Kerala High Court
Commissioner Of Income-Tax vs Delicious Cashew Co. on 25 March, 1996
Equivalent citations: [1997]226ITR793(KER)
Author: G. Sivarajan
Bench: G. Sivarajan
JUDGMENT V.V. Kamat, J.
1. An answer to the following two questions is the expectation in these references :
"1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the claim for purchase tax liability ?
2. Whether, on the facts and in the circumstances of the case, and since the assessee had not established that there is a legal liability for purchase tax and also in view of the fact that the assessee had claimed before the sales tax authorities total exemption of purchase tax, the Tribunal is justified in law in allowing the claim for purchase tax ?"
2. The assessee is a registered firm carrying on business of export of cashew kernels. For the assessment year 1981-82, there is a debit entry for Rs. 6,22,249 whereas for the assessment year 1982-83 it is for Rs. 5,42,798. These two entries relate to the liability of the assessee as regards payment of purchase tax on the purchase of raw cashewnuts. As this is a liability for payment of purchase tax, this was allowed by the Income-tax Officer-the trial authority.
3. However, the Commissioner of Income-tax, Cochin, exercised suo motu powers under Section 263 of the Income-tax Act, 1961, and found these items as having been wrongly allowed as regards deduction in the context because it was prejudicial to the interests of the Revenue. It is observed in the context that the assessee is not subject to purchase tax since the articles were purchased for export. It was further observed that since this aspect that the purchases were made for export was not considered by the Income-tax Officer, this was found to be erroneous.
4. It was this question that was taken up by the assessee before the Tribunal.
5. The Tribunal in paragraph 6 of its order considered the question and in that context observed that a statutory liability cannot get wiped out although being under dispute at the relevant time and consequently entitlement to deduction even in the situation of a context, levy of purchase tax, the deduction proceeds even in such a situation as a consequence. The Tribunal observed that this situation even required 1984 amendment by introduction of Section 43B in the context.
6. The position does not now remain as a controversy in view of the decision of this court in Abad Fisheries v. CIT [1995] 213 ITR 694. In view of the unequivocal observation to the effect that even if there is a bona fide reasonable apprehension on the part of the assessee that the amount will become payable it would be liable to be allowed as business expenditure. This court has drawn strength in regard to this proposition from the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, dealing with the factual situation that the amount was paid only later on the basis that the moment a dealer made purchases or sales which were subject to sales tax, the obligation to pay the tax arose.
7. It is sufficient that for the above reasons the two references get disposed of by the following answer to the above questions. The questions are answered in the affirmative, in favour of the assessee and against the Revenue.
8. A copy of this judgment shall be caused to be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal, Cochin Bench. Order accordingly.