Income Tax Appellate Tribunal - Hyderabad
Income-Tax Officer vs Radiant Cables (P.) Ltd. on 25 February, 1986
Equivalent citations: [1986]18ITD79(HYD)
ORDER
T. Venkatappa, Judicial Member
1. One appeal is preferred by the revenue and the other by the assessee. They relate to the assessment year 1981-82.
2. The first item in the revenue's appeal is with regard to the sum of Rs. 1,53,410 payable to the Andhra Pradesh State Electricity Board. As per the Purchase Order No. 4198 dated 10-2-1978, the assessee was to " supply LT PVC cables with a delivery schedule to complete the supplies before 31-8-1978. Under Clause 10 of that order, the Electricity Board may at its option demand and recover an amount equivalent to half per cent of the value of the materials not delivered within the prescribed time limit per every week of delay or part thereof subject to a maximum of 5 per cent of the total value of the contract. The heading of this Clause is described as 'Penalty'. As there was delay in supplying the material as per the above order, the assessee was required to pay Rs. 61,775, Rs. 49,539 and Rs. 42,097 totalling Rs. 1,53,411. The above demand was received by the assessee during the accounting year relevant to the assessment year 1981-82 under appeal. The assessee made provision in the accounts for the above demand. The amount was paid on 6-7-1981. The assessee claimed the said amount as a deduction. The ITO disallowed the amount on the ground that the delay in supply of goods occurred in the year 1977 and the amounts were paid only in the year 1981. On appeal, the Commissioner (Appeals) held that the penalty demands raised during the previous year ending 31-3-1980 were attributable to the terms of contract in the form of purchase order. The assessee had not disputed the liability. The contractual liability to pay the penalties had crystallised during the calendar year 1980. The liability had accrued or arisen during the calendar year 1980 and, accordingly it would be allowable as a deduction. Thus, he deleted the addition of Rs. 1,53,410.
3. The learned departmental representative strongly urged that the penalty levied is for infraction of law. The Electricity Board is a statutory corporation. For the default committed by the assessee in supplying the material within the stipulated time of the purchase order, penalties have been levied by the Electricity Board and such penalties levied under Clause 10 of the order cannot be allowed as revenue expenditure as they were levied for infraction of law. The default in supplying the material occurred in an earlier year and so provision should have been made in that year and it cannot be allowed in this year. Alternatively, he urged that if a provision is not made in that year, it can be allowed only in the year of payment. He further urged that the levy of penalty is optional as per Clause 10 of the order. Once it is optional, the levy made is nothing but penalty. In this connection, he placed reliance on the decisions in CAT v. Malwa Vanaspati & Chemical Co. Ltd. [1982] 135 ITR 221 (MP) and Chaudhry Cotton Ginning & Pressing Factory v. ITO [1984] 7 ITD 337 (Chd.).
4. The learned counsel for the assessee strongly urged that it is on account of breach of contract, the assessee was required to pay damages as per Clause 10 of the purchase order. So, it does not amount to levy of penalty for any infraction of law. In the heading, it is mentioned as 'Penalty' but in the body of the clause, it is made very clear that it is only damages at a fixed percentage for breach of the contract. Under Clause 10, it was optional on the part of the Board to levy or not to levy the damages. Hence, the assessee did not make any provision in the year of default but when the assessee received demand in the year 1980, provision was made in the books. The liability had arisen during this year and it could not be claimed in any other year. The liability is very much connected with the assesses's business and it is allowable as revenue expenditure. He placed reliance on the decisions in CIT v. Inden Biselers [1973] 91 ITR 427 (Mad.).
5. We have considered the rival submissions. As per the Purchase Order No. 4198 dated 10-2-1978, the assessee was to supply LT PVC cables to the Electricity Board within the stipulated time which was before 31-3-1978. There was delay in respect of some consignments. Under Clause 10, the Electricity Board has the option to demand and recover an amount fixed at certain percentage. The said clause, which is relevant for our purpose, reads as under :
The time for and the dates for delivery mentioned above shall be deemed to be the essence of the contract. In case of delay in delivery of materials at destination, whatever be the reason, the Board may at its option, demand and recover from you an amount equivalent to half per cent of the value of the materials "ot delivered within the prescribed time limit for every week of delay or part thereof, subject to a maximum of 5 per cent of the total value of the contract. This right of the Board shall be without prejudice to its rights under the law including the right to cancel he contract, forfeit the deposit and/or recover damages for breach of tcontract.
