TaxTMI 
TaxTMI 
1982 (6) TMI 125
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.... seen that the ITO ('ITO' for short) noticed that during the year sales-tax was claimed at Rs. 1,64,917 as against Rs. 82,029 claimed during the preceding year. He noted that on examination of the accounts, it was found that in the sales-tax account provision for the fourth quarterly payment of sales-tax payable at Rs. 68,402 was made. He observed that in the past the assessee had been maintaining the account books on cash system as far as sales-tax accounts were concerned. Accordingly, he asked the assessee why the above claim for sales-tax deduction provided should not be disallowed. It was submitted before the ITO on behalf of the assessee that the claim should be allowed on the basis of different Court decisions, which the ITO found tha....
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.... was constantly adopted by the assessee in all the subsequent years and that in fact other items of income and expenditure were kept on mercantile basis. It was claimed that with the change over in the sales-tax account, the entire method of accounting of the books of accounts of the assessee was mercantile. It was claimed before him that by making this adjustment and change over, the correct and the real income of the assessee was deductible. The CIT(A) considered the entire facts of the case and he found that the action of the ITO was not proper. He noted that the ITO has not been able to challenge the bona fides of the change, which according to the CIT(A), the change of the method in respect of the sales-tax account was bona fide and pe....
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....r. 6. We have perused the order of the authorities below for our consideration along with the contentions made by both the sides. It is to be notices that the change of the system in the present case was not of the entire books of accounts of the assessee but only in respect of the sales-tax account, as observed by the CIT(A). The claim of the assessee is stated to be bona fide and the effect of the change over would be permanent and as a result a true and real profit could be deduced therefrom. In our opinion, this approach of the assessee cannot be considered as unreasonable, having regard to the liability as far as sales-tax is concerned. Sales-tax deduction itself constitutes trading receipts and that liability to sales-tax can be de....
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....independent of the assessment. Thus, in our opinion, as far as the sales-tax liability is concerned, it would not materially effect the taxable income of the assessee, if the sales-tax liability of the assessee is kept under mercantile or cash basis. In Kedarnath Jute Mfg. Co. Ltd, it was also held that whether the assessee was entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights, nor can the existence or absence of entries in his books of accounts be decisive or conclusive in the matter. 7. As noted earlier, the CIT(A) has noted that the change was a bona fide and permanent in nature. We find no material to contradict this observati....