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Issues:
1. Disallowance of bonus paid to partners under section 40(b) of the Income-tax Act, 1961. 2. Treatment of publicity expenses as part of total minimum guarantee under rule 9B of the Income-tax Rules, 1962. Disallowance of Bonus Paid to Partners: The appeal by the revenue for the assessment year 1976-77 involved the disallowance of a bonus paid to partners. The revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs. 3,500, citing section 40(b) of the Income-tax Act, 1961. The appellant argued that the bonus amount was already disallowed in the previous year, which was found to be incorrect. The Tribunal noted that the confusion arose due to a factual mistake during the proceedings before the Income-tax Officer (ITO). The appellant's counsel clarified the error by presenting relevant accounts and documents, demonstrating that the bonus amount was not related to the assessment year under appeal. The Tribunal upheld the Commissioner's decision, emphasizing the appellant's right to rectify mistakes and present supporting evidence. Consequently, the addition of Rs. 3,500 was deemed unjustified, and the revenue's contention was rejected. Treatment of Publicity Expenses: The second issue revolved around the treatment of Rs. 1,75,000 set aside for publicity as part of the total minimum guarantee under rule 9B of the Income-tax Rules, 1962. The revenue argued that the Commissioner (Appeals) erred in considering this amount as part of the minimum guarantee. The appellant contended that the publicity expenses were not incurred by the distributor but by the producer, as they were to be met from the gross collections. The Tribunal analyzed the agreement clauses and rule 9B, which governs the computation of a distributor's income. It was observed that the agreement did not align with the statutory provisions of rule 9B, which treat collections as belonging to the distributor. The Tribunal held that the publicity expenses should be borne by the distributor based on the rule's framework. Therefore, the Commissioner's decision was reversed, and the Rs. 1,75,000 deduction was disallowed as part of the minimum guarantee. However, the Tribunal allowed the deduction of actual publicity expenses incurred by the assessee, amounting to Rs. 63,270, as per the ITO's assessment order. Consequently, the Tribunal partially allowed the revenue's appeal, restoring the ITO's decision on this issue. This detailed analysis of the judgment addresses the disallowance of bonus paid to partners and the treatment of publicity expenses, providing a comprehensive overview of the legal reasoning and conclusions reached by the Appellate Tribunal ITAT Amritsar.
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