No doubt, the heading is described as 'Penalty'. But, a reading of the above Clause makes it clear that the Electricity Board may at its option demand and recover an amount equivalent to half per cent of the value of materials not delivered within the prescribed time limit for every week of delay or part thereof subject to a maximum of 5 per cent of the total value of the contract. This would clearly indicate that for the breach of the contract for supplying the material within the stipulated time, the Electricity Board has the option as stated above to demand liquidated damages fixed at a certain percentage. Accordingly, during the accounting year ending 31-12-1980, the Electricity Board issued three demand notices totalling Rs. 1,53,410 being the amount levied under Clause 10. The assessee was required to pay the demand within 15 days, otherwise the amount would be recovered from the permanent security deposit bank guarantee. In fact, the amount was paid on 6-7-1981. The assessee has made a provision during the accounting year ending 31-12-1980 as the demand was raised in this year. In our view, the demand of Rs. 1,53,410 is nothing but damages for the breach of contract in not supplying the material within the stipulated time and it cannot be treated as penalty levied for any infraction of law. Supply of LT PVC cables is the business of the assessee. The default was committed in supplying that material within the stipulated time on account of which the Electricity Board levied and demanded Rs. 1,53,410 as damages at a stipulated rate as per Clause 10. The said demand cannot be treated as a penalty. In our view, the sum of Rs. 1,53,410 being a contractual liability for breach of contract under Clause 10, is allowable as a revenue deduction.
6. We may refer to the case law on the point at issue. In CIT v. Reliable Water Supply Service of India (P.) Ltd. [1980] 124 ITR 199 (All), the assesses undertakes contracts for the construction of tubewells and supplying of stores. Due to breach of the terms of contract in not finishing the contract work within the stipulated time, the Government levied penalties which were claimed as deduction. On those facts, the Allahabad High Court held that the amount of Rs. 1,13,732 paid as penalty and damages to the Government for the delay in execution of the contracts was deductible in computing the assessee's profits.
7. In CIT v. R.D. Sharma & Co. [1982] 137 ITR 333 (Bom.), the assessee, a contractor, claimed deduction of Rs. 30,800 being the penalty levied by Garrison Engineer, Dehu Road, for the non-completion of the work within the stipulated time. On those facts, the Bombay High Court held that it is an allowable* deduction. The contention of the revenue that the liability has arisen due to the failure to carry out the terms of the contract and such failure is not incidental to the business was not accepted. It was held that the assessee carries on the business of building contracts and it is not unusual that in the performance of such contracts delay might occur for several reasons and if delay occurs, there is a breach of the condition relating to the completion of the contract work within the stipulated time. Such failure, if it occurs, is clearly incidental to the business of the assessee. In that case also, the amount claimed as deduction was described as 'penalty' but the Bombay High Court held that though the amount claimed as deduction is described as penalty, it is in fact a compensation payable by the contractor to the Government and the nature thereof is wholly different from a penalty which arises from a breach of a statutory provision and the said liability must, therefore, be construed as having arisen on account of the delay in performance and on account of compensation payable to the Government and not strictly in the nature of penalty as in the case of a breach of a penaly provision of law.
8. The above two decisions, which are directly on the point, squarely apply to the facts of the instant case. We may also refer to a few other decisions.
9. In CIT v. Prafulla Kumar Mallick. [1969] 73 ITR 119 (Ori.) the assessee, who worked as a paddy procurement agent, was required to supply to the Government paddy and rice of a standard known as fair average quality. Penalties were levied for supplying the paddy and rice which were not of the standard prescribed. On those facts, it was held by the Orissa High Court that the sum of Rs. 25,700 paid by the assessee by way of penalty to the Government was an admissible deduction in computing the profits. It was held that the payment by the assessee of such penalty by way of damages for breach of warranty is incidental to the assessee's business.
10.The above decision was followed by the same Court in Govind Choudhury & Sons v. CIT [1971] 79 ITR 493. In this case also, the assessee claimed deduction of Rs. 1,233 paid as penalty to the Government for the supply of inferior quality of paddy and rice. It was held that the said amount was deductible from the income itself.
11. In Hind Mercantile Corpn. Ltd. v. CIT [1963] 49 ITR 23 (Mad.) in consequence of breach of contract the assessee had to pay Rs. 2,35,758 as damages. This was claimed as deduction. The Madras High Court held that the loss was incurred in the usual course of business and was incidental to the conduct of business for earning profit and was allowable in computing the profits of the assessee's business.
