Provision for purchase tax cannot be disallowed in revision when liability remains pending final tax determination.

A provision for purchase tax could not be disallowed in revision under section 263 of the Income-tax Act merely on the assumption that no liability existed. The assessee's purchase tax exposure under the Kerala General Sales-tax Act and possible exemption under section 5(3) of the Central Sales-tax Act depended on unresolved factual and statutory conditions, including whether the purchases were linked to existing export contracts and the final outcome of sales tax proceedings. Because the competent tax authority had not finally determined the liability, it could not be treated as nonexistent. The revision order was therefore unjustified and the original assessment was restored.

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Issues: Whether the Commissioner was justified in revising the assessment under section 263 of the Income-tax Act, 1961 by disallowing the provision made for purchase tax on the footing that no purchase tax liability existed and that the assessee was not entitled to claim the amount as a deduction.

Analysis: The assessee carried on processing, freezing, packing and export of sea foods and had made a provision for purchase tax in its books. The purchase tax position under the Kerala General Sales-tax Act, 1963 and the availability of exemption under section 5(3) of the Central Sales-tax Act, 1956 depended on whether the purchases were made for fulfilling existing export contracts and on the outcome of the sales tax proceedings, which had not yet been completed. Until the sales tax authorities finally determined the assessee's liability, the liability could not be said to have disappeared. The Commissioner was therefore not right in treating the liability as nonexistent merely by relying on the earlier sales tax decision.

Conclusion: The revision order was not justified and the assessee's claim for the provision could not be disallowed on the basis adopted by the Commissioner.

Final Conclusion: The assessment as originally made was restored and the assessee succeeded in the appeal.

Ratio Decidendi: A provision for a tax liability that remains pending final determination before the competent taxing authority cannot be disallowed in revision merely on the assumption that the liability does not exist; where exemption depends on unresolved factual and statutory conditions, the liability subsists until finally negatived.

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