T. VENKATAPPA, J.M. ITA Nos. 1708/Hyd/ 85 and 1346/Hyd/86 are appeals against orders of CIT made under s. 263 for asst. yrs. 1979-80 and 1981-82 respectively. ITA No. 1706/Hyd/85 is in respect of assessment made under s. 143(3) for asst. yr. 1981-82. Since common point are involved these appeals are being disposed of together. During accounting year relevant to asst. yr. 1979-80 assessee collected from is customers sales-tax totalling to Rs. 3,99,155 and credited same to sales-tax account. Out of said amount collected, assessee paid Rs. 1,57,772 to Government of Andhra Pradesh. After deducting said amount and after adjusting opening debit balance of Rs. 2,228 net credit balance in sales-tax accounts was Rs. 2,39,115. This along with Rs. 1,33,486 received as refund thus totalling to Rs. 3,72,602 was transferred to Profit and Loss account of accounting year relevant to asst. yr. 1981-82 as profit. In asst. yr. 1981-82 excess sales-tax collections over sales- tax payment amounted to Rs. 1,49,426 as seen from sales-tax account. ITO in assessments for asst. yrs. 1979-80 and 1981-82 allowed Rs. 2,39,155 and Rs. 1,49,426 as deduction. CIT invoked provisions of s. 263 for these two years. After considering objections of assessee he passed orders. He hold that no sales-tax was payable by assessee in respect of excess sales-tax collections of Rs. 2,39,155 and Rs. 1,49,426. No. demand was raised in respect of said amounts by Sales-tax Department. assessee's claim for exemption from sales-tax was accepted by sales-tax Department. If sales-tax collected was payable to State Government, assessee should have made provision for it in accounts but no such provision was made. Neither assessee admitted any liability to pay sales-tax collected by it in respect of G.I. Wire Roads nor was any demand raised by sale-tax Department. Hence assessee cannot claim that credit balance of Rs. 2,39,155 and Rs. 1,49,426 in two years cannot be treated as its business receipts. assessment orders for asst. yrs. 1979-80 and 1981-82 are erroneous and prejudicial to interests of revenue. Accordingly he revised assessments by enhancing total income by Rs. 2,39,155 for asst. yr. 1979-80 and by Rs. 1,42,426 for asst. yr. 1981-82 and directed ITO to modify assessments accordingly. In assessment made under s. 143(3) f o r asst. yr. 1981-82 ITO treated sum of Rs. 2,39,116 and Rs. 1,32,486 totalling to Rs. 3,71,602 as assessee's income. On appeal, CIT (A) upheld same. assessee had preferred these appeals. ld. counsel for assessee kly urged that assessee follows mercantile system of accounting and due to legal controversy balance of amount in sales-tax account which was not paid to Government was transferred to Profit and Loss account but it cannot be taxed as assessee s income as it really represents sales-tax liability. matter was not settled due to legal controversy. excess sales-tax collected is allowable as deduction being sales-tax liability. He kly urged that payment of sales-tax is only post- poned but liability has accrued in these years and it is allowable as deduction. CIT was wrong in invoking provisions of s. 263 and enhancing assessments for 1979-80 and 1981-82. In asst. yr. 1981-82 sum of Rs. 2,39,116 as well as Rs. 1,32,486 is not liable to be taxed. He also submitted that till sales-tax assessment was made on 27th April, 1981 exempting assessee from sales-tax there was liability. He placed reliance on decisions reported in CIT vs. Devatha Chandraiah and sons (1985) 154 ITR 893 (AP), CIT vs. Amabati Venkamma and Co. (1985) 153 ITR 643 (AP), CIT vs. Indian Textile Paper Tube Co. Ltd. (1985) 44 CTR (Mad) 134: (1985) 153 ITR 585 (Mad), Buddala China Venkata Rao and Co. vs. CIT (1978) 112 ITR 58 (AP) and N.K. Textile Mills vs. CIT (1978) 43 CTR (Del) 343: (1985) 152 ITR 594 (Del). ld. departmental representative kly urged that sales-tax collection formed part of trading receipts. There was no sales-tax liability during these years. No demand was raised by sales-tax Department. No provisions has been made in books of accounts. Thus ITO was wrong in allowing deduction