1990 (9) TMI 142 - AT - Income Tax

Summary

Issues:
1. Disallowance of sales promotion expenses under Section 37(2A).
2. Levy of interest under section 216 for underestimation of advance tax.

Analysis:
1. The first issue pertains to the disallowance of Rs. 18,208 out of sales promotion expenses under Section 37(2A). The assessing officer disallowed the amount based on the provision that entertainment expenditure includes hospitality expenses provided to any person, except for employees. The assessee argued that the expenses were related to business and should be allowed as a deduction. The counsel cited precedents to support the claim. However, the tribunal held that the retrospective amendment in Section 37(2A) includes all hospitality expenses, irrespective of the reason or occasion. As the Diwali expenses were related to business, they fell under the purview of Section 37(2A), warranting disallowance. The tribunal upheld the assessing officer's decision, stating that the disallowance was justified.

2. The second issue revolves around the levy of interest under section 216 for underestimation of advance tax. The assessee initially declared an income of Rs. 10,58,000, later revised to Rs. 16 lakhs, and eventually to Rs. 25 lakhs. The assessing officer held the assessee liable for interest under section 216 for underestimating the advance tax payable. The counsel argued that the revisions were made promptly and in good faith, citing a High Court decision to support the contention that deliberate underestimation is necessary for interest under section 216. The tribunal analyzed the provisions of Section 209A regarding advance tax statements and estimates. It concluded that the assessee complied with the law by filing revised estimates before the due date. The tribunal emphasized that interest under section 216 is applicable only when there is a deliberate attempt to reduce the tax liability by underestimating income. Since the assessee paid more tax than required and promptly revised the estimates, the tribunal ruled in favor of the assessee, stating that interest under section 216 was not warranted in this case.

In conclusion, the tribunal partially allowed the assessee's appeal, ruling against the disallowance of sales promotion expenses and dismissing the levy of interest under section 216 for underestimation of advance tax.