Feeling Aggrieved By That, The Respondent Filed An Appeal Before Thecommissioner. The Appeal Was Allowed On 25.08.1995. Challenging The Said Order, The Revenue v. Commissioner Of Income-Tax, West Bengal[[1

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.35 of 2004 JUDGMENT:(Per the Hon’ble Sri Justice L.Narasimha Reddy) Not satisfied with the order, dated 25.08.1995, passed by theCommissioner of Income Tax (Appeals) and the one, dated02.07.2002, passed by the Visakhapatnam Bench of the Income TaxAppellate Tribunal (for short ‘the Tribunal’), in I.T.A.No.1712/Hyd/95,the revenue filed this appeal. The dispute is referable to theassessment year 1990-91. The respondent is a manufacturer of Electrical cables. As partof its activity, it manufactures cables of different categories and sellsthem to the persons, or agencies, who place the order upon it. Thesales tax payable on the sale of the product is a component of saleconsideration. In its books of account, it maintained a separateaccount as regards the sales tax liability. On the one hand, it wasentering the amount of sales tax, as and when received, as part ofconsideration and, on the other hand, was making entries as regardssales tax, as and when it is remitted to the State Exchequer. In the books of account referable to assessment year 1990-91, the amount due towards sales tax was shown as Rs.14,92,647/-. Returns were submitted under the Income Tax Act (for short ‘theAct’). The Assessing Officer passed an order, dated 25.02.1993,discussing various claims made by the respondent. At the end of theorder, he added a sum of Rs.14,92,647/- to income, by observingthat the said amount is disallowed under Section 43B of the Act. Feeling aggrieved by that, the respondent filed an appeal before theCommissioner. The appeal was allowed on 25.08.1995. Challenging the said order, the revenue filed I.T.A.No.1712 of 1995before the Tribunal and the appeal was dismissed. Sri J.V.Prasad, learned counsel for the appellant, submits thatonce the respondent has recognized the liability to pay sales tax, it isto be inferred that the amount has already been received by them,and the deduction thereof, would arise, if only the amount has beenremitted. According to the learned counsel, the amount receivedtowards sales tax, deserves to be added as trade or businessreceipt, and only when it is proved that the amount is paid to theState Exchequer that the corresponding deduction can be made. Learned counsel further submits that the view taken by theCommissioner and the Tribunal cannot be sustained in law. Heplaced reliance upon a judgment of the Hon’ble Supreme Court inChowringhee Sales Bureau P. Ltd. v. Commissioner of Income-Tax, West Bengal[[1]]. Sri Vedula Srinivas, learned counsel for the respondent, onthe other hand, submits that though his client recognized the liabilityto pay sales tax to the extent of Rs.14,92,647/-, there is nothing onrecord to show that he received that amount from any purchaser. Hecontends that the Assessing Officer did not undertake anydiscussion whatever, much less did he ascertain the relevant factsfrom the respondent. Learned counsel submits that theCommissioner as well as the Tribunal have taken the relevant factsinto account, and applied the correct principles of law. He contendsthat the judgment of the Supreme Court in Chowringhee SalesBureau P. Ltd.’s case (supra) does not apply to the facts of thepresent case, since a finding of fact was recorded therein to theeffect that the assessee did receive the amount representing sales Though it is not the practice to read the order of assessmentin detail, in an appeal filed under Section 260A of the Act, we havegone through the order of assessment and those passed by theCommissioner and the Tribunal, in detail in view of the peculiar factsof the case. The Assessing Officer has undertaken extensivediscussion, with reference to each and every claim made by therespondent, and passed orders, incorporating his conclusions. However, in the context of the amount payable towards A.P. GeneralSales Tax Act, no discussion whatever was undertaken and the onlyportion of the order referable to that aspect reads: Though it is not the practice to read the order of assessmentin detail, in an appeal filed under Section 260A of the Act, we havegone through the order of assessment and those passed by theCommissioner and the Tribunal, in detail in view of the peculiar factsof the case. The Assessing Officer has undertaken extensivediscussion, with reference to each and every claim made by therespondent, and passed orders, incorporating his conclusions. However, in the context of the amount payable towards A.P. GeneralSales Tax Act, no discussion whatever was undertaken and the onlyportion of the order referable to that aspect reads: “(8) Disallowance u/s.43B: (i)APGSTBalance as on 31.03.1990 Rs.18,81,394Less: Opening balance Rs. 3,88,747 ___________ Rs.14,92,647 (ii)APGST price variation account balance as on 31.03.1990Rs.35,377 Less: Opening balance Rs.24,297 __________ Rs. 11,080” Since reference was made to Section 43B of the Act, itbecomes necessary to have a glance of it: “43B. Certain deductions to be only on actual -payment Notwithstanding anything contained in any other provisionof this Act, a deduction otherwise allowable under this Act inrespect of – (a)any sum payable by the assessee by wayof tax, duty, cess, or fee, by whatever namecalled, under any law for the time being inforce, or (b)any sum payable by the assessee as anemployer by way of contribution to any provident fund or superannuation fund orgratuity fund or any other fund for the welfare ofemployees, or (c) any sum referred to in clause (ii) of sub-section (1) of section 36, or (d) any sum payable by the assessee asinterest on any loan or borrowing from anypublic financial institution or a State FinancialCorporation or a State Industrial InvestmentCorporation, in accordance with the terms andconditions of the agreement governing suchloan or borrowing; or (e) any sum payable by the assessee asinterest on any loan or advances from ascheduled bank in accordance with the termsand conditions of the agreement governingsuch loan or advances, or (f) any sum payable by the assessee as anemployer in lieu of any leave