Deferred sales tax conversion and MAT carry-forward limits under sections 43B and 115JA were clarified in tax computation.

Deferred sales tax liability converted into an interest-free Government loan under an applicable deferment scheme was treated as equivalent to payment, so section 43B did not require an add-back merely because the conversion occurred after the year-end or return due date. For MAT computation under section 115JA, brought forward business loss and unabsorbed allowances had to be considered only after computing income under the regular provisions with all allowable deductions given effect first; only the remaining unabsorbed amounts could be carried forward. The article records that the deferred sales tax issue favoured the assessee, while the carry-forward issue under MAT favoured the Revenue.

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Issues: (i) Whether deferred sales tax liability, converted into an interest-free loan by the State Government, could be added back under section 43B of the Income-tax Act, 1961; (ii) Whether, for the purpose of section 115JA of the Income-tax Act, 1961, brought forward business loss and other unabsorbed allowances had to be adjusted only to the extent permissible after computing income under the regular provisions.

Issue (i): Whether deferred sales tax liability, converted into an interest-free loan by the State Government, could be added back under section 43B of the Income-tax Act, 1961.

Analysis: The sales tax liability had been converted by the State Government into an interest-free loan under the relevant exemption/deferment scheme. The certificate covered the years relevant to the assessments in question. In these circumstances, the conversion of the liability into a loan was treated as equivalent to payment to the Government, and the mere fact that the conversion had not been effected during the assessment year or before the return filing due date did not justify invoking section 43B.

Conclusion: The addition under section 43B was not sustainable and the relief granted by the appellate authority was upheld, in favour of the assessee.

Issue (ii): Whether, for the purpose of section 115JA of the Income-tax Act, 1961, brought forward business loss and other unabsorbed allowances had to be adjusted only to the extent permissible after computing income under the regular provisions.

Analysis: Section 115JA was treated as pari materia with section 115J for the relevant carry-forward scheme. Applying the Supreme Court's construction of the MAT provisions, the computation under the regular provisions must first give effect to all allowable deductions, and only the balance of unabsorbed deductions that could otherwise be carried forward remains available. The assessee could not claim a larger carry forward merely because tax was imposed on deemed book profit.

Conclusion: The assessee's claim was rejected and the Assessing Officer's computation was restored, in favour of the Revenue.

Final Conclusion: The dispute on deferred sales tax was resolved for the assessee, but the MAT-related carry-forward issue was decided for the Revenue, resulting in a partial success for both sides with the Revenue obtaining relief on the section 115JA ground.

Ratio Decidendi: Under the MAT scheme, regular income must first be computed by giving effect to all allowable deductions, and only the unabsorbed amounts that would otherwise survive under the Act can be carried forward; separately, a deferred sales tax liability converted into a Government loan is not to be treated as an unpaid liability for section 43B purposes where the conversion is covered by the applicable deferment scheme.

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