TaxTMI 
TaxTMI 
1997 (2) TMI 192
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessing Officer. As against this, the learned counsel for the assessee submitted that this issue had earlier been agitated in the assessee's own case in relation to the assessment years 1978-79 to 1983-84 and the Tribunal by its order dated 30-11-1988 in the ITA No. 920/PN/83, etc., had concluded this issue in favour of the assessee. No reference has been sought by the department against this order of the Tribunal. This order has further been followed by this very Bench in its order dated 28-9-1993 in ITA No. 870/PN/88, etc. The payment for the current year has been made pursuant to the same agreement under which the payments for technical know-how were made in the earlier years. Even though the department had made a reference application in relation to the assessment years 1984-85 and 1986-87, no question relating to the treatment of the technical know-how fees as capital/revenue capital was suggested. As such, according to the learned counsel, the issue stands concluded against the department. We find that the plea of the learned counsel is fully substantiated by the above orders. This ground raised by the department is, therefore, liable to be rejected. Ground No. 2: 3. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; ---------------- It was pointed out before the IAC(Appeals) that the CIT(Appeals) in the earlier assessment year had deleted the addition made under the sales-tax set off and therefore at least amount of Rs. 68,18,490 cannot be added back under section 43B. The IAC(Appeals), however, did not agree with this argument of the appellant's counsel on the ground that the CIT(Appeals) had accepted the appellant's claim that this set Off, as has been experienced, is quite verifiable factor and that some businessman do not find it more realistic to offer this amount as income on receipt basis. Therefore, the IAC(Appeals) did not follow the decision of the CIT(Appeals). On the contrary he referred to the decision of SC reported in 82 ITR 835. Thus, in the light of this decision and the provisions of section 43B read with another decision of SC in 87 ITR 142, the IAC(A) has disallowed the entire sum of Rs. 80,03,656 in terms of section 43B. 9. It has been argued before me that while making the above disallowance in para 9 of the assessment order, the IAC(A) ought to have appreciated that all claims of the appellant-company are not arising out of any sales tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as in law invoking the provisions of section 43B without even analysing the composition of outstanding balances shown by the appellant-company. The point regarding sales-tax set off has already decided in appellant's favour by the CIT(Appeals) to which the IAC (Appeals) has disagreed without advancing valid reasons. The decision of SC cited by him reported in 82 ITR 635 is quite on different issue, i.e., under mercantile system of accountancy legal liability on account of various dues have to be allowed on due basis or on the basis when liability has been actually disbursed. In the instant case, sales-tax set off account indicates that sales-tax set off account indicates that sales-tax set off provided in the assessment years 1983-84 and 1984-85 have been added but the same has been deleted by the CIT(Appeals). Thus, at least to the extent of Rs. 38,67,126 there is no question of making similar disallowance again. Even in respect of set off of the present assessment year following decision of my predecessor, I do not find any justification to differ from the said decision. This apart sales-tax set off is quite distinguished from the sales-tax liability proper which is covered by se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ITO v. Texmac Engineers [1991] 39 TTJ 365. 5. We find that challenge to this part of the impugned order cannot succeed and, therefore, this ground of appeal is rejected. Ground No. 3: 6. The learned CIT(Appeals) has held that the expenditure of Rs. 5,06,381 out of repairs and maintenance for asphalting and concreting of roads is an expenditure of revenue nature. The learned departmental representative challenged this part of the order with the assistance of the decision of the Calcutta High Court in the case of Humayun Properties Ltd. v. CIT [1962] 44 ITR 73. It was contended that asphalting and concreting of roads leads to creation of altogether new asset and such expenditure cannot be allowed on the ground that it is on current repairs. According to the learned departmental representative, only such expenditure can be treated as of revenue as is incurred on current repairs as distinct from renovation. According to the learned counsel, the degree of improvement and the identity of the asset which was subject-matter of renovation, etc., have also to be considered. In support of this view, he placed further reliance upon the decision of the Bombay High Court in the case of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egislature. The learned AR of the assessee, on the other hand, submitted that the issue in question is covered by the decisions of the Pune Bench of the Tribunal in assessee's own cases in ITA Nos. 920/PN/83 to 922/PN/83 and 258/PN/85, 832/PN/85 and 693/PN/85 dated 30-11-1988 for the assessment years 1978-79 to 1983-84 and also in ITA Nos. 870, 436, 871, 494, 919 and 920/PN/88 dated 28-9-1993. The learned AR further relied on the decisions of the Tribunal in the case of Texmac Engineers. 