1997 (2) TMI 171 - AT - Income Tax

Summary

Issues:
1. Disallowance of Shagan expenses
2. Disallowance of interest on agents securities
3. Disallowance of entertainment expenses
4. Disallowance of sale promotion and advertisement expenses

Issue 1: Disallowance of Shagan expenses
The Assessing Officer disallowed Rs. 15,000 of Shagan expenses, considering it as personal expenditure of directors. The CIT(A) upheld the disallowance. The appellant's counsel argued that the expenses were related to individuals connected to the company for business purposes. Citing a Supreme Court judgment, the counsel contended that maintaining good relations with such individuals was crucial for business interests. The Tribunal accepted the argument, allowing a modified claim of Rs. 4,606, subject to adjustments for two amounts not accepted.

Issue 2: Disallowance of interest on agents securities
The AO disallowed Rs. 4,32,865 interest on agents securities for not being provided in the books. The CIT(A) upheld the disallowance, stating it was not an ascertained liability during the relevant year. The appellant argued that the liability existed and should be allowed as it pertained to the year under consideration. The Tribunal noted the varying interest rates and the consistent method of accounting followed by the appellant. Relying on legal precedents, the Tribunal deleted the disallowance, considering the claim valid.

Issue 3: Disallowance of entertainment expenses
The Revenue appealed the CIT(A)'s decision to allow relief on disallowance of entertainment expenses. The Tribunal noted that the issue was covered in favor of the assessee by earlier Tribunal orders. The Tribunal mentioned that 50% of staff participation expenses were treated as entertainment expenditure under section 37(2A), which was accepted in an earlier year. Therefore, the Revenue's appeal on this issue was rejected.

Issue 4: Disallowance of sale promotion and advertisement expenses
The Revenue also appealed the deletion of the addition of Rs. 25,245 on inadmissible expenses under sale promotion and advertisement expenses. The Tribunal found that this issue was also covered in favor of the assessee by earlier Tribunal orders. Therefore, the Revenue's appeal on this issue was rejected.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal.