- (1.) THE assessee was maintaining the mercantile system of accounting. Liability to pay sales tax during the period relevant to the assessment years 1969-70, 1970-71 and 1971-72 accrued every month on the monthly turnover. It was not debited in the account books nor was deduction claimed in those years. For the aforesaid years, sales tax was actually paid during the period relevant to the assessment year 1977-78 and the assessee claimed deduction thereof in that year. The Income-tax Officer allowed deduction on the basis of the decision of the Madras High Court in CIT v. Krishnan (V.) [1980] 121 ITR 859.
(2.) THE Commissioner of Income-tax initiated proceedings under Section 263 of the Income-tax Act, 1961 (for short "the Act"), in view of the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, as the order of the Income-tax Officer was prejudicial to the interests of the Revenue, as in view of the aforesaid decision of the Supreme Court, deduction for the liability to pay sales tax, which accrued during the period relevant to the assessment years 1969-70, 1970-71 and 1971-72, could not be allowed as a deduction in the assessment year 1977-78". As a result, he set aside the order of the Income-tax Officer and held that the deduction was not allowable.
(3.) AGAINST the aforesaid order, the assessee went up in appeal before the Income-tax Appellate Tribunal, Delhi (hereinafter referred to as "the Tribunal" ). The Tribunal followed the decision of the Gauhati High Court in CIT v. Nathmal Tolaram [1973] 88 ITR 234, and allowed relief to the assessee. The Tribunal has referred the following two questions for the opinion of this court at the instance of the Revenue : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the order of the Income-tax Officer cannot be considered to be erroneous in so far as it is prejudicial to the interests of the Revenue ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in vacating the order of the Commissioner of Income-tax passed under Section 263 of the Income-tax Act, 1961, and restoring the order of the Income-tax Officer ?";