1988 (1) TMI 71 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 69D to repayments of hundi loans.
2. Disallowance of hotel expenses.
3. Disallowance of cost of high power bulbs.
4. Disallowance of expenses related to shooting, set erections, and costume expenses.
5. Disallowance of claim under Section 35B for export market development.
6. Disallowance of publicity expenses.

Detailed Analysis:

1. Applicability of Section 69D to Repayments of Hundi Loans:
The primary issue was whether the provisions of Section 69D were applicable to the repayments of two hundi loans made in cash. The amounts in question were Rs. 50,000 and Rs. 30,000. The Tribunal examined whether these repayments could be treated as 'hundi loans' and thus be considered as income under Section 69D. The Tribunal referred to previous decisions, particularly the case of ITO vs. Grajlakshmi & Co., and concluded that the instrument in question was a bill of exchange and not a hundi. The Tribunal stated, "a hundi must, by custom, be transferable like cash by delivery." Since the instrument required endorsement for negotiation, it was deemed a bill of exchange. Consequently, the provisions of Section 69D were not applicable, and the addition of Rs. 80,000 was deemed inappropriate.

2. Disallowance of Hotel Expenses:
The assessee contested the disallowance of Rs. 22,320 on account of hotel expenses, claiming they were incurred in the normal course of business. However, the Finance Act, 1983, expanded the definition of 'entertainment expenditure' to include hospitality expenses. Given this legal position, the assessee's counsel did not press the point, and the Tribunal confirmed the disallowance.

3. Disallowance of Cost of High Power Bulbs:
The assessee contested the disallowance of Rs. 25,000 for high power bulbs. The Tribunal noted that the assessee had not maintained any stock account and that the existence of unutilized bulbs was not denied. The Tribunal confirmed the disallowance, stating, "the disallowance of Rs. 25,000 was not unwarranted, nor can it be said to be excessive."

4. Disallowance of Expenses Related to Shooting, Set Erections, and Costume Expenses:
The assessee did not press the disallowance of Rs. 1,00,000 for shooting expenses, Rs. 50,000 for set erections and costume expenses, and Rs. 8,474 for entertainment expenses. Consequently, the Tribunal confirmed these disallowances.

5. Disallowance of Claim Under Section 35B for Export Market Development:
The Tribunal noted that this ground did not arise from the order of the CIT(A) and that the assessee had not raised this issue before the CIT(A). The Tribunal, bound by the decision of the Bombay High Court in CIT vs. Western Rolling Mills. (Pvt) Ltd., held that the assessee could not raise this plea before the Tribunal. The Tribunal stated, "we cannot permit a ground which does not arise out of his order."

6. Disallowance of Publicity Expenses:
The assessee argued that the disallowance of Rs. 1,10,482 out of publicity expenses was not legal. The Tribunal referred to a previous decision in the case of 1st ITO vs. V.R. Chopra, which held that each movie produced by a producer constitutes a new industrial undertaking. The Tribunal agreed with this view and directed the ITO to apply the provisions of Section 37(3D) and allow the expenditure. The Tribunal concluded, "we hold that the view taken by the Revenue in this case is unjustified."

Conclusion:
The Tribunal's judgment addressed multiple disallowances and the applicability of Section 69D to hundi loans. The Tribunal confirmed several disallowances but ruled in favor of the assessee regarding the applicability of Section 69D and the disallowance of publicity expenses. The appeal was partly allowed.