1981 (12) TMI 56 - AT - Income Tax

Summary

Issues:
1. Disallowance of provision for gratuity claim under section 37(1) of the IT Act.
2. Disallowance of general expenses for 'tilak and shagun'.
3. Disallowance of dealers and suppliers mess expenses and sale promotion expenses.

Detailed Analysis:

1. The first issue pertains to the disallowance of the assessee's claim for provision for gratuity amounting to Rs. 30,218. The Income Tax Officer (ITO) disallowed the claim as it was not a contribution towards an approved gratuity fund. The CIT (Appeals) upheld this decision citing non-approval of the gratuity fund by the CIT. However, the assessee had made an application for approval of the gratuity fund, and the Tribunal found that the assessee had fulfilled all requirements under section 40A(7). The Tribunal noted that the assessee had completed all formalities and upheld the claim based on actuarial valuation and timely deposits made towards the gratuity fund.

2. The second issue concerns the disallowance of Rs. 654 for general expenses related to 'tilak and shagun'. The ITO and CIT (Appeals) disallowed this amount, but the Tribunal accepted the assessee's claim. It was established that these expenses were incurred for the marriages of the employees' children, and the Tribunal found no reason to disallow the claim based on consistent precedents.

3. The final issue involves the disallowance of Rs. 4,297 and Rs. 9,000 claimed as dealers and suppliers mess expenses and sale promotion expenses, respectively. The lower authorities relied on a previous case for disallowance. The Tribunal considered various opinions from different High Courts but ultimately followed the Full Bench decision of the Punjab and Haryana High Court. The Tribunal upheld the disallowance based on the prescribed limits under the IT Act, emphasizing that expenditure on hospitality beyond these limits is not permissible. The assessee failed to demonstrate the customary nature of these expenses specific to their trade in Yamunanagar, leading to the rejection of the claim.

In conclusion, the Tribunal partly allowed the assessee's appeal, overturning the disallowance of the provision for gratuity and general expenses for 'tilak and shagun' but upholding the disallowance of dealers and suppliers mess expenses and sale promotion expenses based on the Full Bench decision of the Punjab and Haryana High Court.