Deferred sales-tax deduction requires statutory conversion into loan liability before section 43B relief is available.

Deferred sales-tax claims under section 43B are allowable only when the State deferment scheme treats the liability as duly converted into final loan liability in the prescribed manner. Under the M.P. General Sales-tax Act, tax is deemed paid only on such conversion, and an eligibility certificate by itself does not satisfy that requirement. An assessment that allows the deduction without examining the conversion condition and supporting statutory scheme is treated as erroneous and prejudicial to revenue, making revisional action under section 263 available.

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Issues: Whether the Commissioner was justified in invoking revisional jurisdiction under section 263 of the Income-tax Act, 1961 to set aside the assessment on the ground that the deduction for deferred sales-tax was wrongly allowed under section 43B of the Income-tax Act, 1961 before the deferred tax was converted into a final loan liability under the M.P. General Sales-tax Act.

Analysis: The deduction for deferred sales-tax was allowed by the Assessing Officer without examining the statutory scheme governing deferment and conversion of sales-tax liability. Under section 22(3B) of the M.P. General Sales-tax Act, the tax is deemed to have been paid only when the deferred liability is converted into loan liability by the competent authority in the prescribed manner. The Board circulars relied upon by the parties were read with the amended State provision and the conversion scheme, and the combined effect was that mere grant of an eligibility certificate did not entitle the assessee to deduction. Since the assessment order contained no real discussion of this statutory requirement and the claim was allowed without the necessary conversion certificate, the order was both erroneous and prejudicial to the interests of the revenue.

Conclusion: The Commissioner was justified in exercising section 263 powers and in setting aside the assessment order. The deduction could not be allowed until the deferred sales-tax had been converted into final loan liability, and the assessee's challenge fails.

Ratio Decidendi: A deduction for deferred sales-tax under section 43B is allowable only when the statutory deferment is converted into final loan liability in accordance with the governing State scheme and circulars, and an assessment allowing the claim without examining that requirement is erroneous and prejudicial to the interests of the revenue, warranting revision under section 263.

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