1986 (2) TMI 138 - AT - Income Tax

Summary

Issues:
1. Treatment of sales-tax collections as trading receipts.
2. Application of mercantile system of accounting.
3. Dispute regarding interest waiver under section 215 of the Act.

Issue 1: Treatment of sales-tax collections as trading receipts
The appeal involved a dispute regarding the treatment of sales-tax collections as trading receipts by the Revenue. The Income Tax Officer (ITO) added the amount of Rs. 22,154 to the income of the assessee, considering these receipts as trading receipts. However, the Commissioner of Income Tax (Appeals) found that the assessee had paid over this amount to the State Government in the subsequent month, following the mercantile system of accounting. The CIT(A) accepted the assessee's plea that they should be treated only as the custodian for the State Government, based on the provisions of the Tamil Nadu General Sales-tax Act and relevant case law. The CIT(A) deleted the addition, which was objected to by the Revenue.

Issue 2: Application of mercantile system of accounting
The dispute also revolved around the application of the mercantile system of accounting by the assessee. The assessee, represented by a Chartered Accountant, explained that they were following the mercantile system of accounting and submitting monthly returns to the sales-tax Department. The Chartered Accountant argued that the sales-tax collections were not part of the trading receipts, as they were payable to the State Government on a monthly basis. The CIT(A) upheld the assessee's method of accounting, citing relevant case law supporting the mercantile system over the cash system.

Issue 3: Dispute regarding interest waiver under section 215 of the Act
The final issue in the appeal concerned the waiver of interest under section 215 of the Act. The CIT(A) directed the Income Tax Officer to waive 75% of the interest leviable under section 215, a decision contested by the Revenue. However, the Tribunal found no substance in the Revenue's objection, stating that the CIT(A) had the authority to examine and adjudicate upon the claim of the assessee against the levy of interest. The Tribunal confirmed the CIT(A)'s decision on this point, emphasizing that it was in conformity with the law and relevant precedents.

In conclusion, the appeal was dismissed, with the Tribunal upholding the decisions of the CIT(A) regarding the treatment of sales-tax collections, application of the mercantile system of accounting, and the waiver of interest under section 215 of the Act.