and CIT was justified in revising assessment for two years. He also supported assessment order made under s. 143(3) for asst. yr. 1981-82. We have considered rival submission. assessee credited sales-tax collection and debited sales-tax payments in sales-tax account maintained by it. excess sales-tax collections of Rs. 2,39,155 in asst. y. maintained by it. excess sales-tax collections of Rs. 2,39,155 in asst. y. 1979-80 and Rs. 1,49,426 in asst. yr. 1981-82 was neither paid to sales- tax Department nor refunded to customers from whom it was collected. In monthly sales-tax returns filed by assessee it claimed exemption from sales- tax, in respect of G.I. Wire Rods. In assessment made by sales-tax Department. assessee's claim for exemption was accepted. Thus there was no liability on assessee. It is well settled that amount collected as sales- tax constituted trading receipts and had to be included in total income. This is clear from decision of Supreme Court in Sinclair Murrauy & Co. P. Ltd. vs. CIT, Calcutta 1974 CTR (SC) 283: (1974) 97 ITR 615 (SC). In Chowringhee Sales Bureau P. Ltd. vs. CIT, West Bencal 1973 CTR (SC) 44: (1973) 8 ITR 542 (SC) in respect of sales effected by assessee as auctioner, it realised Rs . 32,986 as sales tax which was credited separately in books under sales tax collection account. It was neither deposited in State Exchequer nor was it refunded to person from whom it had been collected. question arose whether said sum of Rs. 3,2986 could be treated as assessee's income. On those facts, Supreme Court held that as amount as sales tax was received by assessee in its character as auctioneer, amount should be held to be forming part of trading and business receipts and assessee would be entitled to claim deduction of amount as and when it pays to State Government. In P. Krishna Rao & Ors. vs. CIT, A.P. (1978) 112 ITR 26 (AP), Andhra Pradesh High Court held that 'resume collection' made by assessee having not been paid to sales tax Department, same constituted business income of assessee and it is only in year in which assessee pays sales-tax to sales-tax Department that assessee would be entitled to claim deduction of amount. In CIT, West Bengal-III vs. Biral and Co. P. Ltd. (1981) 128 ITR 600 (Cal) Calcutta High Court held that sales-tax charged by dealer collects sales-tax from his customers is part of sale price and it is revenue receipt. When dealer collects sales-tax from his customers but only pays portion of fit to sales-tax Department, balance of amount is income in hands of dealer chargeable to tax and as and when balance amount is paid to Government, dealer can claim same as allowable deduction. Thus it was held that amount collected as sales tax by dealer from its customers in excess of actual liability for sales tax is income of dealer. In CIT, Kanpur vs. Sheo Nath Prasad Hari Kishan (1974) 93 ITR 282 (All), Allahabad High Court held that where deal collects sales- tax from its customers but pays only portion of it to sales-tax Department balance of that amount will be revenue income in his hands chargeable to income-tax and as and when this amount is paid to Government, it will be allowed to assessee as deduction. ratio laid down in above cases would squarely apply to facts of instant case. assessee has collected sales tax which forms part of its trading receipts. In monthly sales-tax return filed by assessee it claimed exemption from sales tax and claim for exemption was ultimately accepted in sales tax assessment. Thus it is clear that there was no sales-tax liability on assessee for asst. yrs. 1979-80 and 1981-82. Hence excess sales-tax collected by assessee is taxable as assessee's income. assessee pointed out that in year 1983 Commissioner of Commercial Taxes issued notice for revising sales tax assessments. But he admitted that ultimately no order was passed revising sales-tax assessments and no sales tax demand was raised. Thus there was no sales-tax liability in respect of excess sales tax collected. Thus in our view excess sales tax collected is assessable as assessee's income. It will be