JCIT (ASSTT.) V. UNIVERVAL MEDICAP LTD.

TAXAP/77/2006

AI Insights

The case revolves around a dispute concerning the timing of tax deductions related to deferred sales tax liabilities under the Income Tax Act. The appellant, JCIT (Assistant), challenged the ITAT's decision which had favored Universal Medicap Ltd., the respondent, in a matter where the sales tax collected by the company was converted into a loan by the State Government in the financial year 1996-97. The core legal issue was whether the deduction for the deferred sales tax should be allowed in the year it was converted into a loan, rather than in the year it was initially accrued. The High Court's decision affirmed the ITAT's ruling, which had relied on a precedent and the specific provisions of the tax deferment scheme applicable to the case.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 720482 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-11-2014
• Assessment Year: misc
• Other Referred Cases: Rubamin Pvt. Ltd. v. ITA No. 3499/Ahd/1997
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S N DIVATIA
• Assessee Lawyers: K M PARIKH
• Keywords: Appeal; Assessment; Income Tax; Loan conversion; Sales Tax Deferment
• Section: 148; 143(3); 43B

Judgement Text

"O/TAXAP/77/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 77 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ JCIT (ASSTT.)....Appellant(s) Versus UNIVERVAL MEDICAP LTD.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 5 O/TAXAP/77/2006 JUDGMENT Date : 19/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the appellant has challenged the judgment and order dated 3.8.2005 passed by the Income Tax Appellate Tribunal, Baroda Camp, Baroda in ITA No. 2757/Ahd/2000 for AY 1993-94. 2. While admitting this appeal on 27.2.2007, this Court has framed the following substantial question of law: “Whether on the facts and circumstances and in law, the ITAT was right in confirming the order of CIT in deleting the addition of Rs. 10,19,000/- made by the AO u/s. 43B of the IT Act in view of the fact that conversion of unpaid sales tax into loan has been taken place in subsequent year, whereas, the deduction is to be allowed in the year in which the unpaid sales tax was covered into loan by the State Government ?” 3. The facts of the present case are that the return of income was filed by the assessee on 31.12.1993 declaring total income at rs. 16,65,253/-. The assessment u/s. 143(3) was Page 2 of 5 O/TAXAP/77/2006 JUDGMENT finalized vide order dated 16.2.1996 in which the total income was determined at Rs. 17,87,021/-. Thereafter, a notice u/s. 148 dated 29.12.1997 was issued to the assessee for the reasons that income escaped assessment/under assessed in the sense that in the assessment order, the deduction towards deferred sales-tax liability to the extent of Rs. 12.51 lacs was allowed to the Assessee whereas no certificate from sale-tax department or an order of Financial Institution covering the amount of sales-tax liability into loan was attached with the return of income. Thereafter, considering the material on record, the assessment order came to be passed. Against the said assessment order, an appeal has been preferred by the assessee before the CIT(A) which was partly allowed. Against the order of CIT(A), an appeal before the ITAT has been preferred by the Revenue which was dismissed. Hence, the present Tax Appeal by the revenue before this Court. 4. Heard the learned advocates appearing for the parties and considered the submissions. Mr. Parikh learned advocate for the appellant has submitted that the order of the Tribunal is bad and contrary to the circular in question. The respondent here can get the benefit only in the AY 1997-98 and not AY 1996-97 as the sales tax collected was converted into loan by the State Government in Financial Year 1996-97. The Page 3 of 5 O/TAXAP/77/2006 JUDGMENT Tribunal has misread the decision in the case of Rubamin Pvt. Ltd. delivered in ITA No. 3499/Ahd/1997 dated 9.8.2003. The disallowance was deleted by the CIT(A) on the premise that similar relief was granted to the assessee by his predecessor for AY 1994-95. In appeal, the Tribunal has observed in para-4 as under: “4. We have carefully gone through the order of the ITAT dtd. 9.8.2003 in which the following was observed at page no. 2 para 2 of the order: “2. The first issue pertains to deletion of allowance made u/s 43B of the IT Act. The brief facts of the case are that the Assessee Company is engaged in the manufacture of zinc oxide. It had collected sales-tax amount of Rs. 30,62,619/- till 31st March, 1994. Out of this amount, Rs. 7,91,500/- remained unpaid. The assessee had opted for sales-tax deferment scheme under the Sales tax Act. According to this scheme, the assessee had to collect the sales-tax from the customers but the said collected sales tax is to be paid after certain period of time. HE collected sales amount was credited to sales- tax deferment account. Before the AO, the assessee somehow could not produce the requisite certificate which can indicate that State Government has deferred the payment of sales-tax or the sales-tax due against the assessee had been converted into loan account. Due to Page 4 of 5 O/TAXAP/77/2006 JUDGMENT this reason, the Assessing Officer had made a disallowance of Rs. 791500/- u/s. 43B of the Act. Before the ld. CIT(A) the assessee has produced the requisite certificate stating that the State Government had allowed deferment of the payment of sales-tax and the assessee was required to pay the sales-tax w.e.f. 1.4.1998 in six equal annual instalments. 5. In that view of the matter, we in complete agreement with the view taken by the CIT(A) as well as Tribunal. While interpreting the circular also, the assessment order has been set aside. We are unable to persuade ourselves to taken a different view in the matter then the one take by the Tribunal. The question is answered in favour of the assessee and against the Revenue. The present Tax Appeal is dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 5 of 5 "