Commissioner of Income Tax vs Calcutta Merchants and Agents (P.) Ltd.

Sengupta, J.—In this reference u/s 256(1) of the income tax Act, 1961 (''the Act'') for the assessment year 1985-86, the following question of law has been referred to this Court:

Whether, on the facts and in the circumstances of the case and on a correct interpretation of the law, and particularly in view of the insertion of Explanation 2 with effect from 1-4-1984, the Tribunal was justified in holding that the 1st proviso to section 43B of the income tax Act, 1961 introduced by the Finance Act, 1957 with effect from 1-4-1988, would be applicable for the assessment year 1985-86 also ?

The facts are that on examination of the assessment records of the assessee for the assessment year 1985-86, for which the previous year ended on 30-6-1984, the Commissioner found that in the assessment completed u/s 143(3) of the Act on 4-11-1985 on a total income of Rs. 1,03,750 the ITO had not considered the applicability of the provisions of section 43B of the Act, in respect of Andhra Pradesh sales tax liability shown under the head ''Other liability - Hyderabad Branch'' to the extent of Rs. 1,62,700. Proceedings u/s 263 of the Act were initiated and the assessee''s counsel was heard. The Commissioner held that the amount of Rs. 1,62,700 was not admissible as a deduction u/s 43B since, admittedly, the said sum was not paid and had remained as a liability taken to the balance sheet of the assessee for the year under consideration and that it would be admissible only in the year in which it is paid. However, from the records the Commissioner found that the assessee had an opening balance of Rs. 27,472 in the said account which had remained unpaid in the earlier year and had been paid in the relevant previous year. Therefore, he held that the assessee was entitled to the deduction of the said amount of Rs. 27,472. He directed the ITO to recompute the income by enhancing it by a sum of Rs. 1,35,228 (Rs. 1,62,600 minus Rs. 27,472).

On appeal, the Tribunal following its order in the case of ITO v. K.S. Lokhandwala [1989] 31 ITD 305 (And.) held that the assessee would be entitled to deduction of the amounts duly paid out of Rs. 1,62,700 well before the date of furnishing the return of income for the assessment year 1986-87. In that view, the Tribunal modified the order of the Commissioner passed u/s 263 and directed the ITO to follow the decision of the Tribunal in K.S. Lokhandwala''s case (supra) and allow necessary relief to the assessee while considering the amount of Rs. 1,35,228.

This question is now concluded by the decision of a Division Bench of this Court in the case of Commissioner of Income Tax Vs. Sri Jagannath Steel Corporation, Following the said decision, we answer the question in this reference in the affirmative and in favour of the assessee. There will be no order as to costs.

Sen, J.

I agree.