allowed as deduction as and when it is paid to Government or refunded to customers from whom it was collected. decisions relied on by assessee's counsel are distinguishable. decision of Andhra Pradesh High Court in Buddala China Venkata Rao and co. vs. CIT, A.P. (1978) 112 ITR 58 (AP) (supra) is distinguishable. This is case where Andhra Pradesh General Sales Tax (Amendment) Act, (Act 9 of 1970) was amended and section 11 was substituted with retrospective effect from 1st August., 1963 and in view of said amendment there was liability to sales-tax. Under those facts it was held that assessee was entitled to deduction as amount was payable to sales-tax authorities. decision of Andhra Pradesh High Court in case of CIT, A.P. IV vs. Devatha Chadraiah and Sons (1985) 154 ITR 893 (AP) is case where assessee received money towards sales tax from purchasers on behalf of agriculturist principal in fiduciary capacity. It is on those facts it was held that t h e amount received did not constitute trading receipts in hands of assessee. decision of Madras High Court in CIT vs. Indian Textile Paper Tube Co. Ltd. (1985) 153 ITR 585 (AP) is case where sales-tax liability existed though payment was not made in that year. It is on those facts it was held that once mercantile system of accounting is adopted sales-tax liability which accrued is allowable as deduction. decision of Delhi High Court in N.K. Textile Mills vs. CIT, Delhi (1985) 44 CTR (Mad) 134: (1985) 152 ITR 594 (Del) also case where sales-tax liability had accrued but it was not paid in that year. It is on those facts it was held that once assessee maintains accounts on mercantile system sales tax liability which was accrued is allowable as deduction even though it was not paid in that year. above cases are distinguishable. In instant case there was no liability to sales-tax. In instant case there was no liability to sales-tax. Hence claim for deduction is not allowable even though assessee maintains its account on mercantile system of accounting as liability did not accrue in this year. In Kedarnath Jute Mfg. Co. Ltd. vs. CIT (Central), Calcutta (1971) 82 ITR 363 (SC), Supreme Court held that assessee which followed mercantile system of accounting is is entitled to deduct from profits and gains of its business liability to sales tax which had accrued during year for which profits and gains were being computed and liability to payment of sales-tax arises moment sales take place. But in instant case as pointed out already there was no sales tax liability on assessee on account of exemption allowed in sales-tax assessment. sales-tax Department has not raised any demand. assessee has not made any provision in its books for any sales-tax liability. Thus in our view excess sales-tax collected is assessable as assessee's income. Thus we uphold order of CIT under s. 236 for asst. yrs. 1979-80 and 1981-82. In ITA No.1706/Hyd/85 against assessment made under s. 143(3) one of grounds raised is in respect of Rs. 2,39,116 which we have dealt with in appeal for asst. yr. 1979-80. This amount relating to excess sales-tax collected has been transferred by assessee to Profit and Loss Account in accounting year relevant to asst. yr. 1981-82. Since we have held that excess sales-tax collection amounting to Rs. 2,39,116 cannot be assessed again in asst. yr. 1981-82. Accordingly, we delete sum of Rs. 2,39,116 in asst. yr. 1981-82. Another ground in this appeal is with regard to Rs. 1,32,486 being refund of sales-tax brought to tax. identical issue had come up for consideration before Tribunal in ITA No.739/Hyd/84 for asst. yr. 1980-81 in assessee's case. Tribunal by its order dt. 7th Oct., 1985 restored matter to file of CIT (A). For same reasons we think it proper to restore this item to file of CIT (A). Accordingly we remit this item of Rs. 1,32,416 to file of CIT(A) for fresh consideration in light of our observations made in above of Tribunal. In result, ITA Nos. 1708/Hyd/85 and 1346 Hyd/86 are dismissed and ITA No. 1706/Hyd/85 is partly allowed. *** ASIAN STEEL INDUSTRIES PVT LTD. v. INCOME TAX OFFICER