1992 (5) TMI 67 - AT - Income Tax

Summary

Issues:
1. Disallowance of business promotion expenses under section 37(2A).
2. Disallowance of conveyance allowance to employees under section 37(3A) and (3B).

Analysis:

1. The first issue in the judgment concerns the disallowance of a sum of Rs. 73,831 categorized as business promotion expenses under section 37(2A). The Assessing Officer (AO) disallowed this expenditure as entertainment expenses. The CIT (Appeals) upheld this decision, stating that since the expenditure was entertainment-related, it should be dealt with under section 37(2A) and not 37(3A). The tribunal concurred with this view, emphasizing that the expenditure being in the nature of entertainment must be considered under section 37(2A). The tribunal highlighted that payments to hotels may fall under different sections based on their nature, with section 37(3A) and (3B) applicable only after an expense is found allowable under other provisions, unlike in this case where disallowance under section 37(2A was upheld. Therefore, the tribunal rejected the appeal regarding the disallowance of business promotion expenses under section 37(2A).

2. The second issue involves the disallowance of a conveyance allowance of Rs. 3,06,894 to employees under section 37(3A) and (3B). The AO believed this amount should be included for disallowance under section 37(3A). The CIT (Appeals) upheld this decision, stating that conveyance allowance did not fall under the exceptions provided in Explanation (b) of section 37(3A). The tribunal, however, sided with the assessee, noting that the purpose of sections 37(3A) to (3D) was to restrict lavish expenditure, including on motor cars. The tribunal interpreted that conveyance allowance to employees maintaining scooters or no vehicles should be excluded from disallowance under section 37(3A). As detailed information on the categories of employees receiving conveyance allowance was lacking, the matter was remanded to the AO for verification and necessary relief. Consequently, the tribunal partially allowed the appeal on the disallowance of conveyance allowance, subject to further verification by the AO.