1993 (12) TMI 77 - AT - Income Tax

Issues Involved:
1. Allowability of expenditure on distribution of dry fruits.
2. Allowability of sales promotion expenditure.
3. Disallowance of expenditure on presentation of articles.
4. Allowability of pooja expenses.
5. Treatment of house maintenance expenditure as perquisites.
6. Nature of amalgamation expenses.
7. Entitlement to relief under section 80J of the Income-tax Act.
8. Chargeability of interest under sections 215 and 139(8) of the Income-tax Act.

Issue-wise Analysis:

1. Allowability of Expenditure on Distribution of Dry Fruits:
The revenue challenged the decision of the Commissioner (Appeals) who held that the expenditure of Rs. 14,855 incurred on the distribution of dry fruits during Diwali and New Year's Day was for business purposes and thus allowable. The Tribunal upheld the Commissioner (Appeals)'s decision, referencing a similar decision in the assessee's case for the assessment year 1977-78, concluding that the expenditure had no element of entertainment and was purely for business purposes.

2. Allowability of Sales Promotion Expenditure:
The revenue contested the allowance of Rs. 2,57,705 as sales promotion expenditure, arguing it was not of revenue nature and was hit by rule 6B of the Income-tax Rules, 1962. The Commissioner (Appeals) had deleted the disallowance made by the ITO, following earlier decisions. The Tribunal agreed with the Commissioner (Appeals), citing a previous Tribunal decision for the assessment year 1970-71, and declined to interfere with the allowance.

3. Disallowance of Expenditure on Presentation of Articles:
The ITO disallowed Rs. 1,88,941 out of Rs. 2,39,111 spent on the presentation of articles, applying rule 6B. The Commissioner (Appeals) deleted this disallowance, and the Tribunal upheld this decision, noting that similar expenses were allowed in previous and subsequent years.

4. Allowability of Pooja Expenses:
The ITO disallowed Rs. 14,938 spent on pooja, deeming it unrelated to business promotion. The Commissioner (Appeals) allowed the expenditure, treating it as staff welfare. The Tribunal upheld this view, distinguishing the case from Kolhapur Sugar Mills Ltd. v. CIT, and noting the expenditure was accepted in subsequent years.

5. Treatment of House Maintenance Expenditure as Perquisites:
The ITO added Rs. 5,456 as perquisites for the managing director under section 40A(5). The Commissioner (Appeals) deleted this addition, following the Kerala High Court decision in CIT v. Travancore Tea Estates Co. Ltd. The Tribunal upheld this decision, noting the expenditure on maintenance did not amount to perquisite unless special repairs were undertaken for the employee's convenience.

6. Nature of Amalgamation Expenses:
The ITO treated Rs. 35,898 spent on amalgamation as capital expenditure. The Commissioner (Appeals) allowed it as revenue expenditure, referencing Madras High Court decisions. The Tribunal upheld this, citing the principle laid down by the Supreme Court in India Cements Ltd. v. CIT and distinguishing the case from Raza Buland Sugar Co. Ltd. v. CIT.

7. Entitlement to Relief under Section 80J of the Income-tax Act:
The assessee claimed relief under section 80J for the PVC division profits post-amalgamation. The ITO denied this, stating the relief was already granted to the amalgamating company, T. Maneklal. The Commissioner (Appeals) upheld this denial. The Tribunal, however, allowed the relief, stating the amalgamated company steps into the shoes of the amalgamating company and is entitled to the relief for the period post-amalgamation, ensuring continuity of benefits.

8. Chargeability of Interest under Sections 215 and 139(8) of the Income-tax Act:
The ITO levied interest under sections 215 and 139(8), which the Commissioner (Appeals) partly upheld. The Tribunal found the levy under section 215 unjustified as the advance tax paid was within the statutory margin. For section 139(8), the Tribunal remitted the matter to the ITO for reconsideration in light of the revised tax liability after giving effect to the Tribunal's order.

Conclusion:
The appeal filed by the revenue was dismissed, and the appeal filed by the assessee was treated as partly allowed.

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