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Interpretation of section 37(3A) for disallowance of expenses related to sales promotion. Analysis: The High Court of Gujarat was presented with a reference from the Income-tax Appellate Tribunal regarding the disallowance of an amount under section 37(3A) for the assessment year 1980-81. The question raised was whether an amount of Rs. 97,662 should be included for disallowance under this section. The assessee claimed this amount was used to reimburse part of the incentive paid to sales representatives of distributors as per their agreement. However, the Assessing Officer disallowed the deduction, leading to an appeal and subsequent reference to the Tribunal. In the Tribunal's decision, it relied on judgments from the Calcutta High Court to determine that the reimbursement to sales representatives should not be considered as expenditure for sales promotion. The Tribunal allowed the appeal based on this finding. The Revenue argued that the amount paid to sales representatives should be categorized as sales promotion expenditure and hence disallowed under section 37(3A)(i). On the other hand, the assessee contended that not all amounts spent for achieving good sales should be classified as sales promotion expenditure. The Division Bench of the High Court referred to a previous case involving Zippers India, where a distinction was made between "sales" and "sales promotion" expenses. The court in that case concluded that commissions paid for local and export sales were not to be considered as sales promotion expenditure since they were for services rendered. Applying this precedent to the current case, the High Court found that the incentive paid to sales representatives was for services rendered, not sales promotion. Therefore, the Tribunal's decision was upheld, and the question was answered in favor of the assessee. The reference was disposed of without any costs.
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