COMMISSIONER OF INCOME TAX Vs. TRADING ENGINEERS

JUDGEMENT

(1.) FOLLOWING question has been referred for opinion of his Court under S. 256(1) of the INCOME TAX ACT, 1961 ('the Act') by the Tribunal, Delhi Bench 'C', New Delhi :

(2.) FACTUAL position as indicated in the statement of case is as follows : The assessee, a registered partnership firm, derived income from several agencies and also earned income by providing technical know -how for installation of pumping plants. It followed mercantile system of accounting and its accounting year ended on 30th Sept, 1976. For the relevant assessment year, assessee declared income of Rs. 5,75,596. Subsequently, a letter was filed claiming deduction of Rs. 71,390 on account of provision made for additional sales tax levied for the asst. year 1971 -72, in respect of goods worth Rs. 14,27,786.62p., transferred by the assessee to its Branch Offices outside Delhi. A copy of the order of assessment dt. 28th Nov., 1975, passed by the Sales tax Officer (STO) was also filed. Said demand was disputed by the assessee before the Additional Commissioner of Sales tax. Appeal was dismissed on 30th June, 1976. The assessee filed further appeal before the Sales tax Tribunal on 27th July, 1976. A writ petition was also filed before the Supreme Court, which set aside the sale tax assessment order by judgment dt. 20th Feb., 1978, and directed the assessing authorities to pass a fresh order in the light of the judgment. In the meantime, the ITO passed the assessment order on 25th Jan., 1978. Claim of Rs. 71,390 as made by the assessee was rejected subject to the condition that the assessee could come up under S. 154 of the Act after disposal of the writ petition by the Supreme Court. Matter was carried in appeal by the assessee before the CIT(A). The said authority held that assessee would be entitled to a deduction for the additional liability for payment of sales tax only in the year in which such liability arose. Claim was, however, not allowed for the reason that assessment order of the STO had been set aside by the Supreme Court. In further appeal before the Tribunal, the assessee contended that it could claim deduction in the asst. year 1977 -78 on the basis of assessment order dt. 28th Nov., 1975. The Tribunal held that the assessee was entitled to claim deduction even if such liability had not been quantified or paid or even when such liability was being disputed. Accordingly, it held that assessee's claim was to be allowed as a deduction. On being moved for reference, the question as set out above has been referred.

(3.) WE find that the Tribunal's approach was erroneous since the liability itself has been subsequently wiped out by the order of the apex Court. The question of a liability being allowed in respect of any particular assessment year does not arise. However, as has been rightly conceded by the learned counsel for the Revenue that if on the STO passing an order, complying with the directions of the Supreme Court, if any liability is created, the same has to be allowed as a liability in the year in which it is crystallized. Our answer to the question, therefore, is in the negative, in favour of the Revenue and against the assessee. Reference, accordingly, stands disposed of.