Statutory interest on sales tax arrears treated as tax liability, making deduction subject to actual payment and adjustment valid

Interest on arrears of sales tax under the Gujarat Sales-tax Act was treated as an accretion to the underlying tax liability and, for section 43B, was deductible only on actual payment. The claim for deduction was therefore disallowed and the Revenue's adjustment was upheld. The issue was also held not to be debatable for section 143(1)(a) purposes because binding Supreme Court authority had already treated such statutory interest as part of the tax liability, so the prima facie adjustment was within the return-processing power.

---

---

Issues: (i) Whether interest payable on arrears of sales tax under section 47(4A) of the Gujarat Sales-tax Act was deductible notwithstanding section 43B of the Income-tax Act, 1961. (ii) Whether such disallowance could be made as a prima facie adjustment under section 143(1)(a) of the Income-tax Act, 1961.

Issue (i): Whether interest payable on arrears of sales tax under section 47(4A) of the Gujarat Sales-tax Act was deductible notwithstanding section 43B of the Income-tax Act, 1961.

Analysis: The statutory interest on delayed sales tax was treated as an accretion to the tax liability itself. The provisions of the Gujarat Sales-tax Act were held to be pari materia with the provisions considered by the Supreme Court in relation to interest on arrears of cess, where such interest was regarded as part and parcel of the underlying levy and not as a separate item outside the charging provision. On that reasoning, the amount of interest on arrears of sales tax fell within the expression "tax" used in section 43B and was deductible only on actual payment.

Conclusion: The claim for deduction was not allowable and the disallowance was upheld in favour of the Revenue.

Issue (ii): Whether such disallowance could be made as a prima facie adjustment under section 143(1)(a) of the Income-tax Act, 1961.

Analysis: The matter was held not to be debatable in view of the binding Supreme Court authority treating such interest as part of the tax liability. The earlier deletion in the assessee's own case did not alter the legal position or convert the issue into one open to two views. Accordingly, the adjustment made in the processing of the return was within the scope of section 143(1)(a).

Conclusion: The adjustment was valid and the assessee's objection failed.

Final Conclusion: The appellate order was sustained in full and the assessee's challenge to the addition relating to interest on arrears of sales tax was rejected.

Ratio Decidendi: Interest automatically accruing on delayed statutory tax payment forms part of the tax liability for purposes of section 43B and, where the issue is settled by binding authority, it is not a debatable claim beyond the scope of prima facie adjustment under section 143(1)(a).

---