Section 43B and accrued statutory liabilities: pre-commencement liabilities and market fee deductions were held allowable under the mercantile system.

Section 43B, inserted from 1 April 1984, did not govern liabilities relating to the accounting year ended on 31 March 1984, so disallowance on that basis was not justified. The provision for market fee under the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act was treated as a statutory levy distinct from tax or duty and therefore outside the scope of section 43B. On the mercantile system, accrued liabilities for market fee, state sales tax and central sales tax were allowable deductions for the relevant year, and the impugned disallowances were set aside.

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Issues: (i) Whether section 43B of the Income-tax Act, 1961 applied to liabilities arising in the previous year relevant to assessment year 1984-85, where the accounting period ended on 31 March 1984. (ii) Whether the provision made for market fee under section 12 of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 and the provision for sales tax and central sales tax were allowable deductions.

Issue (i): Whether section 43B of the Income-tax Act, 1961 applied to liabilities arising in the previous year relevant to assessment year 1984-85, where the accounting period ended on 31 March 1984.

Analysis: Section 43B was inserted with effect from 1 April 1984. The accounting period for the year under appeal ended before that date. The provision therefore could not govern deductions claimed for that previous year.

Conclusion: Section 43B did not apply to the assessment year under consideration, and disallowance on that basis was not justified.

Issue (ii): Whether the provision made for market fee under section 12 of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 and the provision for sales tax and central sales tax were allowable deductions.

Analysis: Market fee under the Markets Act was treated as a statutory levy distinct from tax and duty, and it did not fall within the mischief of section 43B. Since the assessees followed the mercantile system, the accrued liabilities for market fee, state sales tax and central sales tax were allowable in computing income for the relevant year.

Conclusion: The provisions for market fee, state sales tax and central sales tax were allowable deductions.

Final Conclusion: The disallowances made by the lower authorities were set aside and the assessee firms were entitled to deduct the impugned liabilities while computing taxable income for the assessment year 1984-85.

Ratio Decidendi: A statutory payment accrued in a previous year ending before the commencement of section 43B cannot be disallowed under that section, and a market fee that is not tax or duty falls outside its scope.

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