1979 (2) TMI 121 - AT - Income Tax

Issues Involved:
1. Disallowance of Sales Promotion Expenses.
2. Disallowance under the head "Weighment Charges".
3. Disallowance under the head "Grinding Charges".
4. Disallowance under the head "Transportation Charges".
5. Cross-objection regarding disallowance of payment to Diners Club India Pvt. Ltd.

Detailed Analysis:

1. Disallowance of Sales Promotion Expenses:
The Income Tax Officer (ITO) disallowed Rs. 4,000 out of a total claim of Rs. 8,771 for Sales Promotion Expenses. The Appellate Assistant Commissioner (AAC) found that most of the expenses were customary, except for Rs. 2,297 paid to Diners Club India Pvt. Ltd., which was deemed entertainment expenditure under Section 37(2B) of the Income Tax Act. The AAC allowed a relief of Rs. 1,703. The Department contended that all such expenses should be classified as entertainment expenditure, citing various High Court decisions. However, the Tribunal upheld the AAC's decision, noting the consistent application of the Gujarat High Court's decision by the Calcutta Benches of the Tribunal.

2. Disallowance under the head "Weighment Charges":
The ITO disallowed Rs. 2,380, citing lack of proper vouchers for payments made at the Udaipur Railway Station and to M/s. Jayshree Chemicals. The AAC accepted a certificate from the Railways, stating that weighment charges were paid directly to coolies, and deleted the disallowance. The Department argued that the AAC violated Rule 46A by admitting fresh evidence without giving the ITO an opportunity to examine it. The Tribunal found that the ITO was present at the hearing and had the opportunity to rebut the evidence. The Tribunal also agreed with the AAC that the payment to M/s. Jayshree Chemicals was a contra-entry and not an actual payment, thus upholding the AAC's decision.

3. Disallowance under the head "Grinding Charges":
The ITO disallowed Rs. 13,216.20 claimed for grinding charges due to lack of original vouchers and cash payments. The AAC accepted duplicate bills and a certificate from M/s. Mewar Minerals, deleting the disallowance. The Department argued that Rule 46A was violated. The Tribunal noted that the AAC had recorded reasons for admitting the fresh evidence and had confronted the ITO with it. The Tribunal found that the grinding charges account showed a nominal profit, indicating no scope for disallowance, and upheld the AAC's decision.

4. Disallowance under the head "Transportation Charges":
The ITO disallowed Rs. 3,231 for transportation charges due to reliance on self-vouchers without the address of the payee, Shri Kuldip Singh. The AAC deleted the disallowance, noting that the vouchers were signed by Shri Kuldip Singh. The Tribunal found that the transportation charges account showed a high margin of profit and that Shri Kuldip Singh had been engaged in previous years. The Tribunal upheld the AAC's decision, rejecting the Department's appeal.

5. Cross-objection regarding disallowance of payment to Diners Club India Pvt. Ltd.:
The assessee contended that Rs. 2,297 paid to Diners Club India Pvt. Ltd. was a legitimate business expense for sales promotion. The Tribunal noted that the expenditure was incurred at 5-Star hotels and classified it as entertainment expenditure under Section 37(2B), upholding the disallowance.

Conclusion:
Both the Department's appeal and the assessee's cross-objection were dismissed. The Tribunal upheld the AAC's decisions on all disputed disallowances, finding no violation of Rule 46A and agreeing with the AAC's reasoning on the merits of each disallowance.

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