main point in this appeal by assessee is whether assessee is entitled to deduction of purchase tax in respect of purchases of prawns made during accounting year. 2. assessee is registered firm having business in export of sea food. accounts show debit of Rs. 15,81,628 being provision made for purchase tax. This was allowed by Income-tax Officer. However, he had made certain other disallowances in assessment. assessee had filed appeal against those disallowances before Commissioner (Appeals). 3. Commissioner (Appeals) while hearing appeal found that assessee had been allowed deduction for purchase tax on prawns and other sea food purchased by assessee. He found that no payment has been made and it was merely provision in accounts. He issued notice to assessee as to why assessment should not be enhanced by disallowing provision for purchase tax. He was told that liability towards purchase tax was matter of dispute between Commercial Tax Department and assessee and since there was dispute, provision is being made in accounts. It was also submitted before Commissioner (Appeals) that in similar cases such provisions had been allowed as deduction. Commissioner (Appeals) found that liability to purchase tax in respect of purchases made in course of export of these goods outside India had been subject-matter of decision by Supreme Court in case of Sterling Foods v. State of Karnataka 63 STC 239. He found that Supreme Court has held that fishing industry is not liable for payment of purchase tax. This judgement is dated 21-7-1986. According to Commissioner (Appeals) this judgement would be applicable to Kerala State also and, therefore, there was no liability for payment of purchase tax. He, therefore, held that provision for purchase tax was wrongly allowed by ITO. He directed ITO to withdraw same. Thus there was enhancement to income. 4. Shri Narayanan for assessee first questioned jurisdiction of Commissioner (Appeals) to issue enhancement notice. According to him, Commissioner (Appeals) did not have any such jurisdiction as this would amount to considering matter which was never before ITO. In support of his submission he relied on decision of Madras High Court in case of CIT v. Chaganlal Kailas & Co. [1984] 148 ITR 7. In that case Madras High Court has held that power of AAC to enhance assessment can relate only to those items of income which were before ITO and considered by him for purpose of bringing to tax or for grant of relief to assessee. In that case, on facts it was found that certain receipts under head 'Charity' were not taxed by ITO and AAC brought it to tax by issuing enhancement notice. High Court held that since this was not matter considered by ITO, AAC had no jurisdiction for enhancement. Applying this ratio, Shri Narayanan submitted that ITO, in course of assessment proceedings, at no time had asked for details of purchase tax provision. He had not applied his mind to whether this provision would be allowable deduction or not. 5. We are unable to accept submissions of Shri Narayanan. powers of first appellate authority are no doubt limited and as pointed out by Madras High Court his powers would be only to sources of income which h d been subject-matter of consideration by ITO from point of taxability. expression 'consideration' does not mean incidental or collateral examination of any matter by ITO in process of assessment but that matter should be clear from assessment order/records. We have to consider whether Commissioner (Appeals) had power to enhance within se limits. Now, ITO was considering income of assessee in respect of its business in export of sea food. consideration of income arising from this business would necessarily imply consideration of receipts from this business and expenditure in this business. So, when ITO starts his computation of income from net profit or loss as per profit and loss account he must necessarily have considered both receipts and expenditure. Now provision made for purchase tax is one of expenditure and it is inconceivable for us that ITO would have omitted to consider this head of expenditure. This is so especially when amount is very large. It may be that ITO had not asked for details of purchase tax. But that may be under impression that purchase tax provision is allowable item of expenditure. source of income being business and business being one integral unit purchase tax provision must also be considered as component part of this unit of business. Therefore, when Commissioner (Appeals) considers afresh question of allowance of provision for purchase tax he was not making enquiries in respect of new source of income. He was making enquiries only in respect of that source of income which is already considered by ITO. 6. decision of Madras High Court relied on by Shri Narayanan can b e easily distinguished. In that case, appellate authority was considering receipt which was apart from regular receipts. In this case, we are considering expenditure in respect of one integrated business. We, therefore, hold that Commissioner (Appeals) had jurisdiction. 