Judgment:
1. This is an appeal filed by the assessee against the order of CIT(A) dt. 22nd Aug., 2006 for the asst. yr. 1984-85, in the matter of orders passed under Section 143(3) of the IT Act, 1961 wherein following grounds of appeal have been raised: 1. The learned CIT(A) has erred in law and on facts in confirming addition of Rs. 7,11,093 made by the learned Dy. CIT in respect of sales-tax paid in previous year and by disregarding the order of Hon'ble Tribunal.
2. The view of learned CIT(A) that as sales-tax collections for April, 1982 were not credited to trading account, hence sales-tax expenditure of Rs. 7,11,093 could not be allowed under Section 43B of the Act, is erroneous, contrary to law, based on unsound reasoning and irrelevant considerations, and is not tenable in law.
3. The view of learned CIT(A) that deduction for sales-tax payment of Rs. 7,11,093 was not allowable under Section 43B of the Act on payment basis in the year under consideration, is wholly erroneous, arbitrary and in violation of the said section and the appellant is entitled to deduction of the said amount from its income chargeable to tax.
4. The impugned order is contrary to facts, law and principles of natural justice.
5. Any other additional ground which may arise during the appellate proceedings before your Honour.
2. Rival contentions have been heard and record perused. Brief facts in this case are that the AO had made an addition of Rs. 7,11,093 by disallowing the claim of expenditure on account of sales-tax payment on the ground that the above liability pertained to the period relevant for asst. yr. 1983-84. In the original assessment order dt. 30th April, 1983, the AO observed that since the amount of Rs. 7,11,093 although paid during the period relevant for assessment year under appeal was part of trading receipts of preceding year and not of current year amount, the same was not allowable. On first appeal the learned CIT(A), Dehradun vide order dt. 16th Oct., 1990 upheld the addition made by the AO on the ground that the sum of Rs. 7,11,093 had not been subjected to the receipt in the trading amount and since it was not charged on the income of the year and also since the payment pertained to the period relevant for earlier assessment year, the same was held not allowable under Section 43B of the IT Act, 1961. On second appeal, the Tribunal set aside the order with the following directions: The learned Counsel for the assessee submitted that in asst. yr.
1983-84 provisions of Section 43B of the Act were not applicable. It is in asst. yr. 1984-85 when the provisions of Section 43B of the Act came into force. Therefore, it was otherwise allowable on payment basis. However, the CIT(A) committed error in not allowing the same. In this connection, reliance was placed on the decision of Tribunal Allahabad Bench-A in the case of New Cownpore Flour Mills (P) Ltd. v. TTO (1986) 25 TTJ (All) 89 : (1986) 19 ED 360 (All) at p. 368. As against this, the learned Departmental Representative relied on the order of the learned CIT(A).
3. By the impugned order, CIT(A) declined the claim of deduction by observing that the assessee wants to take double benefit of claim of payment of sales-tax at Rs. 7,11,093. He further observed that the assessee was having amount of Rs. 7,27,822 as sales-tax collected from the constituents pertaining to the period relevant for preceding asst.
yr. 1983-84 and therefore any payment on account of sales-tax to be made out of the funds already collected and available with the assessee. Obviously, the amount of Rs. 7,11,093 was fully covered by the amount of Rs. 7,27,822 available with the assessee for the purpose and therefore there was no justification for the assessee to claim any further deduction on account of sales-tax paid for the preceding assessment year at Rs. 7,11,093.
4. It was argued by the learned Authorised Representative Shri R.Santhanam that under provisions of Section 43B of the Act, deduction is to be allowed in respect of sales-tax amount collected by the assessee in the year of actual payment. Undisputedly, the sales-tax liability pertained to the month of April, 1983 and the same was paid in May, 1983, falling in the previous year relevant to the asst. yr. 1984-85, under consideration. He further contended that while giving effect to the order of the Tribunal, the lower authorities cannot sit on the judgment of the Tribunal and they have to give effect to the findings recorded by the Tribunal and the verdict given thereon. He carried us to the relevant observations of the Tribunal, wherein the AO was directed to allow liability on the basis of payment. He further filed copy of the order of the Hon'ble High Court, wherein appeal filed by the Revenue under Section 260A of the Act was dismissed.
