1990 (11) TMI 195 - AT - Income Tax

Summary

Issues:
1. Disallowance of expenses under section 37(3A) to (3D) of the Income-tax Act, 1961 for assessment year 1984-85.

Detailed Analysis:
The dispute in this appeal revolves around the disallowance of Rs. 9,240 under section 37(3A) to (3D) of the Income-tax Act, 1961 for the assessment year 1984-85. The Income-tax Officer disallowed various expenses totaling Rs. 1,46,684, leading to a disallowance of Rs. 9,348 (20% of the total amount). The CIT (Appeals) granted relief of Rs. 108 for expenses incurred in New York but rejected the claim for expenses incurred outside India, stating that no evidence was provided to substantiate those claims (paragraphs 1-3).

The main contention of the assessee was that certain expenses, such as free samples given to foreigners, advertisement in New York, and expenses for advertisement, publicity, and sales promotion outside India, should not be considered for disallowance under section 37(3A) based on the provisions of sub-section (3C) of section 37. However, the CIT (Appeals) rejected this argument, emphasizing the lack of evidence regarding the foreign incurrence of these expenses (paragraph 3).

The Tribunal analyzed the provisions of sub-section (3C) of section 37, which exempts expenditure incurred on advertisement, publicity, and sales promotion outside India from disallowance under sub-section (3A). The Tribunal clarified that the exception applies even if the expenditure is incurred in India but is related to activities outside India. By correctly interpreting the law, the Tribunal concluded that the expenses of Rs. 57,013 and Rs. 3,115, incurred for activities outside India, should be excluded from disallowance under section 37(3A. Consequently, the total expenses falling under section 37(3A) were below the threshold for disallowance, leading to the deletion of the disallowance of Rs. 9,348 (paragraphs 6-7).

In light of the above analysis, the Tribunal allowed the appeal, thereby overturning the disallowance of expenses under section 37(3A) for the assessment year 1984-85 (paragraph 8).