4. I have gone through the order of the CIT(Appeals), order of my learned Brother for the year under consideration and the orders of the Appellate Tribunal dated 30-11-1988, and dated 28-9-1993, in assessee's own case and find that they are not in accordance with the provisions of section 43B and contrary to the intention of the Legislature. In this connection, it may be mentioned that section 43B was inserted by the Finance Act, 1983, w.e.f. 1-4-1984. The first Pune Benche's order dated 30-11-1988, was rendered for the assessment years 1978-79 to 1983-84, when the provision of section 43B was not in the statute. So the findings of the Tribunal for those years cannot be disputed. As regards the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dships have given their interpretation on the above points while deciding the issue which came up before them under section 40A(7) of Income-tax Act. In this connection, it may be noted that the head notes and language of sections 43B and 40A(7) are identical. Their Lordships of the Supreme Court have observed that the marginal note under the heading 'certain deductions to be only on actual payment'. If the marginal note or heading is any indication and it certainly is a relevant factor to be taken into consideration in construing the ambit of a section, the payments which have not been made are to be taxed. Therefore, the heading of the section is a clear indication that amounts are to be taxed as the payments have not been made to the Government account, because they are trading receipts. This is further abundantly made clear by the non obstante expression used in section 43B read with marginal note of the section. Their Lordships have also held in the above cited case that section starts with the non obstante clause "notwithstanding anything contained in any other provisions of this Act, etc......", the effect of these words is that even if a particular expense is allowable, it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the provisions in the Finance Bill, 1989 clarified the object of insertion of the first proviso which is as follows: "Under the existing provisions of section 43B of the income-tax Act, a deduction for any sum payable by way of tax duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a statutory liability which is not paid in time. The Finance Act, 1987, inserted a proviso to section 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date of furnishing the return under section 139(1) of the Income-tax Act, in respect of the assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within that previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter." 8. Before parting with the subject, it m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rence of opinion is referred to the President of the Income-tax Appellate Tribunal: "(1) Whether, on the facts and in the circumstances of the case, section 43B is attracted in the present case? (2) Whether the addition of Rs. 68,18,490 on account of sales-tax set off was legally correct and proper?" THIRD MEMBER ORDER This appeal came up for hearing before the Pune Bench on several points, one of which was, whether the provisions of section 43B were attracted to the sales-tax collected by the assessee. The learned Judicial Member was of the view that in the case of sales-tax set off, provisions of section 43B do not apply. He held that the assessee neither accounted for sales-tax collected as the revenue receipt, nor claimed any liability by debiting sales-tax to the profit and loss account and hence, the disallowance under section 43B in respect to the sales-tax collected and not paid could not be made. He was of the view that the assessee was required to pay the purchase tax which was set off against the collection of sales-tax on the sales made by the assessee and, therefore, the final liability crystallised only on the completion of sales-tax assessment. The income....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., viz., that if the total sales-tax liability without considering the set off is Rs. 100 and the sales-tax set off which is due to the assessee is Rs. 20, the actual payment of sales-tax made by the assessee is only Rs. 80. But the department's impression is that the total amount of liability on account of sales-tax debited by the assessee to the profit and loss account is Rs. 100. 4. The learned senior departmental representative continued and pointed out that prior to introduction of section 43B, the question was about the treatment of sales-tax set off as income, whether this should be shown on accrual basis or on cash basis. The pleas of the assessee at that time were that the exact amount of this set off was known only when the sales-tax assessment was made and hence this amount should be assessed on cash basis. This plea was allowed by the appellate authorities and accordingly the amount of Rs. 20 was being taxed as income on cash basis. Thus, the assessee's claim of total liability in the profit and loss account and the corresponding sales-tax of Rs. 20 was shown as income as and when received. According to the learned senior departmental representative, the issue now has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar on the completion of the sales-tax assessment. Even for the assessment years 1984-85 and 1986-87, when provisions of section 43B were on statute book the Tribunal, in the assessee's own case, did not apply the provisions of section 43B of the Act. In that case, the Tribunal again held that for the sales-tax set off, provisions of section 43B do not apply. 7. Shri S.E. Dastur also brought to my notice that the method of accounting regularly followed by the assessee with respect to sales-tax set off has been accepted by the department for the assessment year 1989-90. The Assessing Officer has not made any disallowance under section 43B for the said assessment year 1989-90. The case before the Tribunal was for the assessment year 1985-86 and, therefore, the factual position reveals that for earlier years and even for subsequent years, the provisions of section 43B were not made applicable in the case of the assessee. He also pointed out that the sales-tax set off relevant for the assessment year 1985-86 has been assessed as income by the revenue in assessment year 1988-89. The assessment order for the assessment year 1988-89 has become final and no revisional or rectification ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the purchaser, namely, that in addition to the price he will also pay to the dealer the amount of tax which he becomes liable to pay to the Government. In this regard, he has drawn my attention to the decision of the Bombay High Court in the case of Bata India Ltd. v. State of Maharashtra [1983] 53 STC 132. 