7. next question is whether assessee is entitled to deduction of purchase tax. Now assessee is purchasing prawns from various dealers and after processing it exports same to various countries. assessee is primarily exporter of sea food. local sales are negligible. Practically all turnover is of export trade only. Therefore, purchases of prawns are effected in course of assessee's trade of export. 8. Section 5 (1) of Central Sales Tax Act specifies that sale or purchase of goods shall be deemed to take place in course of export of goods out of territory of India only if sale or purchase either occasions such export or is effected by transfer of documents of title to goods after goods have crossed customs frontiers of India. Sub-section (3) of section 5 provides that notwithstanding anything contained in sub-section (1), last sale or purchase of any goods preceding sale or purchase occasioning export of those goods out of territory of India shall also be deemed to be in course of such export, if such last sale or purchase took place after, and was for purpose of complying with agreement or order for in relation to such export. If purchase effected by assessee comes under sub-section (1) or (3) of section 5 of Central Sales Tax Act, then turnover of prawns purchased by assessee would be exempt. Since assessee's purchases are only for export there is no difficulty in holding that assessee will be entitled to exemption. Therefore, there is no liability to pay purchase tax. 9. However, this simple position in law is complicated by attitude of Commercial Tax Department and consequently by amendment brought in Kerala General Sales-tax Act and rules in 1978. We will consider import of both on this issue. According to commercial tax authorities there was no exemption available because in order to be eligible for exemption goods purchased and goods exported must be one and same. assessee buys prawns and process them by cutting head and tail and deveining it. According to commercial tax authorities, by this process new product has come into existence and, therefore, exemption is not available. On this issue, there were several writs filed in Kerala High Court and these were disposed of and that decision is contained in order in case of CIT v. Noroth Oil Mill Co. Ltd. [1983] 140 ITR 173. HIgh Court held that commercial prawns which are purchased by assessee and prawns which are exported after processing are one and same commodity and, therefore, assessee was eligible for exemption from purchase tax. It would appear that State of Kerala has filed appeal against this decision of Kerala High Court to Supreme Court and that appeal is pending. 10. We may now refer to decision of Supreme Court in case of Sterling Foods (supra). Supreme Court was there considering exemption under section 5(3) as in this case. There also assessee was sea food exporter who purchased prawn and processed it before exporting it. They observed: "Processed or frozen shrimps, prawns and lobsters are commercially regarded same commodity as raw shrimps, prawns and lobsters. When raw shrimps, prawns and lobsters are sub-jected to process of cutting of heads and tails, peeling, deveining, cleaning and freezing, they do not cease to be shrimps, prawns and lobsters and become another distinct commodity. They are i n common parlance known as shrimps, prawns and lobsters. There is no essential difference between raw shrimps, prawns and lobsters and processed or frozen shrimps, prawns and lobsters. dealer and consumer regard both as shrimps, prawns and lobsters". Thus it will be seen that reasoning of Kerala High Court in Noroth Oil Mill Co. Ltd.'s case (supra) is absolutely identical with reasoning of Supreme Court in this case. 11. It now remains to see whether amendment in Schedule to Kerala State General Sales Tax Act would affect this situation. amendment is given below: " (xxix) for Serial Numbers 65 and 66, and entries relating thereto, following shall be substituted, namely: "65A. (i) Prawns, lobsters, frogs, frog-legs, At point of last cuttle fish and crab not falling purchase in State under (ii) below or item 25H(x) by dealer who is liable to tax under section 5 (ii) Prawns, lobsters, frog, frog-legs, -do- cuttle fish and crab canned or tinned or frozen or otherwise processed not falling under item 25H(x) 5" 5" Now point raised