KALINGA TUBES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference at the instance of the assesses under Section 256(1) of the Income-tax Act, 1961 (in short "the Act"). The following question of law has been referred to this court by the Income-tax Appellate Tribunal, Cuttack Bench, for the opinion of this court:

(2.) THE assessee is a limited company incorporated under the Companies Act, 1956. It carries on the business of manufacture and sale of steel tubes. In respect of tubes, for the year 1962-63, it was liable to pay sales tax under the Central Sales Tax Act, 1947. Under the scheme of the sales tax law, a dealer is liable to pay the tax on the turnover of the sale. THE rate of tax depends on the nature of sale. A dealer is liable to file the return and along with the return pay the tax admitted to be the liability. If the returned figure is accepted by the assessing authority, the assessment is completed. Where the assessing officer requires examination of the accounts for examining the correctness of the return, he calls upon the dealer to produce the accounts and on examination of such accounts, either accepts the returned figure or computes the turnover on the material available. Under certain circumstances, the assessing officer makes the assessment to the best of his judgment which becomes final subject to appeals and reference. Along with the order of assessment, a notice of demand is issued and in the case of non-payment of the tax demanded, realisation is made. In respect of the year 1962-63, the Sales Tax Officer completed the assessment on March 31, 1966, to the best of his judgment and made an additional demand of Rs. 11,02,698 on the assessee. THE assessee paid a small amount under protest but did not make any provision for payment of the balance since he contested the levy. Being a company, its creditors reflected the amount as contingent liability in the printed accounts. THE objection of the assessee to the additional demand could be appreciated ultimately by the Sales Tax Tribunal and the additional demand was reduced to Rs. 2,22,161 by order dated May 28, 1970. This amount being a business expenditure was claimed as deduction by the assessee in respect of the assessment for the previous year 1970-71 in the assessment year 1971-72. THE Income-tax Officer did not allow the deduction in the year 1971-72 but in appeal the assessee became successful. In the second appeal by the Revenue, the Tribunal reversed the decision of the first appellate authority and affirmed the order of the Income-tax Officer in this respect.