2002 (2) TMI 62 - HC - Income Tax

Summary

Issues:
1. Disallowance under section 37(3A) and 37(3B) for sales promotion expenditure.
2. Disallowance under section 37(3A) and 37(3B) for maintenance expenditure on vehicles.
3. Disallowance under section 43B for delayed payments.

Analysis:

Issue 1: Disallowance under section 37(3A) and 37(3B) for sales promotion expenditure:
The Tribunal was asked whether it was justified in deleting the amount of Rs. 1,92,904 for calculating the disallowance under section 37(3A) and 37(3B) of the Income-tax Act, 1961. The assessee had made payments to selling agents beyond regular commissions for promoting sales. The Assessing Officer and Commissioner of Income-tax (Appeals) considered this as sales promotion expenditure under section 37(3A). However, the Tribunal disagreed, stating that the additional payments were not for sales promotion. The High Court disagreed with the Tribunal, emphasizing that the payments were indeed for promoting sales, as they were made in addition to regular commissions or discounts. The court sided with the Revenue, overturning the Tribunal's decision.

Issue 2: Disallowance under section 37(3A) and 37(3B) for maintenance expenditure on vehicles:
The second issue involved the deletion of Rs. 38,310 for maintenance of delivery van, motor cycle, and scooter under sections 37(3A) and 37(3B). The counsel for the assessee argued that these provisions apply only to motor cars, not vans. He contended that since vans and motor-cars are distinct, the disallowance should not apply to van maintenance. The High Court agreed with the assessee, ruling in favor of excluding van maintenance expenditure from the disallowance under section 37(3A) and 37(3B, thereby favoring the assessee over the Revenue.

Issue 3: Disallowance under section 43B for delayed payments:
The final issue pertained to disallowance under section 43B for delayed payments, with reference to a previous judgment. The High Court cited a Supreme Court ruling in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 (SC) to support its decision. The court answered in favor of the assessee, directing the allowance of Rs. 98,208 disallowed under section 43B if payments were made within the permissible time under the law, even if made after the close of the relevant previous year. This decision favored the assessee and went against the Revenue.

In conclusion, the High Court ruled against the assessee on issue 1, in favor of the assessee on issue 2, and also in favor of the assessee on issue 3. The reference made to the High Court was disposed of accordingly, with detailed reasoning provided for each issue.