- (1.) The department has filed this appeal against the order of Commissioner (Appeals) for the assessment year 1989-90 dated 6-8-1992 on the following ground:- "That on the facts and in the circumstances of the case, the learned Commissioner (Appeals)-VI, Calcutta erred in holding that the assessing officer wrongly in taxing the sum of Rs. 61,75,888 under section 41(1) of the Income Tax Act, 1961 as there was no finality in respect of the liability of the purchase tax."
(2.) Briefly stated, the relevant facts giving rise to this appeal are that under the U.P. Sales Tax Act, purchase tax was levied on the assessee. The assessee did not accept the levy but paid the amount under protest. The Deputy Commissioner (Appeals) confirmed the order of the Commercial Tax Officer. The assessee filed second appeal before the Sales Tax Tribunal and the Tribunal held by its order dated 20-9-1988 that no purchase tax was payable by the assessee. However, the Sales Tax Department did not accept the said order of the Sales Tax Tribunal and filed the revision before the Honble Allahabad High Court. In respect of the purchase tax paid by the assessee during the assessment years 1978-79 to 1987-88, aggregating sum of Rs. 61,75,888 the assessee had deducted the said sum in the computation of income from the book profits and the same was allowed deduction with respect to the said sum in computing the income for the said earlier years in which the payments were made. On deciding the second appeal by the Sales Tax Tribunal in favour of the assessee, the assessee during the relevant assessment year under appeal, credited the said sum of Rs. 61,75,888 in the Profit & Loss Account of the relevant previous year as a deduction from the cost of purchase of the raw materials. However, for the purpose of computing the income chargeable under the head "Profits & Gains of business" for the assessment year under appeal, the assessee claimed that the said sum was not chargeable to tax under section 41(1) of the Act, since as at the end of the relevant previous year there was no cessation of the liability for purchase tax as the Sales Tax Department had challenged the order of the Sales Tax Tribunal before the High Court. However, the assessing officer did not agree with the contention of the assessee and held that the assessee had claimed the expenditure in the previous years which was allowed and the amount of remission obtained by the assessee pursuant to an order passed by the Sales Tax Tribunal during the assessment year under appeal, the said amount of Rs. 61,75,888 was assessable under section 41(1) of the Act. Being aggrieved, the assessee filed appeal before the learned Commissioner (Appeals).
(3.) On behalf of the assessee it was contended before the learned Commissioner (Appeals) that the question of treating the aforesaid amount of Rs. 61,75,888 as income of the assessee under section 41(1) of the Act would arise only if the assessee obtained any amount in cash or in any other manner during the relevant previous year. It was not enough that the Sales Tax Tribunal did pass a favourable order in the relevant previous year but it was also necessary that either an order of refund or actual refund should have been granted by the Commercial Tax Department before the above amount of Rs. 61,75,888 could be brought to tax as income of the relevant assessment year. The assessee contended that the mere fact that the assessee had credited that amount to the Profit & Loss Account for the year ended 31-3-1989 did not by itself give rise to any inference that amount could be treated as income in the hand of the assessee. It was argued before the learned Commissioner (Appeals) that the Sales Tax Department did not accept the decision of the Tribunal and went in appeal to High Court and as such it could not be said that there was cessation of the liability for the purpose of 4 41(1) of the Act. The assessee took the plea before the learned Commissioner (Appeals) relying on the decision given in the case of J.K. Synthetics Ltd. v. O.S. Bajpai, Income Tax Officer, 1976 105 ITR 864 that in view of the pendency of the appeal before the Allahabad High Court, the appeal destroys the finality of the decision given by the Sales Tax Tribunal and as such until the said decision is finalised by the disposal of the said appeal and the matter is brought to a state of finality, there could not be any cessation of liability for the purpose of attracting section 41(1) of the Act. It is observed that the assessee also stated before the learned Commissioner (Appeals) that the Allahabad High Court had given the judgment on 3-1-1991 against the assessee company by holding that the assessee was liable to pay the purchase tax and the assessee had filed S.L.P. to the Supreme court and at that time the matter was subjudice. The learned Commissioner (Appeals) on the basis of the submission of the assessee and the cases cited before him on behalf of the assessee held that there was no finality in respect of the liability of the purchase tax and unless the decision is pronounced by the court, it cannot be held that there has been cessation of liability on the part of the assessee. The learned Commissioner (Appeals) held that the assessing officer was wrong in taxing the said sum of Rs. 61,75,888 under section 41(1) of the Act. Hence, the department has filed appeal against the said order of learned Commissioner (Appeals) before the Tribunal.;