12. In CIT v. Loke Nath & Co. (Construction) [1984] 147 ITR 62 4 (Delhi) the assessee had to pay a sum of Rs. 4 lakhs for getting the revised plan passed by the NDMC. On those facts, the Delhi High Court held that the payment was not in the nature of penalty for infraction of law and was a permissible deduction in arriving at the business profit of the assessee.
13. In Inden Biselers' case (supra) on account of non-compliance with the terms of the contract to supply manganese ore within a specified time, the assessee paid Rs. 1,18,875 which was claimed as a deduction. The Madras High Court held that the amount was allowable as a deduction.
14. In Addl. CIT v. Rustam Jehangir Vakil Mills Ltd. [1976] 103 ITR 298 (Guj.) under Clause 21A(1) of the Cotton Textiles (Control) Order, 1948, the Textile Commissioner may direct any producer with a spinning plant to pack such minimum quantity of such cloth and during such period as may be specified in the direction. On account of failure to comply with the same, the assessee had to pay certain amount which was claimed as deduction. The Gujarat High Court held that the payments made by the assessee were not in the nature of penalty and were inciden tal to the carrying on of the assessee's business. The payments were business expenditure allowable under Section 37 of the Income-tax Act, 1961 ('the Act').
15. In CIT v. Chemicals & Fibres of India Ltd. [1983] 142 ITR 413 (Bom.), the assessee was granted an advance import licence under which it had to export art silk fabrics of the value of nearly Rs. 21½ lakhs by 8-11-1966. The assessee fulfilled a major part of its obligation except for a shortfall of about Rs. 2.74 lakhs which was made up after a delay of one month. The Central Government forfeited the guaranted amount to the extent of about Rs. 2.74 lakhs which the assessee claimed as a deduction. On those facts, the Bombay High Court held that the breach committed by the assessee was not deliberate and it occurred by reason of sheer inability of the assessee to complete its export obligation in time. The amount which the assessee had to pay under the bond was calculated on the footing of shortfall and it could hardly be looked upon as a penalty for infraction of law or any statutory obligation or public policy, but must be regarded as damages paid under a contract. The sum paid by the assessee to the Government was, therefore, an admissible deduction.
16. The ratio laid down in the above cases squarely applies to the instant case. The liability of Rs. 1,53,410 is nothing but damages for the breach of contract in not supplying the material within the stipulated time. It is not a penalty for any infraction of law. Due to the default under the terms of the contract, the assessee has to pay the damages and it is a contractual liability. Though it is described as 'penalty' it must be regarded as damages paid under the contract. The damand was received during the accounting year ending 31-12-1980 and, thus, the liability has arisen in this year. It could not be anticipated in the year 1978 as the Electricity Board had an option to levy or not to levy. Hence, it cannot be provided in the books in the year 1978. Since the Electricity Board issued a demand for Rs. 1,53,410 in the year 1980, the assessee made the provision and, thus, the liability has accrued in this year and it is allowable as a deduction. In this connection we may refer to the decision of the Allahabad High Court in Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33 where again it was held that if the liability is based on some contractual obligation, it arises only when it is ascertained. Unless the liability has become an ascertained sum of money, it no doubt exists, but proceedings have yet to be taken to determine the exact amount. A vague liability to make the payment cannot be entered in the accounts. In CIT v. Soorajmull Nagarmull [1981] 129 ITR 169, the Calcutta High Court held that though the claim related the breach alleged to have occurred in 1952, the settlement of liability was done by agreement between the parties in the year of account relevant to the assessment year 1956-57 and the amount was allowable in that year.
17. The decision of the Madhya Pradesh High Court in Malwa Vanas-pathi & Chemical Co. Ltd. 's case (supra) relied on by the departmental representative is clearly distinguishable as in that case penalty was levied for breach of law.
18. The contention of the learned departmental representative that once it is optional, the levy amounts to penalty, cannot be accepted. In the instant case, under Clause 10 the amount to be levied is at a fixed per-centage. Thus, what is levied is damages for breach of contract and cannot be treated as penalty.
19. The decision of the Tribunal in Elphinstone Spg. & Wvg. Mills Co. Ltd. v. ITO [1984] 7 ITD 333 (Bom.) relied on by the departmental representative, is also distinguishable. That was a case of levy of penalty under Section 14 of the Employees' Provident Funds and Family Pension Fund Act, 1952. On the facts of that case, it was held that the levy was for breach of a statutory provision and it is penal in character. That is not the position here. In our view, the Commissioner (Appeals) was perfectly justified in allowing the sum of Rs. 1,53,410 as revenue expenditure in this year.
