High Court Of Rajasthan
Mewar Motors vs. CIT
Section 43B
Asst. Year 1987-88
N.N. Mathur & H.R. Panwar, JJ.
IT Ref. No. 56 of 1998
16th September, 2002
Counsel Appeared
None, for the Assessee : Sandeep Bhandwat, for the Revenue Judgment
N.N. MATHUR J. :
The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as Tribunal), has referred the following question for the opinion of this Court which has arisen out of the order of the Tribunal in ITA No.2322/Jp/94, dt. 30th April, 1996, in respect of asst. yr. 1987-88: “Whether, on the facts and in the circumstances of the case and proper interpretation of law, the Tribunal was legally justified in holding that the interest payable to the ST Department is also ‘tax’ and the provisions of s. 43B of the Act are applicable therein.”
2. The brief facts of the case are that the assessee M/s Mewar Motors, Udaipur, is a partnership firm engaged in purchase and sale of scooters, motor-cycles, cars and accessories. The assessee filed the return showing total income of Rs. 1,96,045. The assessment was completed at the returned income. A notice under s. 148 was issued on 26th March, 1991, in response to which the assessee-firm submitted a reply. The assessment was completed on a total income of Rs.16,29,378. The assessee had collected sales-tax from various constituents for onward deposit with the local ST Department. The said amount was credited in a separate account. The sales-tax outstanding as on 31st March,1987, amounted to Rs. 23,59,187. At the time of filing return the assessee claimed interest of Rs. 2,77,578 on the unpaid sales-tax for which the necessary adjustment in the books of account were made on mercantile system of accounting and as per the assessee’s version the same were allowable under s. 36(1)(iii). During the course of reassessment proceedings the assessee made further claim for a sum of Rs. 5.80,293. The AO treated the said amount of unpaid interest as part of the sales-tax and disallowed the same under s. 43B of the IT Act. The CIT(A) arrived at the conclusion that the order under s. 143(3) r/w s. 148 was erroneous and prejudicial to the interest of the Revenue on account of the following mistakes: (1) The AO failed to disallow under s. 43B the amount of Rs. 2,77,578 representing outstanding sales-tax interest. (2) The AO wrongly accepted the assessee’s claim for allowing sales-tax liability of Rs. 10,29,293 which was outstanding as on 31st March, 1987, but paid by 31st March, 1987, in total disregard of the provisions of s. 43B as it stood before the amendment by Finance Act,1987, which provided disallowance of such liability.
On appeal the Tribunal analysing the provisions of s. 43B and relying on the decision of this Court in CIT vs. Udaipur Distillery (1986) 53 CTR (Raj) 244 : (1986) 160 ITR 444 (Raj) held that interest paid is the part of the sales-tax. Accordingly the Tribunal upheld the view of the CIT to the effect that the order of the AO allowing the claim of the ‘assessee is erroneous and prejudicial to the interest of the Revenue. The Tribunal accordingly rejected the claim of the assessee to that extent. None has appeared for the assessee in spite of service. We have heard Mr. Bhandawat learned counsel for the Revenue. The question referred stands answered by the decision of this Court in CIT vs. Udaipur Distillery (supra) wherein it is held that the amount of interest for all purposes be considered to be an amount spent wholly and exclusively for the purpose of business. It is neither necessary nor reasonable to allow deduction of expenditure spent wholly and exclusively for the purpose of business. Thus, the liability to pay interest is an allowable deduction. The object of s. 43B is to curb the activities of those taxpayers who do not discharge their statutory liability of payment of sales-tax or excise duty for long period but claim deduction in that regard from the income on the ground that liability to pay this amount had been incurred by them in relevant previous year.
In view of aforesaid, the question is decided in favour of the Revenue and against the assessee.
[Citation : 260 ITR 218]
