Commissioner of Income-tax Vs. Official Liquidator of Essab Computer P. Ltd. - Court Judgment

K.A. Puj, J.

1. At the instance of the Revenue, the following question of law is referred to for the opinion of this court for the assessment years 1987-88 and 1988-89.

Whether the Appellate Tribunal is right in law and on facts in upholding the view taken by the Commissioner of Income-tax (Appeals) deleting the addition made under Section 43B of the Act when the assessee failed to produce any supporting evidence?

2. The brief facts of the case are that while framing the assessments, for the assessment years 1987-88 and 1988-89, the Assessing Officer found that the assessee collected sales tax but the same was not credited into the profit and loss account. The explanation of the assessee was that since the amount has not been credited in the profit and loss account, no deduction has been claimed. Accordingly, Section 43B has no application. Secondly, the amount collected was covered under the scheme from the State Government whereby the sales tax payable would be converted into loan and it was applied for such conversion. The Assessing Officer was not satisfied with the explanation and further, the assessee could not submit any supporting evidence to show that the amount was converted into loan under the scheme of the Government. The Assessing Officer has, therefore, invoked the provisions of Section 43B of the Income-tax Act, 1961, and made addition of the amounts of sales tax collected by the assessee during the previous year relevant to the assessment years in question.

3. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), vide his order dated December 28, 1990, for the assessment years 1987-88 and 1988-89 allowed the claim of the assessee. Before the Commissioner of Income-tax (Appeals), a certificate dated July 25, 1989, issued by the State Government was produced, certifying that the sum of Rs. 1,16,30,636 collected by the assessee during the period from October 1, 1985, to March 31, 1989, has been deemed to be received as sales tax and converted into a loan. A copy of the agreement for financial assistance dated March 13, 1990, with G.I.I.C. Ltd. has also been filed in support of the assessee's contention. It was contended before the Commissioner of Income-tax (Appeals) that these documents were not ready at the time of completion of the assessment and as such, they could not be filed before the Assessing Officer. After considering these documents, in the light of Circular No. 496, dated September 25,1987, the Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer under Section 43B of the Act to the extent, the amount covered by the certificate and the agreement for deemed payment.

4. Being aggrieved by the said order, the Revenue took up the matter before the Income-tax Appellate Tribunal, Ahmedabad, and the Tribunal, vide its order dated March 12, 1998, confirmed the order of the Commissioner of Income-tax (Appeals) on this point. The Tribunal has observed that before the Commissioner of Income-tax (Appeals), supporting evidence was produced and in view of the certificate as well as the agreement, the addition made by the Assessing Officer under Section 43B of the Act was rightly deleted by the Commissioner of Income-tax (Appeals).

5. In the above background of the matter, the above referred question of law is referred to this court.

6. During the pendency of the reference before this court, the respondent-company has gone into liquidation and, hence, the official liquidator is joined as a party on behalf of the respondent-company by an order dated June 20, 2008.

7. Heard Mrs. Mauna M. Bhatt, learned standing Counsel appearing for the Revenue. Nobody is present on behalf of the official liquidator.

The short question before the court is as to whether the addition made by the Assessing Officer on account of sales tax liability under Section 43B of the Act has been justified in view of the fact that necessary evidence has been produced by the assessee before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has verified the claim of the assessee and the documents produced before him. He has also forwarded the said document to the Assessing Officer for his verification. After his satisfaction about the documents produced before him, the Commissioner of Income-tax (Appeals) has allowed the claim of the assessee and deleted the addition made by the Assessing Officer under Section 43B of the Income-tax Act, 1961.

8. This very issue has come up before this court earlier in the case of CIT v. Shree Talal Taluka Sahakari Khand Udyog Mandli Ltd. : [2003]259ITR21(Guj) wherein this very circular has been referred to and the court held that in Circular No. 496, dated September 25,1987, the Board had made it clear that if the sales tax due to the Government is converted as a loan which may be repaid by the assessee subsequently by instalments, the Department shall treat the sales tax dues as actually paid for all purposes. The Gujarat Government in that case passed a resolution bearing No. INC/1087/143-1, dated March 23, 1988, and the said resolution was made operative from April 1, 1983. A combined reading of the circular as well as the resolution issued by the State Government would make it clear that the assessee is entitled to relief and the benefit given under Section 43B of the Income-tax Act, 1961, can be claimed by the assessee. Similar is the position here. Both the appellate authorities, namely, the Commissioner of Income-tax (Appeals) as well as the Tribunal have found that the certificate produced by the assessee during the course of appellate proceedings before the Commissioner of Income-tax (Appeals) certified that the sales tax amount collected by the assessee during the period from 1985 to 1990 was converted into loan and the said certificate was examined in the light of Circular No. 496, dated September 25, 1987 see [1988] 169 ITR 53.

9. Since the issue is squarely covered by the aforesaid decision of this court, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.

10. This reference is accordingly disposed of without any order as to costs.