JUDGMENT 1. This is a reference under Section 256(1) of the Income Tax Act, 1961, by the Income Tax Appellate Tribunal referring the following question for opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal has erred in holding that the assessee was not entitled to deduction in respect of sales tax amounting to Rs. 49,110 ?" 2. The assessee is a registered firm and derives income from contract business. For the accounting period ending Diwali, 1973, relevant for the assessment year 1974-75, the assessee claimed the liability for sales tax amounting to Rs. 49,110 which was rejected by the Income Tax Officer on the plea that the assessee is a contractor and was not registered under the Sales Tax Act and hence there was no liability on it to pay the sales tax, that it was neither obliged nor did it file any quarterly returns to the Sales Tax Department and as such it was not under any obligation to pay sales tax and hence no liability accrued. Accordingly, the prayer of the assessee was disallowed. The matter was agitated in appeal by the assessee before the Commissioner of Income Tax (Appeals) who allowed the same holding : "In my opinion, the grounds given by the Income Tax Officer did not justify the rejection of the appellant's claim. The appellant maintains its books of account on mercantile system of accountancy. The Income Tax Officer has given a finding to that effect in the assessment order itself. The liability to pay sales tax does not depend on the registration of a dealer as a registered dealer. The liability arises as soon as the dealer sells the goods exceeding the specific limit under the relevant Sales Tax Act. Under the Madhya Pradesh General Sales Tax Act, this limit is Rs. 50,000. The appellant supplied goods worth more than rupees 5 lakhs during the previous year. The liability to sales tax arises as soon as the transaction in a particular year exceeds this limit. Sections 4 and 6 of the Madhya Pradesh General Sales Tax Act leave no doubt about this proposition. The fact that the appellant has not filed any quarterly return or has not paid any sales tax or that no assessment has so far been made under the Sales Tax Act are all immaterial and irrelevant considerations. Sections 4 and 6 of the Madhya Pradesh General Sales Tax Act leave no doubt about this proposition. The fact that the appellant has not filed any quarterly return or has not paid any sales tax or that no assessment has so far been made under the Sales Tax Act are all immaterial and irrelevant considerations. That the appellant has not got itself registered under the Act is a default for which it is liable to pay penalty under the relevant provisions of the Act but the liability to pay sales tax is not dependent on its registration as a dealer. Learned counsel rightly relies on the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971]82ITR363(SC) . The Supreme Court held in that case that the moment a dealer made either purchase or sale, which was liable to sales tax, the obligation to pay sales tax arose, and the assessee who follows the mercantile system of accounting was entitled to deduct from the profits and gains of its business, the amount equal to the liability. In this case, Section 4 of the Madhya Pradesh General Sales Tax Act and Section 6 thereof did not leave any room for doubt that the appellant is liable to pay sales tax. The ground given by the Income Tax Officer for rejecting the claim of the appellant is, therefore, irrelevant and immaterial. The liability was as during the previous year and it is also allowable as a deduction in computing the appellant's income. Therefore, the sum of Rs. 49,110 is excluded from the assessment." 3. The Commissioner filed an appeal before the Income Tax Appellate Tribunal objecting to the deletion amounting to Rs. 49,110. The Income Tax Appellate Tribunal was of the opinion that the appeal had to be allowed, the reasons being that the assessee is not a registered dealer and no proceedings for levy of sales tax were there. The limitation for initiation of proceedings under the provisions of the Madhya Pradesh General Sales Tax Act, 1958, has already expired and as such it is not liable to pay the impugned sales tax. Moreover, no sales tax has been paid at all. Apart from this, there is no liability for the present nor for the future and hence the assessee is not entitled to the deduction claimed by it. Moreover, no sales tax has been paid at all. Apart from this, there is no liability for the present nor for the future and hence the assessee is not entitled to the deduction claimed by it. The Appellate Assistant Commissioner has erred in providing relief on the basis of the decision in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971]82ITR363(SC) , since the facts of that case are quite distinguishable. The assessee then moved an application for reference before the Tribunal and the question has been referred to this court. 4. The main contention of counsel for the assessee is that since the asses-see was following the mercantile system of accounting, the liability arose as soon as the assessee sold goods exceeding the specific limit under the Sales Tax Act. It was immaterial at that stage whether the sales tax was actually levied or not and as such the assessee was entitled to deduct the liability to sales tax from the profits and gains of his business and reliance has been placed on the Supreme Court decision in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971]82ITR363(SC) . Learned counsel for the Department, on the other hand, contended that since there is no assessment and no sales tax has been paid by the assessee, there is no question of adjusting the liability of sales tax and it is open to the assessee to claim deduction when, in fact, the assessee is required to pay the sales tax, by relying on two decisions of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973]87ITR542(SC) , which held per curiam that the appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government and in Sinclair Murray and Co. P. Ltd. v. CIT [1974]97ITR615(SC) , holding that the amount collected by the appellant as sales tax constituted its trading receipt and has to be included in its total income and that if and when the appellant paid the amount collected to the State Government or refunded any part thereof to the purchaser, the appellant would be entitled to claim deduction of the sum so paid or refunded. He also relied on a decision of the Allahabad High Court in Deepchand Shyam Sunder v. CIT [1980]125ITR724(All) , which held that the assessee was not liable to pay sales tax under Section 3D at the time when he made entries in his books. The liability for payment of tax not having accrued in the relevant previous