Advance Payment of Sales Tax credited under ‘Sales-Tax Recoverable A/c’ is not Deductible: Delhi High Court [Read Judgment]

The Delhi High Court recently ruled that Advance Payment of Sales Tax credited under ‘Sales-tax Recoverable A/c’ is not deductible from the taxable income.

A bench comprising of Justice Muralidhar and Justice Prathiba M. Singh were held so while dismissing the appeal filed by assessee under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal for the Assessment Year 1999-00.

The Assessee is engaged in the manufacture of automobiles, chargeable to excise duty under the Central Excise Act, 1994.

The ground of appeal raised by the assessee against ITAT order was that it has committed an error of law in upholding the disallowance of Rs.3,08,79,171 in respect of Sales Tax Recoverable account, under Section 43B of the Income Tax Act.

It was noted that the assessee paid sales tax on purchase of computers and raw materials that are used for car making. Since the sales tax paid is part of the cost of raw material the Assessee debits to a separate account called ‘Sales-tax Recoverable A/c‟.

Assessee contended that under the Haryana General Sales Tax Act 1973, the Assessee called set off such sales-tax against its liability on the sales of the finished goods i.e. cars. Whenever the goods are sold, the tax on such sales is credited to the aforesaid account.

The tribunal bench held that no deduction can be allowed in terms of Section 43 B of the amount standing to the credit of the ‘Sales-tax Recoverable A/c‟ is also hereby upheld.

Again the ITAT accepted the Assessee’s alternate plea that the amount “representing advance payment of sales-tax in preceding year should be allowed deduction in the year under consideration since the same has been adjusted against the liability incurred on sales in this year.”

Then the ITAT directed AO to allow the alternate claim after verification if such claim had not been allowed in the preceding year is affirmed.

Finally High Court rejected the ground of appeal raised by assessee and upheld the order of tribunal.