Decided on April 08,1960



- (1.)In this reference at the instance of the Commissioner of Income-tax, we are faced with the question, viz.:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the provision of Rs. 1,84,734 for sales tax liability was allowable as a deduction in computing the business income of the assessee-company -

The assessee is a private limited company and the reference relates to the assessment year 1971-72. For this assessment year, the assessee-company claimed a deduction of Rs. 1,84,734 on account of sales tax liability on sales of "Kuil " and "Star" brand matches. The ITO, however, was of the view that since under the West Bengal Sales Tax Act, sales tax was not payable on sale proceeds of matches made or processed otherwise than in a factory as defined in the Factories Act, 1948, and matches in which match sticks were made from bamboo splints came under that category, sales tax was not attracted on sales of those two brands of matches and the assessee had also not been asked to pay sales tax on these sales when the sales tax assessment was made. He did not agree with the assessee-company that since the assessment already made was sought to be reopened by the sales tax authorities for which a notice dated 27th January 1973, had been given and the proceedings in respect of which were still pending, the assessee's claim should be allowed. He, therefore, disallowed the claim for deduction.

(2.)The assessee went up in appeal before the AAC. The AAC accepted the assessee-company's claim for deduction of Rs. 1,84,734 on account of sales tax liability in respect of sale proceeds of "Kuil" and "Star" brand matches.
(3.)Being aggrieved by the said order, the revenue went up in appeal before the Appellate Tribunal. It was argued on behalf of the revenue that the AAC erred in deleting the disallowance of Rs. 1,84,734. It was contended that prior to the notification the above-said brands of matches were exempted from sales tax but by proceedings started by the sales tax department, the assessee was made liable to pay sales tax on the sale of the above-said matches. It was, however, urged by the assessee that although no tax had been collected by the sales tax department yet the proceedings initiated by the sales tax authority for collection of the disputed amount were still pending and, therefore, the assessee rightly provided the liability in its accounts which was an admissible deduction. Reliance was placed on the decisions in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT,I971 82 ITR 363 and in the case of COMMISSIONER OF INCOME-TAX v. Royal Boot House, 1970 75 ITR 507

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