to be due to the different parties.
(3.) IT has been submitted before us by the learned counsel for the assessee that the lower authorities have erred in holding that the refund of sales tax was in the nature of trading receipt in the year in question. IT was submitted that in the earlier year sales tax, which had been collected and had been paid to the sales tax department, had not been shown either as a trading receipt or as an expenditure. IT. was, therefore, contended that the amount had not been taken into consideration in computing the income of the assessee in the earlier year. IT was, therefore, contended that the refund of sales tax received in this year could not be brought to tax under the provisions of Section 41(1) of the Income-tax Act, 1961, as the basic condition of this section was not satisfied. This section requires that where an allowance or deduction has been made in the assessment for any year in respect of expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee obtains any amount in respect of such expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him shall be deemed to be the profit and gains of the business or profession as the income of the previous year. IT was, therefore, contended that the learned ITO erred in relying on the decision of the Allahabad High Court in the case of Jagat Narain Durga Prasad (supra) which dealt with a case under Section 10(2A) of the 1922 Act.;
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