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9. Mr. Brijesh Gupta, learned Senior Departmental Representative, further argued on merits that as per the provisions of section 43-B of the Act, statutory liabilities are allowed to be deducted only in those previous years in which they are paid irrespective of the previous year in which they have accrued. With the intent to give a fillip to certain industries, the State Government has introduced a deeming provision as sub-section (3-B) to section 22 of the MPGST Act, according to which if a registered dealer who belongs to a particular category and has been granted the facility of deferment of sales-tax, is liable to pay sales-tax and where a loan liability equal to the amount of tax payable by the dealer has been created by a specified agency, then such tax shall be deemed to have been paid in accordance with the provisions of this Act. By virtue of this amendment, deferment of sales-tax was allowed to the assessee but the problem with regard to its allowability in computation of income and the previous year in which the claim is to be raised, arose because as per the provisions of section 43-B, the statutory liabilities can only be allowed to be deducted in those previous years in which it was paid irrespective of the previous years in which they have accrued. To overcome this difficulty, the Central Board of Direct Taxes has issued a Circular No. 497 dated 25-9-1987 through which they have recognised the deferment of sales-tax scheme launched by various State Governments by making amendments in their Sales Tax Acts. With intent to give a full benefit to the assessee, the Board has decided through this circular that where amendments are made in the sales-tax laws on these lines, the statutory liabilities shall be treated to have been discharged for the purpose of section 43B of the Act. Again, a further controversy was raised with regard to the previous year in which the statutory liability shall be treated to have been discharged for the purpose of section 43B of the Act. For removing this confusion, further Circular No. 674 dated 29-12-1993 was issued by the Central Board of Direct Taxes clarifying that the deferral scheme can also be launched by the State Government through government orders instead of making the amendment in the Sales Tax Act. It was also clarified through this circular that the Board has decided that the amount of sales-tax liability converted into the loans may be allowed as deduction in the assessment year for the previous year in which such conversion has been permitted under the government orders. Since it has been clarified by the Board that the deduction of deferment of sales-tax liability can only be allowed on the conversion of the sales-tax liability into a loan liability, it cannot be allowed on issuance of the eligibility certificate by a specified agency. It was further contended by Mr. Brijesh Gupta that the Government had laid down a procedure by introducing a scheme containing rules and regulations forgiving effect to the new amendment brought by Act, No. 14 of 1988. As per this scheme, the assessee has to undergo various stages before obtaining the conversion certificate from the competent authority. Only after obtaining the conversion certificate, the assessee can claim the deeming payment of sales-tax and deduction of the same can only be allowed in those previous years in which conversion was granted. Mere grant of the provisional eligibility certificate would not entitled the assessee to claim the deduction under the amended provisions on account of deeming payment of deferred sales-tax. In the instant case, till date nothing has been placed on record on behalf of the assessee that the sales-tax liability has in fact converted into the loan liability and certificate to this effect has been issued by the competent authority. Mr. Gupta further invited our attention to the judgment of the jurisdictional High Court in the case of K.N. Oil Industries Ltd. (supra) and contended that in this case their Lordships have simply examined the allowability of a claim under the deferment payment scheme. The eligibility criteria of the assessee for availing the benefit of deferment of sales-tax scheme was not raised before their Lordships. As such, they had no occasion to adjudicate the controversy raised in this appeal. Hence, the aforesaid judgment is not applicable to the present case.

10. On consideration of the rival submissions and from a careful perusal of record it is noticed that the claim of deduction on account of deferment of sales-tax was initially disallowed by the assessing officer while issuing intimation under section 143(1)(a) of the Act. On the rectification application of the assessee, the assessing officer has allowed the claim of the assessee vide its rectification order dated 19-9-1994 but the issue whether the assessee is entitled to the aforesaid deduction was not examined by the assessing officer in the light of the relevant provisions of the MPGST Act, the scheme announced by the State Government for this purpose and the circulars issued by the Central Board of Direct Taxes in this regard. Likewise, while framing the regular assessment the assessing officer has allowed the claim of the assessee without examining the issue of entitlement of the assessee in the light of the aforesaid provisions of laws and the Board circulars, though a formal query in this regard was raised from the assessee in the general questionnaires. In response to the query, the assessee has simply filed a letter from the government and the copy of the sales-tax account. From a careful perusal of the assessment order in the light of the reply to the queries furnished by the assessee, we are of the view that the issue of entitlement of deduction on account of deferment of sales-tax was not examined by the assessing officer in the light of circulars of the Board and the scheme pertaining to the rules for granting conversion certificate and the assessing officer has allowed the claim of the assessee without making any discussion on this issue in the assessment order. Though the circulars issued by the Central Board of Direct Taxes and the scheme launched by the State Government in this regard were in force and the assessing officer is governed by the circulars issued by the CBDT, the assessing officer has not adjudicated the issue in the light of above provisions. However, the Commissioner has examined the assessment order in the light of the relevant provisions of the MPGST Act, the scheme launched by the State Government in this regard, the Circular No. 496 dated 25-9-1987 and the Circular No. 674 dated 29-12-1993 before holding that the assessee was not entitled to the deduction claimed by it on account of deferment of sales-tax.

