Deduction of sales tax

[manoj gupta]

A compnay paid Rs. 1000000/- as input tax on material purchased. It adjusted Rs. 800000/- against output tax payable and claimed balance of Rs. 200000/- as refund from sales tax in the year 2007-08. The sales tax assessment was completed in the year 2008-09 and the department refunded only Rs. 150000/-. It claimed Rs. 50000/- as expenditure in the year 2008-09. Will it be allowed as deduction. if yes, under which section of income tax act. pls. clarify along with relevant case laws if any.

Thanks in advance.

 

[ranganath shenoy]

in my opinion the reduction of refund may be equated to demand of tax.Any tax paid/adjusted is allowed in the year of payment under Section 43B read with Sec 37 whatever be the method of accounting

[DEV KUMAR KOTHARI]

The expenses of Rs.5000/- crystlised on completion of assessment. therefore, adjustment of Rs.5000/- out of amount shown as claim for rdfund will be in nature of expenditure on account of goods purchased.

You had deducted Rs.100000/- from goods purchsed/ consumed  in earleir year. Now out of this Rs.5000/- is not made availabel by the ST department and it assumed nature of cost of goods. The accrual is at the time of completion of assessment and lower refund.

AI Summary

Deductibility of sales tax shortfall treated as business expenditure or cost of goods after assessment completion.
A company adjusted part of input sales tax against output tax and claimed a refund for the balance; the department paid a reduced refund on assessment, leaving a shortfall which advisers alternatively treat as a tax demand deductible in the year of payment under the tax-paid timing principle, or as an expenditure crystallising on completion of assessment and forming part of cost of goods purchased.