11. The learned counsel has also drawn my attention to the decision of the Gauhati High Court in the case of India Carbon Ltd v. IAC [1993] 200 ITR 759 in which the provisions of section 43B were considered. According to the said decision, the provisions of section 43B declare that taxes and duties shall not be allowed as deduction from the income unless they are actually paid. The section, however, does not place any restriction on the business activities and on the system of accounting. Therefore, section 43B will only be attracted when the assessee claims deduction from any sum payable by way of tax or duty under any law for the time being in force and, as such, where no such deduction is claimed nor charge made to the profit and loss account, there is no question of disallowing the amount taken to the balance sheet on the liabilities side. The learned counsel urged th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....therefore, entitled to the refund for the year under consideration. 14. The learned counsel has also taken me through the sales-tax return forms and pointed out that the set off is part and parcel of the Sales-tax Act and the rules made thereunder. In addition, the learned counsel has also drawn my attention to the several Tribunal decisions which have decided the issue in favour of the assessee. Such decisions are noted below: (1) In the case of Shri Santosh Kumar Rana [IT Appeal No. 4052 (Bom.) of 1988]. (2) In the case of Skefco Bearing Co. Ltd [IT Appeal No. 7523 (Bom.) of 1988]. (3) In the case of Falls Industries In-Corporation [IT Appeal No. 1578 (Bom.) of 1988]. (4) Texmac Engineers' case. Thus, the learned counsel concluded by saying that the view expressed by the learned Judicial Member is correct on the facts and in law. He, therefore, prayed that the said view should be upheld. 15. I have considered the rival submissions in the light of the judicial decisions brought to my notice. I have also gone through the relevant provisions of the Bombay Sales-tax Act and the rules made thereunder. It would be necessary for me to refer to the relevant provision....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an assessee complied with all the conditions stated under the rule. However, the claim made by the assessee does not become final since there is a chance for disallowance of whole or part of the sales-tax set off claimed by an assessee. Disallowance of sales-tax set off by Sales-tax Department during the assessment can arise out of many factors, some of which are as under, viz.: (i) Part II of Schedule C of the Bombay Sales-tax Act contains a list of numerous items giving therein the rate of sales-tax and purchase tax applicable thereto. There could be different interpretations with regard to classifications of some of the classified items, due to which amount of sales-tax set off allowable may become higher or lower. (ii) Disputes could also arise as to whether a particular item purchased has been used in the manufacture of taxable goods for sale or not. The set off allowable would vary depending on whether certain items such as loose tools, consumables, lubricating oils, plywood, etc., used are treated as used for the manufacture or otherwise. (iii) Goods manufactured by using the items purchased must in fact be sold or exported by the dealer within the year, failing wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n after the sales-tax set off is allowed by the Sales-tax department. 17. In the case before me, the assessee has been following a consistent method of accounting right from the year 1979-80 in which the income or loss is accounted for on the completion of the assessment by the sales-tax authorities. Such a method of accounting followed by the assessee has also been approved by the Tribunal in the assessee's own case for earlier years. It is settled that profits and gains of the business or profession or income from other sources shall be computed in accordance with the method of accounting regularly employed by an assessee. Such a method should not be rejected unless the Assessing Officer gives a finding that the method is defective and does not lead to the correct computation of income. In the case of the assessee, no such finding has been given by the Income-tax department. Moreover, I also find from the facts of the case that the sales-tax liability which has been disallowed by the Assessing Officer under the provisions of section 43B of the Income-tax Act was not claimed as an expenditure in the profit and loss account by the assessee. It was only shown in the balance sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence. We should also like to sound a note of warning, especially with regard to a Tribunal like the Appellate Tribunal, that it should be extremely slow to depart from a finding given by an earlier Tribunal. Even though the principle of res judicata may not apply, even though there may be no estoppel by record, it is very desirable that there should be finality and certainty in all litigations including litigations arising out of the Income-tax Act. It is not a very satisfactory thing that an assessee should feel a grievance that one Tribunal came to one conclusion and another Tribunal came to a different conclusion and that the two conclusions are entirely inconsistent with one another. Therefore, the second Tribunal must be satisfied that the circumstances are such as to justify it in departing from the ordinary principles which apply to all Tribunals to try and give as far as possible a finali....