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Issues Involved:
The judgment involves two main issues: 1. Whether the expenditure incurred on payment of commission on sales can be treated as sales promotion expenses for the purpose of computing disallowance under section 37(3A) of the Income-tax Act, 1961. 2. Whether the amount paid as penalty under section 5C of the Rajasthan Sales Tax Act is allowable as a deduction. Issue 1 - Expenditure on Commission: The assessee claimed deduction of selling commission, which was disallowed by the Income-tax Officer under section 37(3A) as sales promotion expenditure. The Commissioner of Income-tax (Appeals) directed not to include the selling commission for computing the disallowance. The Tribunal upheld this decision, citing that commission payment cannot be equated with sales promotion expenses, in line with a previous judgment. The High Court agreed with this view, stating that commission payment cannot be considered as sales promotion expenses and hence cannot be disallowed under section 37(3A). Issue 2 - Penalty under Section 5C of Rajasthan Sales Tax Act: The Income-tax Officer disallowed a sum paid as penalty under section 5C of the Rajasthan Sales Tax Act. The Commissioner of Income-tax (Appeals) allowed this amount as a deduction, considering it as a concession withdrawn rather than a penalty. The Tribunal affirmed this decision without detailed reasons. The High Court analyzed the relevant provisions of the Rajasthan Sales Tax Act and concluded that the amount paid under section 5C was not a penalty but a withdrawal of concession. The Court held that the expenditure claimed would be allowed to the extent it represents the difference between the tax payable at the full rate and the tax payable at the concessional rate under section 5C(1) of the Act. Separate Judgment: The judgment was delivered by Judges Ajit Kumar Sengupta and Bhagabati Prasad Banerjee. Ajit K. Sengupta addressed the first issue regarding commission expenditure, while Bhagabati Prasad Banerjee concurred with the decision.
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