14. On receipt of the application in Form-A and the certification in Form-B from the appropriate Sales Tax Officer, the competent authority, shall verify the contents and if on verification the competent authority is satisfied, it shall pass an order in Form-D converting the amount of deferred tax into the provisional loan liability. A copy of the order sheet is sent by the competent authority to the eligible unit and the appropriate Sales Tax Officer. Thereafter, again the eligible unit shall make further application in Form-A to the competent authority to convert the total tax assessed into the final loan liability within 60 days from the final sales-tax assessment order and such application shall be accompanied by the copy of the final assessment order. On receipt of this application in Form-A and certification in Form-B from the appropriate Sales Tax Officer, the competent authority shall verify the contents of the application and if on verification the competent authority is satisfied with the contents, it shall direct the eligible unit in writing to execute an agreement in Form-C within 60 days of the receipt of such direction. On execution of the agreement by the eligible unit the competent authority shall pass an order in Form-D converting the amount of tax assessed by the assessing officer representing the deferred tax into the final loan liability. As per this scheme, the eligible unit has to undergo the entire process for obtaining the conversion certificate of its deferred tax into the loan liability. If the scheme is read in view of the amended sub-section (3-B) of section 22 of the MPGST Act, one would find that the deferred tax shall only be deemed to have been paid in accordance with the provisions of sub-section (2) or sub-section (3) or sub-section (4) of section 22 of the MPGST Act when the deferred sales-tax has been converted into the final loan liability and an order in Form-D is passed by the competent authority as per rule 3(2)(c) of the scheme for conversion of deferred tax into the loan liability. In this scheme, as specific provision has also been made for modification in the conversion certificate if the assessed tax is modified by an order in reassessment, appeal, revision or by order of any court. For ready reference, we reproduce the relevant provisions of the aforesaid scheme governing the procedure for conversion of deferred sales-tax into the loan liability.

15. Realising the difficulty in giving effect to the amended provisions in the Income Tax Act, the Central Board of Direct Taxes has issued Circular No. 496 dated 25-9-1987 and clarified that if the State Government makes an amendment in the Sales Tax Act to this effect, the sales-tax deferred under the scheme shall be treated as actually paid and the statutory liability shall be treated to have been discharged for the purpose of section 43V of the Act. Necessary directions were also issued to all Commissioners of Income Tax for giving proper effect to the scheme of deferment of sales-tax launched by various State Governments. Later on, the Central Board of Direct Taxes has issued another Circular No. 674 dated 29-12-1993 clarifying therein that the deferral scheme notified by the State Government through the government orders would also meet the requirements of the Board Circular No. 496 dated 25-9-1987 though the aforesaid scheme was not brought by amending the Sales Tax Act. The Board has also clarified through this circular that the amount of sales-tax liability converted into the loans may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under the government orders. If the amendments brought by the State Government in the MPGST Act, the scheme launched by the government for giving effect to the amendment and the aforesaid circulars issued by the Central Board of Direct Taxes are read together, only one and one inference would be drawn that they are inextricably connected with each other. None of them can be read in isolation. The contention of the assessee that Circular No. 674 dated 29-12-1993 should not be considered in those cases in which the deferment of sales-tax scheme was launched by the State Government by bringing an amendment in the Sales Tax Act, is not acceptable to us inasmuch as this was issued to overcome certain difficulties faced by the assessee and the department in given proper effect to the aforesaid schemes. A careful perusal of the relevant provisions of Sales Tax Act, scheme and the Board circulars would lead to any one inference that the deduction of deferment of sales-tax can only be allowed in the assessment for the previous year in which the sales-tax liability was converted into the loan liability and the necessary orders were issued by the competent authority in Form-D as per rule 3(2)(c) of scheme for conversion of deferred tax into loan. Until and unless the deferred sales-tax is converted into the final loan liability, the assessee is not entitled to claim deduction for the same in view of section 22(3B) of the MPGST Act and the aforesaid circulars issued by the CBDT. An eligibility certificate issued by the competent authority to the eligible unit for making the application in Form-A to the competent authority for the conversion into a provisional loan liability of the deferred tax as per rule (3)(1)(a) would not entitle the eligible unit to claim the deduction of deferment of sales-tax in view of the provisions of section 22(3B) and the aforesaid circular of the Central Board of Direct Taxes because before issuing a final conversion certificate the authorities concerned have to make detailed verification. We are, therefore, of the view that the deduction of deferment of sales-tax can only be claimed by the assessee after the order was passed by the competent authority in Form-D converting the amount of sales-tax assessed by the assessing officer representing the deferred tax into a final loan liability and the claim of deduction can only be raised in those previous years in which the deferred sales-tax was converted into a final loan liability.