Law:

Section:

Section 145 of the income-tax act, 1961-Method of accounting-Year in which expenditure/liability deductible-whether in case of an assessee following mercantile system of accounting, purchase tax liability is deductible in the year in which it accrues even if assessee has disputed the same and discharges it only in a subsequent year-Held, yes Section 256(1) of the income-tax act, 1961-reference-Tribunal's finding of fact-ito treated purchase tax collected by assessee as its trading receipt-before aac assessee contended that impugned purchase tax had to be paid to government-aac accepted assessee's contention and deleted addition made by ito-on further appeal by revenue, tribunal found that since assessee did not claim deduction of impugned liability, only question for consideration before it was whether amount of purchase tax collected by assessee could be treated as its trading receipt-whether in view of assessee's earlier claim for deduction before aac, tribunal's aforesaid finding was perverse-held, on facts, yes Facts During the accounting years relevant for the assessment years 1968-69, 1969-70 and 1971-72, the assessee-firm, which followed the mercantile system of accounting, had realised certain sums as purchase tax from its customers. The assessee did not include these amounts in its profit and loss account for any of these years, as it was disputing its liability to pay purchase tax. However, when the assessee lost its case finally, it debited the accounts of the customers and made payments to the State Government in the subsequent years. The ITO treating these amounts as trading receipts of the assessee included the same in the total income of the assessee of the aforesaid assessment years. On appeal, the AAC accepting the assessee contention that the purchase tax collected by it was to be paid by it to the State Government, held that the said amounts did not constitute the assessee's income for the aforesaid respective years and, hence, deleted the same. On further appeal, the Tribunal held (i) that the said amounts constituted trading receipts of the assessee; (ii) that since the assessee had not claimed any deduction of purchase tax payable by it to…

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