5. On the other hand, learned Departmental Representative Smt. N.J.Ansari relied on the order of the lower authorities.
6. We have considered the rival contentions, carefully gone through the orders of the authorities below and also material placed on record. The original assessment was completed on 5th Sept., 1986. During the course of original assessment proceedings the assessee filed a revised return claiming a deduction of Rs. 7,11,093 on account of sales-tax collected in the month of April, 1982 (relating to asst. yr. 1983-84 previous year ending on 30th April, 1982) which was paid in May, 1982 falling in the previous year commencing on 1st May, 1982 and ending on 30th April, 1983 (wrongly shown as 31st March, 1984 in the assessment order dt.
21st Feb., 2002 under appeal) corresponding to asst. yr. 1984-85 under appeal. The above claim was disallowed by the AO. The assessee went to appeal before the CIT(A), Dehradun who confirmed the above disallowance vide his order dt. 16th Oct., 1990. The assessee filed a second appeal before the Tribunal, Delhi Bench which by its order dt. 2nd Aug., 1999 set aside the above issue and restored it to AO with a direction to verify whether the liability pertained to asst. yr. 1983-84 and whether the payment was made by the assessee in that year or not. It directed the AO to allow the said liability on the basis of payment. While giving effect to the order of the Tribunal, instead of following the clear-cut directions given by the Tribunal, the AO repeated the addition and which was confirmed by the CIT(A). As per our considered view from the language of Section 43B, it is clear that it opens with a non obstante clause which means that it controls the operation of other provisions of the Act and irrespective of the other provisions, Section 43B will have overriding effect. Keeping this in mind if one examines the language of section, it clearly brings out the intention of the legislature that the deduction in respect of any tax or duty under any law would be allowed deduction in computing the income under Section 28 of that previous year in which such sum is actually paid by the assessee. The intention is made more specific by providing that it would be so irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by the assessee. This clearly makes out that even if the mercantile method of accounting is employed and the liability to pay might have accrued which would give the assessee a right to obtain deduction, but in view of specific language of section, the assessee would not be entitled to get deduction merely on accrual of the liability to pay the tax or duty, but would be so entitled to get deduction only on actual payment of tax or duty. The legislature has also taken care by providing Explanation that the assessee shall not be entitled to any deduction under Section 43B in respect of such sum in computing the income of the previous year in which such sum is clearly paid by him in case a deduction in respect of any such sum was allowed in the previous year. It is, therefore, clear that the assessee shall not be entitled to get the benefit twice, i.e. at the time when the liability arises and also at the time when the actual payment is made. In view of the specific language of the section that deduction of the amount as mentioned in cls. (a) and (b) would be allowed in the previous year in which such sum is paid, there is no scope of any doubt that such sum can be allowed by way of deduction while computing the income in the previous year in which such sum is actually paid by the assessee. It is not the contention of the Revenue that any sum payable under Clause (a) of Section 43B was at any time claimed by way of deduction in any previous year prior to 1983. Under the mercantile method of accounting, the moment the liability is incurred it would be admissible deduction. What Section 43B states is that irrespective of the fact that the liability is already incurred, that would "be admissible deduction only when the actual amount in that regard is paid.
7. In view of the above settled legal position under the provisions of Section 43B of the Act, we are inclined to agree with the learned Authorised Representative Shri R. Santhanam that order of the lower authorities declining claim of deduction under Section 43B of the Act, was devoid of any merit. We are, therefore, inclined to reverse the findings and conclusions of the lower authorities and direct the AO to allow deduction of Rs. 7,11,093 under the provisions of Section 43B of the Act on account of sales-tax liability which was undisputedly paid during the year under consideration. As an abundant caution while allowing the deduction during the year under consideration, the AO may verify that assessee has not claimed and allowed deduction of Rs. 7,11,093 in the asst. yr. 1983-84. We direct accordingly.
8. In the result, the appeal of the assessee is allowed in terms indicated hereinabove.