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2021 (9) TMI 874 - HC - Income TaxSales tax set off as deduction u/s 43B - whether the set off or adjustment amounts to deemed payment? - as per appellant, the sales tax set off represents that part of the purchase tax paid by appellant on purchase of raw materials and packing materials, which is allowed to be retained by it as the materials purchased are consumed in the manufacture of finished goods which are again liable to sales tax - HELD THAT:- Rule 41D of the Bombay Sales Tax Rules allowed incentive by way of exemption of sales tax to the extent of payment of sales tax on purchase of raw material used for the product. Rule 45(3) entitles the assessee to adjust or set off the amount in the return itself. It is a provision parallel to Sections 199 and 245 of the Income-tax Act creating a legal fiction. Therefore, this sum, which is subject to adjustment or set off, is a liability adjusted deeming actual payment by legal fiction. The Sales Tax Rules have allowed an incentive by way of adjustment of sales tax or in other words, the liability is being adjusted as actual payment. Section 43B of the Income-tax Act allows deduction on tax payable by the assessee. When the assessee purchases raw materials, it is liable to pay purchase tax on the purchase. An equivalent of this amount is adjusted towards the liability on the sale of the product produced out of the raw materials purchased. This adjustment, by legal fiction, is deemed to be an actual payment of the tax liability. Admittedly, this amount is a tax payable. If it is a tax liability on being set off or adjusted, deemed actual payment by legal fiction, it is deductible under Section 43B of the Act. Disallowance for sales tax set off was not correct - Question answered accordingly.
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