by Shri Narayanan is that because of this amendment to Schedule decision in case of Noroth Oil Mill Co. Ltd. (supra) and Sterling Foods (supra) will no longer be applicable. We do not think so. In fact, in Sterling Sea Foods Supreme Court had also considered similar amendment in Schedule to Sales Tax Act brought in by Karnataka State in 1978. In Sterling Foods' case (supra) amendments are noted in following paragraph: "Before we proceed to consider this question it is necessary to refer to certain provisions of Karnataka Sales Tax Act, 1957 (hereinafter referred to as "Karnakata Act"), which came into force on 1st October, 1957. Section 5 of Karnakata Act which enacts charging section provides for levy of tax on sales and purchases of various commodities described in Schedules to t h e Act. Third Schedule to Karnakata Act, as originally enacted, enumerated commodities on which single point tax was leviable under sub- section (3) (b) of section 5 and there were 13 entries in this Schedule. None of these 13 entries included shrimps, prawns and lobsters with result that purchases of shrimps, prawns and lobsters were not eligible to purchase tax. This position continued right from time of original enactment until 31st March, 1978, when Karnataka Sales Tax (Amendment) Act, 1973, introduced new entry 13a in Third Schedule with effect from 1st April, 1973. This entry included "shrimps, prawns and lobsters" in Third Schedule. There was another amendment made in Karnataka Act in 1978 by Karnataka Sales Tax (Amendment) Act, 1978, and section 9 of this amending Act made certain amendments in entry 13a with retrospective effect, so that from 1st April, 1973, entry 13a included in Third Schedule "shrimps, prawns and lobsters other than processed or frozen shrimps, prawns and lobsters" and explanation to entry 13a provides that "processing" shall include "all or any of following, namely, cutting of head or tail, peeling, deveining, cleaning, or freezing". But, entry 13a in this continued only up to 31st August, 1978, and with effect from 1st September, 1978, further amendment was made by Karnataka Taxation and Certain Other Laws (Amendments) Act, 1982, and after this amendment which was made with retrospective effect from 1st September, 1978, entry 13a read:"Shrimps, prawns and lobsters other than frozen shrimps, prawns and lobsters". amendment made by 1982 Amendment Act excluded from scope and ambit of entry 13a, frozen shrimps, prawns and lobsters and brought within net of taxation only purchases of shrimps, prawns and lobsters other than frozen shrimps, prawns and lobsters, provided they were last purchases within State". (p. 242) Dealing with this amendment Supreme Court observed under: "This conclusion on principle was not disputed by High Court in its judgement and High Court conceded that even after processing such as cutting of heads and tails, peeling, deveining, cleaning and freezing, shrimps, prawns and lobsters subjected to such processing continued in common parlance to be called "shrimps, prawns and lobsters". But High Court took view that entry 13a after amendment effected in it with retrospective shrimps, prawns and lobsters and processed or frozen shrimps, prawns and lobsters. In view if this distinction made in entry 13a, it was not possible to hold that processed or frozen shrimps, prawns and lobsters were same commodity as raw shrimps, prawns and lobsters. argument was that when State Legislature itself made distinction between these categories of commodities by making purchases of one category amenable to sales tax under entry 13a and leaving out of scope of taxation under entry 13a other entry 13a and leaving out of scope of taxation under entry 13a other category, how could it be said that both these categories represent same commodity and there is no difference in character and indentity between two. This argument, we are afraid, is not well-founded. It is based on total misapprehension in regard to true object and intendment of entry 13a and it erroneously seeks to project that entry in interpretation and application of section 5, sub-section (3) of Central Sales Tax Act. In fact entry 13a as amended, supports argument that even processed or frozen shrimps, prawns and lobsters are known commercially and in trade as "shrimps, prawns and lobsters". It is because entry 13a as it stood prior to its amendment, would have, on plain natural meaning of expression "shrimps, prawns and lobsters" included processed and frozen shrimps, prawns and lobsters, that ii became necessary for State Legislature to amend entry 13a with retrospective effect so as to exclude from scope and ambit of that entry processed or frozen shrimps, prawns and cocktails. Now