Law:

Section:

SECTION 145(1) OF THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING - YEAR IN WHICH EXPENDITURE DEDUCTIBLE - SALES TAX DEMAND OF ASSESSEE-COMPANY FOR 1974-75 WAS QUANTIFIED BY SALES-TAX DEPARTMENT AND PAID BY ASSESSEE IN 1977-78 - ASSESSES FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING - WHETHER DEDUCTION OF EXPENDITURE COULD BE ALLOWED IN 1977-78 - HELD, NO Facts The sales tax demand of the assessee-company for the assessment year 1974-75 was quantified in the accounting year relevant to the assessment year 1977-78 and the company charged the payment to the sales tax account in 1977-78 and claimed it as deduction. The assessing officer disallowed the deduction on the ground that the assessee was maintaining accounts on mercantile system and, therefore, the sales tax liability of a year was to be charged to that particular year. The assessee's claim was, however, accepted by the Tribunal. On reference by the revenue : Held In a number of cases it has been consistently held that in the case of mercantile system of accounts, even though the tax liability may have been quantified subsequently, same has to be taken into consideration in the relevant assessment year in which the tax liability arose. Therefore, the Tribunal, in the instant case, was not correct in law in allowing the impugned amount of sales tax as deduction in the assessment year under consideration. Case review Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), CIT v. United India Woollen Mills [1981] 132 ITR 457(Punj. & Har.), CIT v. K.A. Karim & Sons [1982] 133 ITR 515 (Ker.) (FB), Haji Lal Mohd. Biri Works v. CIT [1982] 134 ITR 718 (All.) and CIT v. Ratlam Strawboard (P.) Ltd. [1985] 152 ITR 425 (MP) relied on. Cases referred to Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), CIT v. United India Woollen Mills [1981] 132 ITR 457(Punj. & Har.), CIT v. K.A. Karin & Sons [1982] 133 ITR 515 (Ker.) (FB), Haji Lal Mohd. Biri Works v. CIT [1982] 134 ITR 718 (All.) and CIT v. Ratlam Strawboard (P.) Ltd. [1985] 152 ITR 425 (MP). MISC. CIVIL CASE NO. 26 OF 1983. R.C. Mukati for the Applicant. JUDGMENT Mulye, J.-The Tribunal, Indore Bench, Indore, at the instance of the revenue…

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