at the credit of hisemployee; shall be allowed irrespective of the previous year inwhich the liability to pay such sum was incurred by theassessee according to the method of accounting regularlyemployed by him only in computing the income referred toin section 28 of that previous year in which such sum isactually paid by him: provided that nothing contained in this section shallapply in relation to any sum which is actually paid by theassessee on or before the due date applicable in his casefor furnishing the return of income under sub-section (1) ofsection 139 in respect of the previous year in which theliability to pay such sum was incurred as aforesaid and theevidence of such payment is furnished by the assesseealong with such return.” Though Section 43 of the Act, occurs in the Chapter pertainingto deductions, it is, indeed, an exception to deductions. The Sectionprohibits the deduction of any amount representing the sales tax,unless it is proved to have been paid. This is, in a way, deviationfrom the normal practice, where deductions are allowed even if themere provision is made and not the actual payment. The occasionfor invoking Section 43 of the Act, would have arisen, if only the respondent made a claim of deduction of Rs.14,92,647/- towardssales tax and no proof of payment thereof has been placed beforethe Assessing Officer. When no deduction whatever was claimed,there was no necessity or occasion to invoke Section 43B of the Act. Though Section 43 of the Act, occurs in the Chapter pertainingto deductions, it is, indeed, an exception to deductions. The Sectionprohibits the deduction of any amount representing the sales tax,unless it is proved to have been paid. This is, in a way, deviationfrom the normal practice, where deductions are allowed even if themere provision is made and not the actual payment. The occasionfor invoking Section 43 of the Act, would have arisen, if only the respondent made a claim of deduction of Rs.14,92,647/- towardssales tax and no proof of payment thereof has been placed beforethe Assessing Officer. When no deduction whatever was claimed,there was no necessity or occasion to invoke Section 43B of the Act. Any amount, which is received by an assessee, is to be addedto income, though the source or the category of the income may differand the legal consequences may also be different. In case therespondent has received any amount towards sales tax, it deservesto be treated as trade or business receipt, and the same is liable totax. If the amount so received is remitted to the State Exchequer,deduction can certainly be claimed under the relevant provisions ofthe Act. There may be cases where sales of a fairly high magnitudehave taken place, but the seller, who happens to be an assessee, isyet to receive the entire sale consideration or the component of salestax. In such a case, the sale, takes place, with the movement orsupply of the goods. Correspondingly, the liability to pay sales taxmust be recognised. The actual payment of sales tax, may not takeplace, on the same day, on which the sale has taken place. Oncethe sale has taken place, the liability to pay sales tax arises. However, the trader has the facility to pay the sales tax, even at alater point of time. Some times there may be dispute as to thequantum of sales tax and interpretations, may vary. As and when theamount even including the component of sales tax is received, theremittance can be made by the trader. However, mere recognition ofthe liability to pay sales tax does not lead to an inference, much lessa conclusion, that the amount is already in the hands of the trader. Incase the Assessing Officer has the proof with him, that the amountrepresenting the sales tax has been received by the trader, he cancertainly add that income as the one, by trading it as ‘trade or business receipt’. It is only on proof of payment of the amount soreceived to the concerned department, that he can claim deductions. I n Chowringhee Sales Bureau P. Ltd.’s case (supra), theHon’ble Supreme Court was dealing with a case where theassessee did receive the amount representing sales tax, but he didnot remit to the State exchequer by claiming that there is a dispute asto the very liability to pay it. Taking that into account, the Hon’bleSupreme Court held as under: “It is apparent from the order of the AppellateAssistant Commissioner and has not been disputedbefore us in the present case that in the cash memosissued by the appellant to the purchasers in the auctionsale, it was the appellant who was shown as the seller. The amount realized by the appellant from thepurchasers included sales tax. The appellant, however,did not pay the amount of sales tax to the actual ownerof the goods auctioned because the statutory liability forthe payment of that sales tax was that of the appellant. The appellant company did not also deposit the amountrealized by it as sales tax in the State exchequerbecause it took the position that the statutory provisioncreating that liability upon it was not valid. As theamount of sales tax was received by the appellant in itscharacter as an auctioneer, the amount, in our view,should be held to form part of its trading or businessreceipt. The appellant would, of course, be entitled toclaim deduction of the amount as and when it pays it tothe State Government.” What made difference in that case was that the finding as toreceipt of payment of the amount representing sales tax. Such afinding is not at all feasible in the instant case. Unless theAssessing Officer recorded a finding to the effect that the respondenthas received the amount shown as the sales tax, there was no basisfor him to add it to the income of the respondent. The Commissionermade a specific observation to the effect that the respondent did notmake any claim of deduction of any amount towards sales tax. There was no occasion for dealing with that at all. We are inagreement with the findings recorded by the Commissioner and theTribunal. The appeal is accordingly dismissed. There shall be no orderas to costs. The miscellaneous petitions filed in this appeal shall alsostand disposed of. ____________________ L.NARASIMHA REDDY, J. Date:26.11.2014GJ _____________________ CHALLA KODANDA RAM, J. [1]1973 ITR 542