COMMISSIONER OF INCOME TAX Vs. MADAN LAL

JUDGEMENT

(1.) AT the instance of the Revenue, the Income -tax Appellate Tribunal, Delhi Bench 'D', New Delhi (for short, 'the Tribunal'), has referred the following question of law for the opinion of this Court : 'Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was right in law in deleting the addition made under Section 43B(a) ?'

(2.) THE assessee is engaged in the business of manufacture and sale of synthetic chappal sheets and hawai chappals. For the asst. yr. 1986 -87, it filed return declaring an income of Rs. 6,27,940. The return was accompanied by copies of P&L; a/c and tax audit report. The AO finalised the assessment under Section 143(3) of the IT Act, 1961 (for short, 'the Act'). While doing so, he disallowed the assessee's claim for deduction of Rs. 1,55,935 under Section 43B of the Act. The appeal filed by the assessee was dismissed by CIT(A), Faridabad, insofar as it involved the claim for deduction under Section 43B of the Act. On further appeal, the Tribunal reversed the orders of the AO and the CIT(A), by making the following observations ; 'We have considered the submissions so made before us. The assessment year involved is 1986 -87. During the relevant period of time, Section 43B(a) read as under : '(a) any sum payable by the assessee by way of tax or duty under any law for the time being is force,' The amendment brought in by the Finance Act, 1988, including the expressions 'cess' was w.e.f. 1st April, 1989. As held by Their Lordships of Andhra Pradesh High Court in the case of Srikakollu Subba Rao & Co. v. Union of India : [1988]173ITR708(AP) , the expression 'cess' is not in the nature of either tax or duty as contemplated by Section 43B(a) of the Act. Therefore, the disallowance insofar as it relates to cess is not called for and hence deleted. Coming to the payment in respect of PF and ESI, the same is governed by Section 43B(b) of the Act. As per proviso as it stood at the relevant period of time, deduction is to be allowed in case the aforesaid amount is paid on or before the due date as defined in the Explanation below Clause (va) of Sub -section (1) of Section 36. The AO is, therefore, directed to find out whether the payment has been made within the period as allowed which would govern the allowability of the expenditure. For this, we restore the matter back to the file of the AO for examination and consideration of the assessee's claim. As regards sales -tax, the scope of proviso to Section 43B inserted by Finance Act, 1987, w.e.f. 1st April, 1988 has been explained by Their Lordships of Patna High Court in case of Jamshedpur Motor Accessories Stores v. Union of India : [1991]189ITR70(Patna) as under : The object of the Section 43B of the IT Act, 1961, was to refuse deduction to an assessee in respect of provident fund, etc., where the assessee does not discharge his statutory liability, where the assessee disputes his liability under the provisions of Sales -tax Act, etc. it was found impossible for an assessee to comply with Section 43B as it stood in the year 1984, and to make it workable, amendments in Section 43B were introduced by the Finance Act, 1987. Under the law as amended, if any assessee has paid sales -tax, additional sales -tax, Central sales -tax, etc. on or before the due date applicable in his case for furnishing his return of income under Section 139(1) of the IT Act, he shall be entitled to claim deduction of that amount. With regard to the provident fund, family pension, etc. the assessee shall be entitled to claim deduction if the same was paid on or before due date in the Explanation below Clause (va) of Section 36(1) of the IT Act. The first proviso to Section 43B of the Act inserted by the Finance Act, 1987, was enacted in order to suppress the mischief and for the purpose of giving relief to an assessee who is not an unscrupulous dealer. The amendment is explanatory in nature. Hence, the proviso to Section 43B is retrospective in its operation and Expln. 2 to Section 43B is subject to the proviso. The law as amended is applicable for the asst. yr. 1984 -85. In the circumstances, in case the payment has been made within the time as allowed in the provision, the deduction is allowable and the same may be allowed and as such the disallowance in respect of sales -tax would stand confirmed (sic).'

(3.) IN view of the law laid down by the Supreme Court, the question referred by the Tribunal is answered in favour of the assessee and against the Revenue. The reference is disposed of in the manner indicated above.