Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in allowing the deduction of Rs. 2,35,538 in the computation of the total income of the asst. yr. 1977-78 ?

High Court Of Punjab & Haryana

CIT vs. Aggarwal Rice & General Mills

Section 37(1)

Asst. Year 1977-78

Gokal Chand Mital & S. S. Sodhi, JJ.

IT Ref. No. 56 of 1983

26th April, 1989

Counsel Appeared

Ashok Bhan with Ajay Mittal, for the Revenue : Balwant Singh Gupta with Sanjay Bansal, for the Assessee

GOKAL CHAND MITAL, J.:

The main business of the assessee-concern consists of purchase of paddy, husking it and selling the rice. Ninety- five per cent. of rice had to be sold to the Government under the Punjab Rice Procurement (Levy) Order at specified rates.

For the asst. yrs. 1975-76 and 1976-77, the liability for payment of purchase tax accrued during the relevant accounting periods as the assessee was following the mercantile system of accounting. The assessee challenged the levy of purchase tax in C. W. P. No. 564 of 1975. That writ was dismissed on March 8, 1976, and the application for extension of time for depositing the purchase tax was dismissed on March 30, 1976. The High Court declined to grant the certificate of fitness for appeal to the Supreme Court, vide order dated April 15, 1976.

During the proceedings for the asst. yr. 1977-78, the assessee claimed deduction of the purchase tax payable for the asst. yrs. 1975-76 and 1976-77 in view of the fact that it was actually paid in the accounting year relevant to the asst. yr. 1977-78. The ITO did not allow the deduction of the purchase tax paid for the aforesaid years on the basis of the assessment orders passed by the sales tax authorities during the period relevant to the asst. yr. 1977-78, on the ground that when an assessee follows the mercantile system of accounting, the deduction has to be claimed on the accrual of liability and relied upon certain decisions.

Against the aforesaid order of the ITO, the assessee took the matter in appeal and the CIT (A) allowed the relief. The Tribunal (hereinafter called “the Tribunal”), Chandigarh, dismissed the Revenue’s appeal as well as the cross- objections filed by the assessee. At the instance of the Revenue, the following question has been referred by the Tribunal for the opinion of this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in allowing the deduction of Rs. 2,35,538 in the computation of the total income of the asst. yr. 1977-78 ? “

5. This Court has held in CIT vs. United India Woollen Mills (1981) 24 CTR (P&H) 244 : (1981) 132 ITR 457( P&H), that where an assessee follows the mercantile system of accounting, he has to claim deduction on the basis of accrual of liability and if liability is quantified later on in another assessment year, that makes no difference and in that year the deduction cannot be allowed. That case is fully applicable to the facts of the present case. We had also an occasion to deal with this type of matter in Sirsa Industries vs. CIT (1989) 178 ITR 437 (P&H) and took the same view following the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. vs. CIT (1971) 82 ITR 363 (SC), although, on the facts of that case, the matter was decided in favour of the assessee. Here, the liability accrued during the periods relevant to the asst. yr. 1975-76 and 1976-77. Not only that, even the writ petition was dismissed on March 8, 1976, which made it clearly known to the assessee that it is liable to pay purchase tax and yet it (did not claim benefit of deduction during the asst. yr. 1976-77. Merely because leave to appeal to the Supreme Court was refused in April, 1976, or the tax was quantified by the sales tax authorities in May and July, 1976, would not be sufficient to claim the deduction in the asst. yr. 1977-78 in a case where the assessee maintains the mercantile system of accounting. Before parting, we may note the following two decisions which were cited on behalf of the assessee (i) Kalinga Tubes Ltd. vs. CIT (1987) 63 CTR (Ori) 117 : (1988) 169 ITR 374 (Ori) ; and (ii) Shalimar Chemical Works (P) Ltd. vs. CIT (1987) 65 CTR (Cal) 218 : (1987) 167 ITR 13 (Cal), Both the cases are distinguishable. The first was the case of additional liability. According to the view taken in the second case, the crucial date for claiming deduction would be the date when the writ was decided. In this case, the writ petition was decided during the period relevant to the asst. yr. 1976-77 and, therefore, deduction had to be claimed in that year and not in the year in question. The second case, if at all, helps the Revenue.

7. For the reasons recorded above, it is clear that the Tribunal erred in law in allowing the deduction of Rs. 2,35,538, which was payable for the periods relevant to the asst. yrs. 1975-76 and 1976-77, during the proceedings for the asst. yr. 1977-78. Accordingly, we answer the referred question in favour of the Revenue, in the affirmative, leaving the parties to bear their own costs.

[Citation : 180 ITR 29]

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