Section 145 proviso limits additions; books rejection alone not basis for additions; section 43B allows timely paid sales tax deduction

HC held that section 145 merely prescribes the basis of computing income and does not itself mandate additions; rejection of books does not automatically justify additions. Tribunal rightly deleted additions to trading profits where higher gross profit rate was adopted without findings of unreasonable expenses, deciding the proviso to section 145 applied. HC also held that sales tax paid within the statutory period is allowable under section 43B, and therefore the assessing authority erred in disallowing the deduction; both issues resolved in favor of the assessee and against the Revenue.

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Issues Involved:
1. Applicability of proviso to section 145(1) and deletion of trading additions.
2. Allowability of unpaid sales tax liability u/s 43B of the Income-tax Act.

Summary:

Issue 1: Applicability of Proviso to Section 145(1) and Deletion of Trading Additions
The assessee, a dealer in marble, faced scrutiny from the Assessing Officer (AO) due to lack of quantitative and qualitative stock details and a significant fall in gross profit rate. The AO invoked section 145(1) and made a trading addition of Rs. 3,34,960. The Commissioner of Income-tax (Appeals) upheld the invocation of section 145(1) but reduced the addition to Rs. 34,000. The Tribunal, however, deleted the entire addition, stating that the Commissioner provided no basis for sustaining the Rs. 34,000 addition. The court held that merely changing the basis or method of computing taxable income does not necessarily result in different profits or gains from those returned by the assessee. The Tribunal's decision to delete the entire addition was upheld, answering question No. 1 in the affirmative, in favor of the assessee and against the Revenue.

Issue 2: Allowability of Unpaid Sales Tax Liability u/s 43B
The assessee had an unpaid sales tax liability of Rs. 24,537 as of November 12, 1985, which was paid on December 10, 1985, within the time allowed under the sales tax law. The AO disallowed this liability u/s 43B(a), but the Tribunal allowed the deduction, relying on the Andhra Pradesh High Court decision in Srikakollu Subba Rao and Co. v. Union of India. The Supreme Court in Allied Motors (P.) Ltd. v. CIT clarified that the first proviso to section 43B allows such deductions if the payment is made before the due date for filing the return u/s 139(1). The court upheld the Tribunal's decision, answering question No. 2 in the affirmative, in favor of the assessee and against the Revenue.

Conclusion:
Both questions were answered in the affirmative, favoring the assessee and against the Revenue. There were no orders as to costs.

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