Sales tax deduction failed where alleged sales were not genuine, making the claimed liability non-deductible

A sales tax liability claimed as a business deduction was disallowed because the underlying sales were found not to be genuine. Once the factual finding of no genuine sales remained undisturbed, no deductible sales tax liability could arise in computing business income. The assessee's use of the mercantile system of accounting did not alter that result, as accounting method cannot create a deduction where the basic transaction itself is fictitious. The question was therefore answered against the assessee and in favour of the Revenue.

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Issues: Whether the sum of Rs. 18,022 claimed as sales tax liability was allowable as a deduction in computing the business income of the assessee.

Analysis: The finding that there were no genuine sales had not been displaced. In that situation, the claim for sales tax liability could not arise for allowance as a deduction. The assessee's adoption of the mercantile system of accounting was irrelevant once the underlying sales were found to be not genuine.

Conclusion: The deduction was not allowable. The question was answered in the negative, in favour of the Revenue and against the assessee.

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