Dhariwal Sales Enterprises vs Commissioner of Income Tax

N.D. Ojha, C.J.—The Income Tax Appellate Tribunal, Nagpur Bench, Nagpur, has referred the following question to this court for opinion u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in maintaining the addition of Rs. 27,006 of Krishi Upaj Mandi tax collected during the year which was the liability of the mandi tax payable by the assessee ?"

The facts in a nutshell necessary for answering the aforesaid question are that the assessee, being a dealer in grains and grocery, was under an obligation to pay mandi tax in accordance with the provisions of the M. P. Krishi Upaj Mandi Adhiniyam in respect of the goods sold in the mandi compound or in respect of goods brought within the jurisdiction of the Krishi Upaj Mandi Samiti. The assessee recouped the tax liability from its customers amounting to Rs. 27,171 during the year in question and credited the same directly to the balance-sheet through the Krishi Upaj Mandi account. A sum of Rs. 27,006 for the year under consideration was shown as credit balance in the balance-sheet after deducting a sum of Rs. 165 being the licence fee. It is in this background that this question arose as to whether the sum of Rs. 27,006 could be added during the year in question.

Relying on the decision of the Supreme Court in The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, , it was urged by learned counsel for the assessee-applicant that the Tribunal has committed an error of law in upholding the addition of the aforesaid amount. It has, however, not been disputed by learned counsel for the assessee that the benefit of the observations made by the Supreme Court in The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, would be available to the assessee only if it was following the mercantile system of accounting. On this crucial point, the Income Tax Appellate Tribunal has agreed with the finding of the authorities below that the assessee did not follow the mercantile system of accounting.

In this connection, it may be pointed out that the Income Tax Officer in the order of assessment has held that the assessee was following a mixed system of accounting which was evident from the computation sheet furnished in the return of income. This observation of the Income Tax Officer does not seem to have been specifically challenged before the Income Tax Appellate Tribunal by asserting that the computation sheet furnished in the return of income did not indicate that the assessee was following a mixed system of accounting. On the facts and circumstances of the instant case, therefore, we have to proceed on the basis that the assessee was not following the mercantile system of accounting.

There is another important circumstance in this connection which has to be kept in view. No question as to whether, on the facts and circumstances of this case, the finding that the applicant was not following the mercantile system of accounting, was borne out by the material on record, has been referred to us. Proceeding, therefore, on the basis that the assessee was not following the mercantile system of accounting, there seems to be no doubt that the principle of law laid down in the case of The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, would not be applicable to the facts of the instant case.

In the result, our answer to the question referred to above is that, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in maintaining the addition of Rs. 27,006 of Krishi Upaj Mandi tax collected during the year which was the liability by way of the mandi tax payable by the assessee. In other words, our answer to question aforesaid is in the affirmative, in favour of the Department and against the assessee. In the circumstances of the case, however, there shall be no order as to costs.