when State Legislature excluded processed or frozen shrimps, prawns and cocktails form ambit and coverage of entry 13a, its object obviously was that last purchases of processed or frozen shrimps, prawns and cocktails in State should not be eligible to State sales tax under entry 13a. State Legislature was not at all concerned with question as to whether processed or frozen shrimps, prawns and lobsters are commercially same commodity as raw shrimps, prawns and lobsters or are different commodity and merely because State Legislature made distinction between two for purpose of determining eligibility to State sales tax, it cannot be said that in commercial parlance or according to popular sense, processed or frozen shrimps, prawns and lobsters are recognised as different commodity distinct from raw shrimps, prawns and lobsters. question whether raw shrimps, prawns and lobsters after suffering processing retain their original character or identity or become new commodity has to be determined not on basis of distinction made by State Legislature for purpose eligibility to State sales tax because even where commodity is same in eyes of persons dealing in it in State Legislature may make classification for determining liability to sales tax. This question, for purpose of Central Sales Tax, has to be determined on basis of what is commonly known or recognised in commercial parlance. If in commercial parlance and according to what is understood in trade by dealer and consumer, processed or frozen shrimps, prawns and lobsters retain their original character and identity as shrimps, prawns and lobsters and do not become new distinct commodity and are as much "shrimps, prawns and lobsters", as raw shrimps, prawns and lobsters' sub-section (3) of section 5 of Central Sales Tax Act would be attracted and if with view to fulfilling existing contracts for export, assessee purchases raw shrimps, prawns and lobsters and processes and freezes them, such purchases of raw shrimps, prawns and lobsters would be deemed to State sales tax". (p. 244) Thus it will be seen from above that on principles laid down by Kerala High Court and Supreme Court there is really no liability for purchase tax. However, Shri Narayanan had been submitted that this issue had been considered by this Bench in another case where they have held on identical circumstances that provision is allowable. copy of that decision in case of Rejini Ice & Cold Storage [IT Appeal No. 484 (Coch.) of 1985, dated 29-5- 1987] has been furnished to us. We have gone through that decision. In our opinion, some of authorities on this point have not been placed before this Bench. Therefore, it will not be necessary for us to follow ratio laid down by this Bench in that order. 12. We may refer to some of decisions touching on point of liability to pay sales tax. In case of Deep Chand Shyam Sunder v. CIT [1980] 125 ITR 724, Allahabad High Court has held that before could be made for liability by making entry in books that liability must be existing legal liability and not merely hypothetical one. When there are decisions holding levy to be unconstitutional or invalid it will not be open for assessee to make such claim. It can be claimed only when appeals have reached finality and liability had been crystallised. that is decision of Madras High Court in case of CIT v. T. S. Srinivasa Iyer [1984] 146 ITR 526. point at issue was whether assessee could claim urban land tax as deduction. levy of urban land tax was matter of dispute and High Court had held that levy was not valid. Subsequently Supreme Court upheld validity of levy. Madras High Court held that assessee can claim deduction in year in which Supreme Court upheld validity. It is, therefore, clear from this decision that earlier to point of time when Supreme Court passed its order there was no liability for urban land tax which could be allowed as deduction. 13. Some light will be thrown on this issue when we consider decisions where levy found initially invalid was validated retrospectively. case of CIT v. Estate of Late S. Mehboob Khan [1985] 153 ITR 353 (Mad.) was one such. In that case, motor vehicles tax rate was increased by Amendment Act in 1959. This amendment was found to be invalid and was struck down by High Court. Legislature thereafter enacted Amendment Act which h d retrospective effect. This was brought into effect on 31-10-1961. assessee made provision towards this liability in books for year ended 31-3-1962. Madras High Court accepted assessee's contention that assessee is entitled to deduction in year in which levy was validated. 