1990 (5) TMI 75 - AT - Income Tax

Tribunal decision: Deduction allowed for sales tax, trading receipts restored, and travelling expenses upheld.

The Tribunal partially allowed the appeal by confirming the deduction of Rs. 3,50,644 as sales-tax liability, restoring the addition of Rs. 13,58,390 as ... Business Expenditure, Sales Tax Issues Involved:1. Deductibility of Rs. 3,50,644 as sales-tax liability.2. Inclusion of Rs. 13,58,390 as trading receipts.3. Allowance of Rs. 16,392 towards travelling expenses.Detailed Analysis:1. Deductibility of Rs. 3,50,644 as Sales-Tax Liability:The primary issue was whether the assessee was entitled to deduct Rs. 3,50,644 as sales-tax liability when it had not acknowledged this liability to the sales-tax department and no statutory demand had been raised. The Income-tax Officer added this amount to the income, arguing that the liability was only determined based on the returns submitted under the A.P.G.S.T. Act and that the assessee could not claim liability without furnishing the estimate to the sales-tax department.The Commissioner (Appeals) allowed the deduction, referencing the ITAT's earlier decisions. The learned departmental representative contended that the deduction should be restricted to actual payments made, citing the Supreme Court's decision in Sinclair Murray & Co. (P.) Ltd. v. CIT and the Calcutta High Court's decision in CIT v. Bird & Co. (P.) Ltd. The learned counsel for the assessee argued that the liability to pay sales-tax had accrued by virtue of statutory provisions, regardless of whether it was shown in the returns filed.The Tribunal, referencing the Supreme Court's decision in Kedarnath Jute Mfg. Co. (P.) Ltd. v. CIT, held that the assessee, following the mercantile system of accounting, was entitled to deduct the sales-tax liability that arose on sales made during the previous year. Since the sales-tax payable was quantified at Rs. 50,15,897 and there was no material to show this computation was incorrect, the Tribunal confirmed the deduction allowed by the Commissioner (Appeals) of Rs. 3,50,644.2. Inclusion of Rs. 13,58,390 as Trading Receipts:The second issue was whether Rs. 13,58,390 should be included as trading receipts. The Income-tax Officer added this amount to the income, considering it excess collections includible in the income. The Commissioner (Appeals) deleted this addition, following the ITAT's earlier decisions.The Tribunal noted that the division bench had referred the entire appeal to the Special Bench, including the issue of Rs. 13,58,390. The learned counsel for the assessee argued that this amount should be allowed as a deduction as it represented the sales-tax liability for the year. However, the Tribunal found no evidence in the accounts to support that the actual sales-tax liability was Rs. 63,74,287 (Rs. 50,15,897 plus Rs. 13,58,390). The Tribunal held that the assessee was not entitled to the deduction of Rs. 13,58,390 in this assessment year and restored the addition made by the Income-tax Officer.3. Allowance of Rs. 16,392 towards Travelling Expenses:The final issue was the allowance of Rs. 16,392, representing half of the travelling expenses claimed by the assessee. The Income-tax Officer disallowed this amount, citing that some partners were lady partners and no evidence was adduced to justify the expenses. The Commissioner (Appeals) allowed the deduction, considering the increase in turnover and the lesser quantum of travelling expenses claimed compared to earlier years.The Tribunal agreed with the Commissioner (Appeals), noting that the travelling expenses claimed were lower than those in the assessment year 1981-82 despite an increase in turnover. The Tribunal found no reason to differ from the conclusion of the Commissioner (Appeals) and upheld the deletion of the disallowance of Rs. 16,392.Conclusion:The Tribunal allowed the appeal in part, confirming the deduction of Rs. 3,50,644 as sales-tax liability, restoring the addition of Rs. 13,58,390 as trading receipts, and upholding the allowance of Rs. 16,392 towards travelling expenses.