20. The next item is with regard to relief under Section 80J of the Act. The assessee had given certain figures before the ITO for computing capital. But, before the Commissioner (Appeals), he gave a different statement which he accepted without putting the same to the ITO. Since the statement filed before the Commissioner (Appeals) was not put to the ITO we think it proper to restore this item to the file of the Commissioner (Appeals). He may put this statement furnished by the assessee to the ITO and after giving an opportunity of hearing to both the parties the matter may be decided afresh in accordance with law.
21. The next ground is with regard to the addition of Rs. 6,001 made under Rule 6D of the Income-tax Rules, 1962 but deleted by the Commissioner (Appeals). The learned counsel for the assessee agreed to that the addition has to be restored. Accordingly, we restore the addition of Rs. 6,001.
22. The next common ground in the departmental appeal as well as the assessee's appeal, which we now take up, is with regard to sales tax liability. The assessee-company has taken over the business of the firm of Radiant Engg. Co. on 10-3-1978 with all its assets and liabilities as a going concern. The said business carried on by the firm was continued by the assessee. Originally, sales tax assessment for the assessment years 1974-75 to 1977-78 were completed on the firm. Subsequently, those assessments were revived. So far as the assessment years 1974-75 and 1975-76 are concerned, show-cause notice was issued on 20-3-1980 and the assessments were completed and demand itself for those two years was raised on 29-4-1980 in the previous year relevant to the assessment year under appeal. For the assessment years 1976-77 and 1977-78, the showcause notices were issued on 13-5-1981. In view of the demand raised for 1974-75 and 1975-76 the assessee made provision for Rs. 2,33,588.32 in the accounts for the sales tax liability for the assessment years 1974-75 to 1977-78, i.e., up to 9-3-1978 and also Rs. 1,30,870 for the period 10-3-1978 to 30-12-1980. The said amounts were claimed as allowable deduction. The ITO rejected the assessee's claim on the ground that the liability does not relate to this year, the demand was raised and paid after the accounting year. On appeal, the Commissioner (Appeals) upheld the disallowance of Rs. 2,33,588. He, however, observed that the ITO should allow the deduction of the liability of Rs. 2,33,588 in the year in which the relevant sales tax demand is paid. With respect to Rs. 1,30,870 he held that the tax liability pertaining to the sales effected between 1-1-1980 to 31-12-1980 is allowable in this year. But, regarding the sales effected between 10-3-1978 to 31-12-1979, the sales tax liability should be allowed in the year of actual payment. Against the said order, the revenue as well as the assessee has come up in appeal.
23. It is contended by the learned departmental representative that the sales tax liability relating to the period prior to the taking over by the assessee of the business of the firm of Radiant Engg. Co., is not the liability of the assessee but of its predecessor in business and it cannot be allowed in the hands of the assessee. At any rate, the said liability of the previous firm will be a capital expenditure and cannot be allowed as a deduction. The Commissioner (Appeals) also was not justified in giving a direction to allow sales tax liability in the year in which it is paid. Siiice there is no demand raised in this year, it cannot be allowed. It is allowable only in the year when the sales had taken place. Reliance was placed on the decisions in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), CIT v. V. Krishnan [1980] 121 ITR 859 (Mad.) and L. Kunhamu Haji v. State of Kerala [1985] 155 ITR 516 (Ker.)
24. The learned counsel for the assessee submitted that the business of the firm was taken over by the assessee with assets and liabilities and the same business was carried on by the assessee. Hence, the sales tax liability of the previous firm is allowable in the hands of the assessee as the business of the firm was taken over with its liabilities. The demand for 1974-75 and 1975-76 was raised in this year and on the basis of those demands provisions was made for the liability of the assessment years 1976-77 and 1977-78. Thus, the total liability of Rs. 2,33,588 for the period up to 9-3-1978 is allowable. This year on the same basis provision was made for the sales tax liability for the period from 10-3-1978 to 30-12-1980 which is allowable in this year. He placed reliance on decisions in Iyanar Coffee & Tea Co. v. CIT[1970] 78 ITR 775 (Mad.), CIT v. Hind Motor Cycle Works [1982] 134 ITR 348 (All.), Associated Printers (Madras) (P.) Ltd. v. CIT [1961] 43 ITR 281 (Mad.) and CIT v. T. Veerabhadra Rao, K. Koteswara Rao & Co. [1985] 155 ITR 152 (SC). Alternatively, it is urged that the sales tax liability should be allowed at least when the demand is raised but not when it is paid.
