DILDAR KHAN Vs. UNION OF INDIA

JUDGEMENT

(1.) The Revenue is aggrieved by an order dated 17th November, 2006 passed by the Income Tax Appellate Tribunal('Tribunal') Delhi Bench "D" New Delhi in ITA No. 2910/Del/2004 relevant for the assessment year 1999-2000. The Assessee maintains a mercantile system of accounting. It had collected service tax during the previous year relevant to the assessment year in question. Out of the service tax so collected the Assessee had deposited part of the amount but an amount of Rs. 14.40 lakhs was not deposited by the Assessee with the concerned authorities. The Assessee did not claim any deduction in this regard nor did it debit the amount as an expenditure in the Profit and Loss Account. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) ['CIT(A)'] nevertheless disallowed the amount and added it back to the income of the Assessee. The CIT (A) was of the view that the Assessee had not followed the correct accounting procedure. If it had done so, the amount would have had to be debited to Profit and Loss Account and thereafter the Assessee could claim a deduction thereon. The Commissioner relied upon decision of the Calcutta High Court in Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income Tax, West Bengal-I (1977) 110 ITR 385.

(2.) In appeal, the Tribunal was of the opinion that in view of the provisions of Section 43 B of the Income Tax Act, 1961('Act'), since the Assessee had not claimed a deduction there was no question of disallowing the deduction which was not even claimed. The relevant extract of Section 43 B of the Act reads as follows:

(3.) Learned counsel for the Revenue urges that the decision of the Calcutta High Court in Chowringhee Sales Bureau covers the point in its favour. We are unable to agree. In that case it was held that the liability to pay sales tax arose the moment a sale or purchase was effected and if an Assessee was maintaining accounts on the mercantile system it would be entitled to deduction of the estimated liability of sales tax, even though such sales tax had not been paid to the sales tax authorities. The question there concerned was the entitlement of the assessee to deduction under Sections 10(1) and 10(2)(xv) of the Income Tax Act, 1922. The decision is clearly distinguishable in its application to the present case. Here we are concerned with an Assessee who has not even claimed any deduction on the ground of service tax and has not debited the amount to its Profit and Loss Account. Moreover the provisions of Section 43B of the Act are quite clear in this regard. The decision of the Calcutta High Court in Chowringhee Sales Bureau was not in the context of the applicability of Section 43B of the Act.