year, the Tribunal was justified in adding the amount of Rs. 49,768 to the assessee's income. The fact that the assessee has become liable to pay the amount on account of the assessment order cannot alter the legal position and all that the assessment order does is to make the amount allowable in the year in which it was paid for which the assessee has already been given relief. It was pointed out that the assessment order levying tax was wrong and against the decision of that court. The court further observed that before an entry could be made, the liability must be a legal liability and not a mere hypothetical one. The court also pointed out that in the two Supreme Court decisions in Chowringhee Sales Bureau P. Ltd. v. CIT [1973]87ITR542(SC) , and Sinclair Murray and Co. P. Ltd. v. CIT [1974]97ITR615(SC) , the question was not considered from the point of view of an assessee who was maintaining his accounts on mercantile basis, as no such question arose in those cases and the question directly came up before the Supreme Court in Kedarnath Jute manufacturing Co. Ltd. v. CIT [1971]82ITR363(SC) . 5. In the present case, the Tribunal has found that the assessee is not a registered dealer and no proceedings for levy of sales tax were there, the limitation for initiation of proceedings under the provisions of the Madhya Pradesh Sales Tax Act, has already expired and as such it is not liable to pay sales tax. Moreover, no sales tax has been paid at all. However, learned counsel for the assessee urged that this has not been stated in the statement of the case submitted by the Tribunal. This has no merit because the Tribunal while stating the case mentioned that the appellate order was part of statement of the case. Moreover, no sales tax has been paid at all. However, learned counsel for the assessee urged that this has not been stated in the statement of the case submitted by the Tribunal. This has no merit because the Tribunal while stating the case mentioned that the appellate order was part of statement of the case. It was next urged that since the finding of the Tribunal was based on legal inferences drawn from facts, it is not a finding of fact and the Tribunal has not considered the intimation of the Sales Tax Officer dated May 11, 1977, demanding tax from the assessee. The findings of the Tribunal are based on admitted facts and not on legal inferences. The letter of the Sales Tax Officer was not an assessment order but was an intimation. No liability arose on the basis of such a letter. This court has no jurisdiction to go behind or question the statement of facts made by the Tribunal in its appellate order or statement of the case unless there is no evidence to support the findings of the Tribunal or that the Tribunal has misdirected itself in law. So it is clear that the assessee was not a registered dealer and even assuming that no registration was necessary as the assessee was a contractor and its turnover exceeded the exemption limits to make it liable to pay sales tax, yet no returns were filed. Neither tax was assessed nor was any sales tax paid. By the time its case for assessment came, the liability, if any, to pay sales tax got barred by time. In order to claim deduction towards liability for payment of sales tax, the assessee must show that he had taken necessary steps for discharging the liability, though it is not necessary at that stage that the tax should be actually assessed or paid. The assessment or the payment may be made later on. As had been observed by the Allahabad High Court in Deepchand Shyam Sunday v. CIT [1980]125ITR724(All) , before such an entry could be made, the liability must be a legal liability and not a mere hypothetical one. Under the circumstances, the Tribunal was right is not allowing deduction in respect of sales tax amounting to Rs. 49,110. 6. In the Supreme Court case of Kedarnath Jute Manufacturing Co. Under the circumstances, the Tribunal was right is not allowing deduction in respect of sales tax amounting to Rs. 49,110. 6. In the Supreme Court case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971]82ITR363(SC) , the tax was already assessed by the Sales Tax Officer and the matter was pending in appeal and under these circumstances the Supreme Court made the aforesaid observations. The assessee has also relied on a Full Bench decision of the Kerala High Court in CIT v. K.A. Karim and Sons [1982]133ITR515(Ker) , where an assessee maintained his accounts on the mercantile system of accounting and his liability to pay sales tax arose in the year in which he undertook the transactions liable to tax. The fact that steps were not taken for recovery of the tax and that a notification exempting certain transactions which took place between September 1, 1970, and September 30, 1973, was passed on October 12, 1973, and cancelled on November 9, 1973, by the Government, i.e., the exemption was in effect for a very short time, would not affect the date of accrual of liability. There, the assessments were already made, and the claim made by the assessee was allowed by the Appellate Assistant Commissioner. The question was that a sum of Rs. 71,005 was debited as purchase tax from September 1, 1970, to March 31, 1971, and it was found that the assessee was liable to pay the tax in the relevant year. The assessee also relied on a decision of the Allahabad High Court in Haji Lal Mohd. Biri Works v. CIT [1982]134ITR718(All) , wherein the assessee maintained the mercantile system of accounting and the liability to pay sales tax arose in the year in which the sale was effected. There was stay of recovery of tax for the period October 14, 1957, to June 30, 1958, granted on June 10, 1959. However, the stay was vacated on October 16, 1967, and the tax was paid in the assessment year 1968-69. So it was held that the sales effected in the earlier period are not allowable expenditure in the year 1968-69. Moreover, the sales tax was actually paid. The assessee further relied on a decision of this court in Bhagwandas Jagdishprasad & Co. v. CIT [1983]144ITR845(MP) which has no application here. So it was held that the sales effected in the earlier period are not allowable expenditure in the year 1968-69. Moreover, the sales tax was actually paid. The assessee further relied on a decision of this court in Bhagwandas Jagdishprasad & Co. v. CIT [1983]144ITR845(MP) which has no application here. There, the Tribunal disallowed the claim on the ground that the method of accounting employed was mixed but did not examine as to what method was adopted in respect of sales tax and as such it was held that the Tribunal was not justified in disallowing the deduction claimed. 7. Accordingly, the reference is answered in the negative in favour of the Department.