1986 (11) TMI 105 - AT - Income Tax

Issues Involved:

1. Disallowance of Sales Promotion Expenses
2. Weighted Deduction under Section 35B
3. Disallowance of Claims under Sections 80I, 80M, and 80J
4. Protective Ground of Appeal

Issue-wise Detailed Analysis:

1. Disallowance of Sales Promotion Expenses:

The assessee, a public undertaking manufacturing power generating equipment, incurred Rs. 15,23,916 under "sales promotion expenses." The IAC (Assessment) scrutinized these expenses and found that they included gift items, entertainment of customers, seminar expenses, accommodation for customers, conveyance for customers, and printing of New Year greeting cards. The IAC estimated Rs. 5,23,916 as business expenses and disallowed Rs. 10 lacs as entertainment expenses under sub-s. (2a) of s. 37 of the IT Act, 1961. The CIT (A) upheld this disallowance, finding the IAC's estimate fair. The appellate tribunal noted that the disallowance was based on an estimate and emphasized that appellate authorities should be slow to interfere with such estimates if they are bona fide and rational. The tribunal confirmed the CIT (A)'s decision, stating that the analysis by the IAC did not suffer from any flaw and that the estimate at 50 percent would be without any basis.

2. Weighted Deduction under Section 35B:

The assessee claimed weighted deductions under s. 35B for various expenditures related to export market development. The IAC (Assessment) disallowed significant claims, particularly Rs. 2,34,67,378 for site office expenses at Malaysia and Libya, stating these did not fall under the permissible categories for weighted deduction. The CIT (A) sustained this finding. The tribunal examined the sub-clauses of cl. (b) of sub-s. (1) of s. 35B and concluded that the site office expenses did not qualify under sub-cl. (i) or sub-cl. (iv). However, the tribunal found merit in the assessee's argument regarding sub-cl. (ix) and r. 6AA, which was inserted by the Income-Tax (Eighth Amendment) Rules, 1981. The tribunal remitted the matter back to the IAC (Assessment) to examine the claim under r. 6AA. Similar remittance was ordered for claims related to other branches, including Bhopal and the Export Division, to be examined under r. 6AA. The tribunal also directed re-examination of claims for traveling expenses and advertisement outside India, and rejected the claim for entertainment expenses of foreign customers in India.

3. Disallowance of Claims under Sections 80I, 80M, and 80J:

The assessee's claims under s. 80I, 80M, and 80J for the expansion at the Trichy Plant were previously restored to the IAC (Assessment) for re-examination in earlier years. Both parties agreed to a similar remittance for the current year. The tribunal restored the matter to the IAC (Assessment) for re-examination in line with the tribunal's previous observations.

4. Protective Ground of Appeal:

The assessee raised a protective ground of appeal regarding a deduction of Rs. 134.59 lacs, which had already been allowed in the previous assessment year. The tribunal rejected this ground, noting that the claim could not be allowed a second time for the current assessment year, thus upholding the CIT (A)'s decision.

Conclusion:

The appeal was partly allowed, with specific remittances back to the IAC (Assessment) for re-examination of claims under r. 6AA and other relevant provisions.

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