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2013 (12) TMI 727 - HC - Income TaxDisallowance of expenses on advertisement, publicity and sales promotion, vehicle upkeep expenses, payments made to hotels u/s 37 - Held that - On analysis of provisions of sub - sections to section 37 - The issue raised by the assessee regarding aggregation of items specified in sub-section (3B) is a debatable issue - The AO could not have filed an application under Section 154 to rectify the mistake as it is not a mistake apparent from record - The CIT (A) and Tribunal have erred in interpreting the deduction under Section 37 (3A)/(3B) by reading the word or after each of the clauses (i), (ii) and (iii) of sub-section (3B). The word or has to be seen in the context of the deduction for expenses on any one or more of the items. Such expenses have to be aggregated for the purposes of allowing deduction - If the words of the Statute are in themselves precise and unambiguous, then no more can be necessary than to expound these words in their natural and ordinary sense. The words thesemselves alone do, in such case, best declare the intention of the law givers - Decided in favour of Revenue.
Issues:
Interpretation of provisions of sub-section (3B) of Section 37 of Income Tax Act, 1961 in view of explanation (a) appended to sub-section (3B) of Section 37. Analysis: 1. The case involved an Income Tax Appeal under Section 260A of the Income Tax Act, 1961, arising from an order passed by the Income Tax Appellate Tribunal for the assessment year 1984-85. The key question was whether the Tribunal correctly interpreted the provisions of sub-section (3B) of Section 37 in light of the explanation (a) attached to it. 2. The appellant had filed a return for a loss for the relevant assessment year, and the assessment was framed based on various deductions claimed by the assessee. In appeal, the assessee argued that the assessing officer had incorrectly disallowed certain expenses under Section 37 (3A)/(3B) of the Act, which should have been allowed as per law. 3. The CIT (A) agreed with the appellant's submissions and directed the AO to re-compute the disallowance under Section 37 (3B) and grant consequential relief. However, a mistake of law was pointed out by the D.C.I.T. (Asst.) regarding excessive relief granted to the assessee, leading to further legal proceedings. 4. The Deputy Commissioner filed an appeal challenging the CIT (A)'s decision, arguing that the deductions should be allowed on the aggregate of the expenses incurred on items specified in sub-section (3B), rather than on each item separately. The Tribunal dismissed the appeal, emphasizing the interpretation of the relevant provisions and the absence of a glaring mistake of law. 5. The Revenue contended that the CIT (A) and the Tribunal misinterpreted the provisions of Section 37 (3A)/(3B) by allowing deductions on each item separately, contrary to the requirement to aggregate expenses under sub-section (3B) for computing deductions. 6. The Court analyzed the provisions of Section 37 (3A) to (3D) along with the Explanation (a) to clarify that expenses on items specified in sub-section (3B) must be aggregated before allowing deductions. The Court cited legal principles to support the plain and unambiguous interpretation of statutory provisions. 7. The Court agreed with the Revenue's argument that the CIT (A) and the Tribunal erred in interpreting the deduction provisions under Section 37 (3A)/(3B) by giving separate deductions for each item. The Court emphasized the need to aggregate expenses for deduction purposes as per the statutory framework. 8. The objections raised regarding the maintainability of the application under Section 154 for rectification were rejected by the Court. It was held that the CIT (A) had committed an error apparent on record by accepting arguments without proper reasoning, justifying the rectification application by the assessing officer. 9. Ultimately, the Court ruled in favor of the department, concluding that the CIT (A) and ITAT had made errors in law. The Income Tax Appeal was allowed, directing the department to proceed accordingly in light of the correct interpretation of the provisions under Section 37 (3A)/(3B).
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