Mercantile deduction for waived sales tax liability fails where the underlying tax obligation has ceased to exist.

A provision for Central sales tax on inter-State sale of rubber was inadmissible once the Government order waived collection for the relevant period and the liability had ceased to exist. Under the mercantile system, a deduction can be claimed only where a real liability subsists; a provision for an extinguished liability cannot be allowed. The original assessment allowing the deduction was therefore erroneous and prejudicial to the Department, and the Commissioner validly exercised revisional power under section 34 to disallow the entire provision. The revision was upheld against the assessee.

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Issues: Whether the Commissioner of Agricultural Income-tax was justified in revising the assessment and disallowing the entire provision made for Central sales tax liability.

Analysis: The assessment had allowed a provision for Central sales tax on inter-State sale of rubber. However, the Government order dated 21 March 1979 had waived collection of the tax for the relevant period, so the liability had ceased to exist. A provision may be made under the mercantile system only where a liability exists; once the liability is extinguished, the claim becomes inadmissible. Since the original assessment had allowed deduction despite the waiver, the order was erroneous and prejudicial to the interests of the Department, and the Commissioner could validly invoke revisional power under section 34.

Conclusion: The revision disallowing the provision was upheld and the issue was answered against the assessee and in favour of the Department.

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