25. We have considered the rival submissions. The assessee-company took over the business of the firm on 10-3-1978 with all its assets and liabilities as a going concern and or the business carried on by the firm was continued by the assessee. The question for consideration is whether the sales tax liability of the firm for the period prior to 9-3-1978 is allowable in the hands of the assessee after the business of the firm was taken over by the assessee. In our view the sales tax liability of the firm for the period prior to 9-3-1978 is allowable in the hands of the assessee as the assessee has taken over the business of the firm with all its assets and liabilities as a going concern and the said business of the firm was continued by the assessee. In Associated Printers (Mad.) (P.) Ltd.'s case (supra) the assessee-company took over the business of its predecessor company from 1-1-1950. The assessee debited in its accounts the amount of bonus payable as per the award for 1949-50. On those facts, the Madras High Court held that the liability itself accrued only after the date of the transfer and when the liability to pay bonus for 1949-50 became accrued liability the law imposed that liability on the assessee and, thus, it was its own liability which the assessee-company discharged when it provided for bonus payment in the year of account 1951-52. It was an expenditure incurred not for the acquisition of the business but for its continuance. It was certainly not an expenditure of capital in nature. In fymar Coffee & Tea Co.'s case (supra) in 1960 the assessee-company took over the assets and liabilities of the firm running the coffee business. The assessment to sales tax in respect of the sales of coffee made during 1958-59 was made on 31-1-1961 raising a demand of Rs. 20,507. A question arose whether the said amount is allowable as a deduction in the hands of the assessee. The Madras High Court held that the assessee had stepped into the shoes of the firm in respect of the coffee business having taken over the entire assets and liabilities and being a mere reflection of the firm it was entitled to deduct the sum of Rs. 20,507 in its assessment for 1962-63. In Hind Motor Cycle Works'" case (supra) the assessee took over the business carried on by another firm. The assessee claimed a trade liability of the erstwhile firm as a deduction. On those facts, the Allahabad High Court held that as the firm has taken over the entire assets and liabilities of the erstwhile firm, the liability to pay the sum of Rs. 14,250 under the Court decree was a trading liability and was allowable as a deduction. In CITv. Amalgamated Development Ltd. [1967] 65 ITR 395 (SC) the assessee-company purchased the assets and liabilities of the firm. The consideration was paid by the issue of shares to the vendor in the share capital of the assessee-company. The assessee-company took over the debts as well as the liabilities. During the assessment years 1950-51 and 1951-52 the assessee-company spent certain amount for the development of the plots already sold by the firm which was claimed as an allowable deduction. The Supreme Court held that the amounts spent for the development of plots sold by the firm before the assessee-company took over the business were allowable deductions under Section 10(2)(xv) of the Indian Income-tax Act, 1922, in computing the profits of the assessee-company. In T. Veerabhadra Rao's case (supra), the assessee succeeded to the business of a predecessor firm, taking over all the latter's assets and liabilities including a debt due from Laxmi Trading Co. The business carried on by the predecessor firm was carried on by the assessee. In respect of the debt due from Laxmi Trading Co. there was a settlement on 31-3-1965 under which a sum of Rs. 25,000 was accepted by the assessee in full settlement of the debt and the balance of Rs. 15,100 was written off as irrecoverable. The assessee claimed deduction of the sum of Rs. 15,100 as a bad debt. On those facts the Supreme Court held that if a business along with its assets and liabilities is transferred by one owner to another, a debt so transferred would be entitled to the same treatment in the hands of the successor. If the law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account, the same right should be recognised in the transferee. It is merely an incident flowing from the transfer of the business together with its assets and liabilities from the previous owner to the transferee. Thus, it was held that the assessee was entitled to deduction of Rs. 15,100 as a ball debt.
26. The ratio laid down in the above cases clearly applies to the instant case. The assessee has taken over the assets and liabilities of the former firm and the business of that firm was continued by the assessee. The sales tax liability of the former firm is allowable as a deduction in the hands of the assessee. The sales tax liability of the former firm is not a capital expenditure.
