Kerala High Court
Commissioner Of Income-Tax vs Bell Foods (Marine Division) on 27 February, 1991
Equivalent citations: [1991]191ITR219(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal (in short "the Tribunal") has referred the following question of law for the decision of this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the liability for purchase tax as a deduction in the assessment for the year 1978-79 ?"
2. The respondent is an assessee under the Income-tax Act. It is a firm. It is an exporter of fish prawns to foreign countries. We are concerned with the assessment year 1978-79, the accounting period ending on March 31, 1978. A sum of Rs. 1,16,693 was debited in the trading account as the provision for purchase tax liability payable to the Sales Tax Department. The assessee was disputing the liability before the sales tax authorities. There was no formal demand for the liability as against the assessee. But, by a notification of the Government of Kerala, G. O. Ms. No. 54 of 1979 T. D., dated March 29, 1979, the Government had waived the purchase tax liability on sea food goods in the case of all exporters from April 1, 1977, to March 31, 1979. On the basis of the said notification, the assessee will be exonerated from liability. In this view, the Income-tax Officer disallowed the assessee's claim for deduction. The sum of Rs. 1,16,693 was added to the total income of the assessee. In the appeal, the assessee pointed out before the Commissioner of Income-tax (Appeals) that the previous year ended on March 31, 1978, and that, as on the last day of the previous year, there was no exemption granted to the assessee and so it was bound to provide for payment of purchase tax. The Commissioner of Income-tax (Appeals) found that, at the end of the previous year, the assessee was liable to pay purchase tax and that it was entitled to debit this amount in the account as provision in respect of purchases made in that year. The addition of Rs. 1,16,693 was directed to be deleted. The Revenue filed an appeal from the aforesaid decision before the Tribunal. The Tribunal, strongly relying on the decision of the Madras Bench of the Tribunal in S. Ratnam Pillai V. ITO (9 ITD 376), held that the liability of the assessee to purchase tax accrued during the relevant accounting period and so the assessee was entitled to deduction during the relevant assessment year, though the liability ceased to exist later, on the basis of the notification. The appeal filed by the Revenue was dismissed. It is thereafter at the instance of the Revenue that the Tribunal has referred the question of law, formulated hereinabove, for the decision of this court.
3. We heard counsel. As stated, we are concerned with the assessment year 1978-79 for which the accounting period ended on March 31, 1978.
4. The assessee is a firm. It claimed that the provision made by it in the trading account in the sum of Rs. 1,16,693 towards purchase tax liability is a permissible deduction. The Commissioner of Income-tax (Appeals), as also the Tribunal, took the view that, as on the last day of the previous year, i.e., March 31, 1978, when the liability to pay the purchase tax arose, there was no exemption granted to the assessee as per the notification dated March 29, 1979, and so the assessee was bound to pay the purchase tax. So, it was entitled to debit the amount in the account as a provision in respect of purchases made for the year. It is on this basis that the addition of Rs. 1,16,693 was directed to be deleted by the Commissioner of Income-tax (Appeals) and by the Tribunal. The Commissioner of Income-tax (Appeals), as also the Tribunal, have assumed that the assessee is maintaining its accounts on mercantile basis, when alone, for the previous year, ended on March 31, 1978, the assessee should have made the provision for the payment of purchase tax liability. None of these statutory authorities have found that the assessee is maintaining its accounts on mercantile basis. The assessment order does not show the method of accounting followed by the assessee. Before permitting the provision to be made for purchase tax liability, it should have been found that the assessee was maintaining its books on mercantile basis and so the purchase tax liability accrued as on March 31, 1978, in which case alone the provision could have been made in the accounting period ended on March 31, 1978, relevant to the assessment year 1978-79. We have no material before us to show that the assessee maintained its accounts on mercantile basis. In the assessment order, as against the column "method of accounting", nothing is stated. The Commissioner of Income-tax (Appeals), as also the Tribunal, have not held that the assessee is maintaining its accounts on mercantile basis and, on this basis, the liability which accrued during the accounting period could be provided as a provision entitling the assessee for appropriate deduction under the Income-tax Act. A finding regarding the method of accounting adopted by the assessee is absolutely essential before adjudicating the controversy raised in this case. In the absence of materials on that score, we are not in a position to answer the question referred to this court either properly or effectively. We, therefore, decline to answer the question referred to this court, but, at the same time, direct the Income-tax Appellate Tribunal to restore the appeal to file and decide the matter afresh in accordance with law. It is for the Appellate Tribunal to consider the method of accounting adopted by the assessee, i.e., whether the assessee had accepted the liability in sales tax proceedings and how and in what manner the provision is made in the accounts, etc. All aspects should be considered by the Tribunal afresh and then only a decision shall be rendered.
5. We decline to answer the question referred to this court, but direct the Income-tax Appellate Tribunal to restore the appeal to file and decide the question afresh.
6. The reference is answered accordingly.
7. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.