TaxTMI 
TaxTMI 
1982 (4) TMI 149
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.... 4,31,171 1975-76 99,312 1976-77 46,335 The assessee, a private limited company, had a credit balance of the above amounts in the respective assessment years in the account styled as 'deposit sales tax account'. They were shown as liability under current liabilities. The ITO noticed that the assessee had effected collections under 'deposit sales-tax' in the sale bills in respe....
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....of the Assistant Commissioner restoring the original assessments. Against this, the company went on appeal to the Sales tax Appellate Tribunal which by its order dated 29-12-1971 agreed with the appellant and set aside the orders of the Deputy Commissioner. Thus, the question of assessing the sales of ravva made on Government permits had become a point of dispute for several years. Meanwhile, the company had collected sales tax from their dealers in the bills and credited the receipts to an account styled 'deposit sales tax account'. It appears that originally the income-tax department did not tax the said receipts of sales tax collected and credited to the deposit sales tax account, but the assessments were reopened for 1965-66 to 1971-72 assessment years and the said receipts were assessed in the course of the reassessment proceedings relying on the decision of the Supreme Court in the case of Sinclair Murray & Co. (P.) Ltd. v. CIT 97 ITR 615." It was further contended before the Commissioner (Appeals) that the assessee was maintaining the accounts on mercantile basis and that, therefore, the decision of the Supreme Court relied on by the ITO in Sinclair Murray would not be ap....
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....s) further observed that the treatment of the collections as trading receipts would be justified on the principles of the Supreme Court decisions referred to earlier. Deduction of an equal amount on the ground of liability has to be allowed in the method of accountancy adopted by the assessee as explained by the Calcutta High Court in Chowringhee Sales Bureau. In the end the Commissioner (Appeals) held that the ITO was justified in holding that the above sums formed part of the assessee's trading receipts but he was not justified in making a net addition of this amount while computing the total income of the assessee for the assessment years 1973-74 to 1975-76. Against these orders of the Commissioner (Appeals) the revenue has come up in appeal before us. 3. The learned departmental representative at the outset submitted that the sales tax collected by the assessee on the sales was not brought to the profit and loss account but was separately credited to a separate account called 'deposit sales tax account'. The learned departmental representative referred to the ruling of the Andhra Pradesh High Court in the cases of T. Nagireddy and Buddala China and pointed out that in those ....
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....ollowing the mercantile system of accounting in respect of its transactions, including the sales tax collections and payments, with reference to the transactions for which it had admitted its liability to pay sales tax. However, in respect of sales of wheat products made by the assessee on permits issued by the Government, the assessee was contesting its liability before the authorities. It appears that the matter is still pending before the Court. In regard to the above transactions the assessee had collected certain moneys from the parties concerned and had deposited them in a separate account called 'deposit sales-tax account'. It is common ground that the above collections were not taken to the profit and loss account. The assessee had contended before the ITO that the above collections would not represent trading receipts. But as rightly held by the Commissioner (Appeals) this claim of the assessee cannot be countenanced. The collections made by the assessee towards sales tax undoubtedly form the trading receipts. The assessee had been following the mercantile method of accounting. The Commissioner (Appeals) had also found it to be so. The learned departmental representative, ....