SENGUPTA,J. - (1.) IN this reference under S. 256(1) of the IT Act,1961 ('the Act'), the following questions of law have been referred by the Tribunal for the asst. yr. 1985-86: "1. Whether , on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that since the assessee had not made any provision in respect of sales-tax liability but had credited the sales tax collection and debited the sales tax payment in a separate sales tax account, the provisions of S. 43 B of the IT Act, 1961 would not be applicable in the case ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the provisions of S. 43B of the IT Act, 1961 would not be applicable in the case and thereby deleting the addition of Rs.77,439 made under that section? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law I upholding the CIT (A) order directing the AO to allow the deduction of Rs.1.23,704 on account of sales-tax ?"
(2.) THE assessee is a limited company and the assessment year involved is 1985-86. The facts of the case are that during the assessment proceedings the ITO noticed that a sum of Rs.2,50,100 represented the assessee's liability towards sales-tax. According to him, the provisions of S. 43B of the Act would be applicable to this case and therefore, the difference between the said sum of Rs. 2,50,100 and Rs.1,72,661, being the amount disallowed last year but paid during the current year of account, must be added to the assessee's income. He, therefore, added the sum of Rs.77,439. Being aggrieved, the assessee carried the matter in appeal before the CIT (A) and argued that it was maintaining a separate ledger account for sales tax, that the amounts realised from the customers were debited to that account, that the amounts paid to the Government were debited to that account, that the net credit/debit balance was reflected in the balance sheet and that the P&L a/c was not affected in any fashion. It was also pointed out that the sales tax account started with an opening credit balance of Rs. 3,61,816. During the relevant previous year ending on 31st March, 1985 a sum of Rs. 16,44,077 was collected from the customers and credited to that account. At the same time, during the said accounting year a sum of Rs. 17,67,781 was paid to the Government leaving a credit balance of Rs. 2,38,112. The collection made during the year as and by way of sales tax being Rs. 16,44,077 and the payment made being Rs. 17,67,781, there was an excess payment of Rs. 1,23,704 during the year. It was also stated that in a the immediately preceding year of account an amount of Rs. 2,26,629 was disallowed and the excess payment made this year of Rs. 1,23,704 was attributable to the said figure of Rs. 2,26,629. Since the said sum was disallowed in the previous year, the assessee was entitled to a revenue deduction in respect of the sum of Rs. 1,23,704. Further, the addition of Rs. 77,.439 made by the ITO should also be deleted. The CIT (A) accepted the arguments advanced on behalf of the assessee and directed the ITO to allow deduction of Rs. 1,23,704 and also to delete the addition of Rs. 77,439. Before the Tribunal, the learned Departmental representative has agues that the CIT (A) was not justified in the direction given by him to the ITO in view of the clear provisions of S. 43B which fully support the ITO's action. On the other hand, the learned counsel for the assessee strongly supported the impugned order of the CIT (A).
(3.) THE Tribunal considered the rival submissions. The sales tax account as maintained by the assessee was also duly considered. Since the assessee collected sales tax which was credited to a separate sales tax account and the sales tax paid was debited to the said account, S. 43B is not applicable. The addition of Rs. 77,439 made by the ITO was held to the deleted.;