1987-VIL-62-ITAT-CTK
Equivalent Citation: ITD 021, 004, TTJ 029, 127,
Income Tax Appellate Tribunal CUTTACK
Date: 16.01.1987
KAPOOR MOTOR ENGINEERING (P.) LTD.
Vs
INCOME-TAX OFFICER.
BENCH
Member(s) : S. N. ROTHO., D. N. SHARMA.
JUDGMENT
Per Shri S. N. Rotho, Accountant Member - This appeal has been filed by the assessee against the order dated 1-5-1985 of the Commissioner (Appeals) relating to the assessment year 1984-85.
2. The assessee is a company and the assessment year involved in this appeal is 1984-85 with the year ended on 31-3-1984 as the relevant previous year.
3. The only ground taken in this appeal states that the disallowance of a sum of Rs. 23,918 under section 43B of the Income-tax Act, 1961 ('the Act') was not justified. The ITO found that the assessee had shown the aforesaid sum of Rs. 23,918 as an amount due to the Sales Tax Department in its balance sheet under the head 'Sundry creditors'. The ITO observed that this amount was collected during the year but not paid during the year and so he added back the said sum invoking the provision of section 43B.
4. The assessee appealed to the Commissioner (Appeals) who confirmed the action of the ITO on the ground that the sales tax collected by the assessee represented a part of its sale proceeds and so the same had to be included in the sales. The sum of Rs. 23,918 remained unpaid as at the end of the previous year because it represented the collection made in the last quarter of the previous year under consideration. Even so, the Commissioner (Appeals) held that it became taxable because of the provision of section 43B which prohibits deductions of unpaid amount of expenses.
5. Shri A. Pasayat, the learned representative for the assessee, urged before us that the revenue authorities have erred in their decision. In this connection, he relied on the decision dated 14-8-1985 of this Bench of the Tribunal in IT Appeal No. 294 (Cuttack) of 1985 wherein a similar matter has been decided in favour of the assessee. He explained that the assessee was collecting sales tax and paying the same quarter after quarter in accordance with the provisions of the Sales Tax Act. The amount collected in one quarter is payable within the first half of the immediately following quarter. The assessee has been following this practice since several years. Even the sum of Rs. 23,918 has been paid in the subsequent year just as a similar amount collected in the March quarter of the preceding year was paid at the beginning of the previous year under consideration. He stated that in view of this consistent method of accounting followed by the assessee, there is no difference to the revenue in the long run. He urged that the regular practice cannot be upset merely because section 43B which relates to deduction of expenses while computing the income under section 28 of the Act has been enacted. He pointed out that the amount under consideration was not claimed as a deduction and so section 43B did not come into play.
6. Shri P. Thiagarajan, the learned representative for the department, on the other hand, supported the order of the Commissioner (Appeals). He stated that the assessee could not maintain one method of accounting relating to a part of sale proceeds and another method of accounting relating to another part of sale proceeds. According to him, sales tax was a part of sales and no separate method of accounting can be adopted in respect thereof.
7. We have considered the contentions of both the parties as well as the facts on record. It is not in dispute that the assessee had not claimed the amount under consideration as a deduction. Hence, section 43B does not apply to the facts of this case. It is true that sales tax forms a part of sale proceeds against which the sales tax paid or payable by the assessee has to be allowed as a deduction. In the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT (1973) 87 ITR 542 (SC), the assessee collected sales tax but did not pay the same to the Government for several years. That was not a case of collecting sales tax and paying the same quarter after quarter within the prescribed dates under the law. On the other hand, in the case before us the assessee has been paying sales tax within the statutory dates. The assessee did not contest the payment of sales tax. Nor did it postpone the payment beyond the statutory dates. In fact, the Commissioner (Appeals) has recorded in his order that the amount under consideration was not deposited by the assessee during the year under consideration because it was not payable within that year. An amount cannot be paid unless it has first become payable. The assessee was following the mercantile system of accounting but so far as the sales tax collections are concerned, they have been kept in a separate account. When the law permits the payment of tax some time after they are collected, then some amount is bound to remain unpaid on the date when the assessee closes its accounts. If the said amount is taken as sale proceeds consistently it would make no difference in the long run. Similarly, if the said amount is not taken as a part of sale proceeds of the year of collection, then also it would not make any difference in the long run. All that has to be seen is whether the unpaid amount was really paid within the statutory date so that it ceased to be income. In other words, even if it is regarded as income, it is to be allowed as expenditure in the year of payment or in the year in which it has become payable under the law. Since the assessee has been following this method of accounting regularly year after year, we do not see any reason to depart from the same during the year under consideration. We find support for this conclusion of ours in the decision of the Special Bench of the Tribunal in the case of American Express International Banking Corpn. v. IAC (1983) 6 ITD 373 (Bom.). Though the sales tax collections are deemed to be a part of sale proceeds, they form a category different from ordinary sales. It is well settled that an assessee may choose one system of accounting for certain transactions and another system for other transactions vide the decisions in the cases of Shiv Prasad Ram Sahai v. CIT (1966) 61 ITR 124 (All.) and Snow White Food Products Co. Ltd. v. CIT (1983) 141 ITR 861. For the above reasons, we do not find much force in the argument raised on behalf of the department while we find enough force in the contention raised for the assessee. A similar view has also been taken by the Ahmedabad Bench of the Tribunal in the case of ITO v. Thakersi Babubhai & Co. [1986] 26 TTJ (Ahd.) 517. The Budget Speech of the Finance Minister also shows that section 43B is not intended to be applied against assesses like the instant one who do not indulge in the practice of withholding payment of legitimate dues to the Government beyond the statutory dates. Consequently, we hold that the sum of Rs. 23,918 deserves to be deleted from the total income of the assessee and the assessment deserves to be modified accordingly.
8. In the result, the appeal is allowed.
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