14. Another Madras High Court's decision in CIT v. East India Corpn. Ltd. [1986] 159 ITR 712 also related to same point. assessee's case therein was that their sales were exempt under Central Sales Tax Act. High Court had accepted assessee's contention and had set aside order of department. Thereafter Central Sales Tax Act was amend with retrospective effect so that transactions became liable to sales tax. This matter was also subject to litigation and Supreme Court upheld validity and directed Commercial Tax Officer to determine liability to sales tax. CTO passed order on 31-8-1972. This was claimed as deduction for assessment year 1973-74. Madras High Court held on facts of case that liability arose for first time only on date when CTO on direction of Supreme Court computed liability to pay tax. 15. thus it will be seen from above that where there is decision according to which no liability exists assessee can claim deduction only when statute is retrospectively validated or when its validity is upheld by Supreme Court. Not earlier. 16. To this line of decisions there are two exceptions. Both these exceptions are decisions of Allahabad High Court. This Bench in case of Rejini Ice & Cold Storage (supra) had relied mainly on these two decisions. First of these decisions is case of J. K. Synthetics Ltd. v. O. P. Bajpai, ITO (1976) 105 ITR 864 (All). In this case, assessee claimed that, they were not liable to pay central excise on its products called Polymer chips. Central Excise Department, however, was of opinion that, assessee was liable. Write Petition was filed before Delhi High Court and this was allowed by single Judge on 28th of August, 1970. However, Government had filed Appeal against order of Delhi High Court. These assessee continued to claim before ITO liability towards payment of Central Excise. ITO disallowed claim and he pointed out that Delhi High Court had held levy to be invalid. Now Allahabad High Court in this case upheld assessee's claim for deduction. Their reasoning was that since Delhi High Court's decision had not become final and since Central Excise authorities were raising demands against assessee even in accounting years assessee was eligible for deduction. decision of Allahabad High Court in same assessee's case CIT v. J. K. Synthetics Ltd. (1983) 143 ITR 771 follows same principle. This case can be distinguished. In this case, although assessee was disputing levy it was found as fact that, Central Excise Department had not given up claim for levy and was still raising demands. It is on this fact that, Allahabad High Court upheld contention. It may be remembered that, statutory liability will not cease to be statutory liability merely because assessee is disputing it. We may also point out that, in that case perhaps Central Excise Department in U.P. was raising demands abacus they may not have been under jurisdiction of Delhi High Court. If High Court having jurisdiction over Central Excise Department was issuing demand notice it would be in defiance of High Court's order. So in same State that will not happen but in this case decision was given by High Court of Delhi and Central Excise Department was situated at U.P. 17. These two decisions are easily distinguishable. In these two decisions i n spite of High Court invalidating levy, there was demand by Central Excise Authorities. In case before us, there is no such demand. In fact, when Kerala High Court has held in Noroth Oil Mill Co. Ltd's case (supra) that sales tax department cannot raise that demand it is impossible for that department to issue any demand notice. 18. We are, therefore, satisfied that, there was no liability for assessee during accounting year. above would dispute of assessee's claim for deduction for purchase tax. 19. We now turn to next ground which is deduction claimed in respect o f interest. ITO noticed that, assessee had claimed amount of Rs. 5,28,681 towards interest and bank charges. He further noticed that, partners of firm had withdrawn large sums of money for investment and personal expenses in earlier years. It is case of ITO that moneys borrowed had been diverted from business and, therefore, part of interest is to be disallowed. Commissioner (Appeals), while agreeing with ITO reduced disallowance to Rs. 2,50,000. 20. assessee is on further appeal before us. It was submitted at time of hearing that, identical issue had already come before this Bench for assessment year 1979-80 and this Bench has remitted matter back to ITO for proper disposal after giving opportunity to assessee. It was submitted by both sides that, similar order may be passed in this case. We, therefore, remit this issue back to ITO for proper disposal after hearing assessee. 21. No other ground is pressed. Appeal is partly allowed. *** GEO SEA FOODS v. INCOME TAX OFFICER