27. The next question that arises for consideration is whether the provi-sion made in the accounts for the sales tax liability of Rs. 2,33,588 for the assessment years 1974-75 to 1977-78 up to 9-3-1978 and the provision for Rs. 1,30,870 for the period from 10-3-1978 to 31-12-1980 is allowable as a deduction in the assessment year 1981-1982 now under appeal. The original sales tax assessment for the assessment years 1975-76 to 1977-78 of the erstwhile firm were completed on the said firm prior to 10-3-1978. The assessee took over the business of the said firm with its assets and liabilities from 10-3-1978. After the assessee took over the business of the said firm, the Sales Tax Department issued notices on 20-3-1980 for the assessment years 1974-75 and 1975-76 and revised the original assessments for those years and issued demand notices dated 29-4-1980 raising an additional demand of Rs. 43,383 and Rs. 22,930 for the assessment years 1974-75 and 1975-76, respectively, totalling to Rs. 66,313. On the basis of the additional demand raised for those two years, the assessee made a provision for the said sum of Rs. 66,313 and also Rs. 1,57,275.32 relating to the assessment years 1976-77 and 1977-78 which the assessee anticipated would be the additional sales tax demand for those two years. Thus, the total provision made for all the four years was Rs. 2,23,588.32 which was claimed by the assessee as an allowable deduction in the assess ment year 1981-82. On the basis of the above demand, it also made a provision for Rs. 1,30,870 for the period from 10-3-1978 to 31-12-1980 relating to the assessment years 1978-79 to 1980-81 which was also claimed as an allowable deduction. The question for consideration is whether the above two amounts are allowable as deduction in the assessment year 1981-82. In our view the assessee is entitled to deduction of Rs. 2,23,588.32 as well as Rs. 1,30,870 in the assessment year 1981-82. On the basis of the additional sales tax liability raised for the assessment years 1974-75 and 1975-76 by demand notices dated 29-4-1980 during the accounting year relevant to the assessment year 1981-82 under appeal the assessee has made provision for the sales tax liability of Rs. 2,23,588.32 and Rs. 1,30,870 for the assessment years 1974-75 to 1980-81. The above liability is allowable as deduction in the assessment year 1981-82.
The assessee-company as well as the previous firm were claiming that the PVC compound and bear conductor should be considered as raw materials for the purposes of sales tax assessment and not as manufactured product. In fact that the contention was accepted in the original assessments made for the assessment years 1974-75 to 1977-78. However, the Sales Tax Department, subsequently, took the view that they are manufactured products and, accordingly, sales tax at higher rate was levied and raised the demand on 29-4-1980 for the assessment years 1974-75 and 1975-76. It is under those circumstances that the assessee has made the provision for the above amounts this year. It is only in this year that the assessee could know that the sales tax is leviable on PVC compound and bear conductor as the Sales Tax Department was of the view that they are manufactured items rejecting the assessee's contention that they are raw materials. Under the above circumstances, the provision made by the assessee for the above sales tax liability is an allowable deduction. In CIT v. Rajeshwari Distributors (P.) Ltd. [1980] 125 ITR 618 (Cal.) sales of certain categories of match boxes were not liable to sales tax. But by subsequent notification they were held to be liable. The department initiated assessment proceedings. The assessee contested its liability to sales tax. It, however, made provision in its accounts for the estimated amount of sales tax. On those facts, the Calcutta High Court held that the libility to pay sales tax was not contingent because it was being disputed by the assessee. In respect of the ultimate results, the claim by the assessee could not be rejected. The ITATv. B. Hill & Co. (P.) Ltd. [1983] 142 ITR 185 (All.), the sales tax authorities served notices dated 26-3-1966 to show cause why sales tax on the goods imported and acquired in Bombay from 1-4-1969 onwards be not deemed to have been sold in Bombay. The assessee disputed its liability and further proceedings were stayed by the Bombay High Court. However, the assessee made a provision for Rs. 1,50,000 in the assessment year 1967-68 which was claimed as a deduction. The Allahabad High Court held that the assessee is entitled to deduction of Rs. 1,50,000 for which it had made provision in respect of sales tax liability. The ratio in the above cases squarely applies to the instant case. The decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd.'s case (supra) has been considered in the above two decisions. The decision of the Madras High Court in V. Krishna's case (supra) is a case where no provision has been made in the accounts. It is on those facts the Madras High Court held that the assessee's claim for deduction would arise for consideration either in the year in which the assessee accepts the liability or in ths year in which the amount is paid. In the instant case, the provision has been made for the sales tax liability. Thus, the above case is distinguishable.
28. Thus, in our view the provision of Rs. 2,23,588.32 and Rs. 1,30,870 made in the accounts in respect of sales tax liability for the assessment years 1974-75 to 1981-82 is allowable as deduction in the assessment year 1981-82.
29. In the result, the assessee's appeal is allowed and the departmental appeal is dismissed.