TMI Blog1982 (1) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... stomers respectively. The assessee did not include these amounts in its profit and loss account for any of these years. At the time of making the assessments for the assessment years 1968-69 and 1969-70, the ITO failed to notice these receipts. Subsequently, he initiated proceedings under s. 147(b) of the Act and framed reassessments under s. 144/147(b) of the Act treating these receipts as trading receipts and included the same in the total income. For the assessment year 1971-72, for similar reasons, he added the amount of Rs. 40,570 in the total income of the assessee. Aggrieved, the assessee filed appeals against these orders. The AAC accepted the assessee's contention and held that the disputed amounts did .not constitute the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, allowed the appeals of the department and restored the order of the ITO in regard to the addition of the aforesaid amounts for the aforesaid three years respectively. Now, at the instance of the assessee, the Appellate Tribunal has referred the following questions of law to us: " 1. Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim exemption on the purchase tax collected by it in the computation of income, profits and gains of the assessee for the assessment years 1968-69, 1969-70 and 1971-72 ? 2. Whether, on the facts and circumstances of the case, the finding of the Income-tax Appellate Tribunal in the present cases that the assessee did not claim any deduction on account of its s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the question may be taken up together. It is not disputed that the assessee follows the mercantile system of accounting. It realised from its customers the disputed three amounts in the three assessment years under consideration respectively by way of purchase tax. It does not admit of any doubt that these realisations amounted to trading receipts of the assessee and were liable to be included in its total income. Reference may be made for this purpose to the decisions of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 and that of this court in CIT v. Sheo Nath Prasad Hari Kishan [1974] 93 ITR 282. These decisions are on the question of sales tax r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time before the Tribunal. If the Appellate Tribunal had taken care to go through the order of the AAC, it would have found that the assessee had in fact made such a claim. Therefore, there is no basis whatsoever for saying that the claim of deduction on account of its purchase tax liability had not been raised by the assessee. Now, coming to the merits of the claim, we find that the view taken by the AAC was absolutely correct while the one taken by the Appellate Tribunal is erroneous in law. As noted above, the assessee follows the mercantile system of accounting. It may be that the assessee was disputing its liability to pay the purchase tax to the State Govt. and had not made any debit entry in its books of account. It is on record tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication was effected in assessment proceedings, the, liability for payment of tax was independent of the assessment. The assessee, which followed the mercantile system of accounting, was entitled to a deduction, from the profits and gains of its business, of the liability to pay the sales tax which arose on the sales made by it during the relevant previous year. It was further held that the fact that the assessee was contesting its liability to pay the sales tax or that it failed to debit the liability in its books of account did not debar it from claiming the same as a deduction either under s. 10(1) or under s. 10(2)(xv) of the Indian I.T. Act, 1922. It is, therefore, established that as to whether the assessee was entitled to a partic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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