TMI Blog1992 (8) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, the Tribunal was right in law in holding that the liability of the assessee to pay sales tax for the period from July 17, 1971, to October 19, 1971, arose during the Samvat year 2028, namely, the previous year relevant to the assessment year 1973-74 ?" In order to appreciate the background in which these questions have been referred for our opinion, certain relevant facts will have to be noted at this stage. 1973-74 is the assessment year. The assessee, a registered firm, carried on the business of running a solvent extraction plant. Samvat year 2028 constitutes the previous year. The total income was assessed by the Income-tax Officer on April 15, 1976, at Rs. 6,71,357. The assessee, with view to getting the benefit of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid claim. The second disputed claim centred round Rs. 20,894 which was an amount spent by the assessee during the relevant year on messing charges. The mess was run by the assessee for the benefit of its staff members and clients. This claim was disallowed by the Income-tax Officer on the ground that they were entertainment expenditure within the meaning of section 37(2B) of the Act. The assessee carried the matter in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, by his order dated March 29, 1976, took the view that the assessee's liability to pay sales tax of Rs. 5,63,287 arose for the first time in September, 1972, when the sales tax authorities withdrew the exemption as aforesaid. The Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred for our opinion. We shall now deal with these questions seriatim. Question No. 1 : So far as this question is concerned, it is squarely covered against the Revenue by a decision of this court in the case of CIT v. Patel Brothers Co. Ltd. and CIT v. Gautamkumar Rajendrakumar [1977] 106 ITR 424. This court has taken the view that " if the provision of food, drinks or any amusement to a client, constituent or customer is on a lavish and extravagant scale, or is of wasteful nature, it is entertainment per se. However, if the provision of food or drinks to a client, constituent or customer is in the nature of bare necessity, or by way of ordinary courtesy, or as an express or implied term of the contract of employment spelled out from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, it has to be kept in view that the assessee was following the mercantile system of accounting. During the earlier year, viz., 1972-73, referable to Samvat year 2027, the assessee's sales were all covered by the exemption certificate issued by the sales tax authorities and by the time the assessee completed its accounts, i.e., on Diwali of Samvat year 2027, there was no occasion for the assessee to insert any entries about sales tax liability on these sales. It was only in the next year, viz., relevant assessment year with which we are concerned, i.e., assessment year 1973-74, that, for the first time, it was brought to the notice of the assessee that the exemption certificate stood cancelled with effect from July 17, 1971. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question whether the balance amount of Rs. 4,64,403 by way of sales tax liability for the sales effected by the assessee during the relevant assessment year corresponding to Samvat year 2028 can be deducted from the returned income of the assessee or not. The short controversy with which we are concerned on question No. 2 pertains to the balance amount of Rs. 98,884 for the relevant months of the earlier year. For that amount also, there was no occasion for the assessee, when the accounts were closed for Samvat year 2027, to effect any deduction as that eventuality had not occurred at that time. It is now well settled that entries made as per the mercantile system of accounting cannot be reopened because of an eventuality that may occu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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