1995 (3) TMI 161 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of Advertisement Expenditure
2. Disallowance of Depreciation on Motor Car
3. Disallowance of Motor Car Expenses

Detailed Analysis:

1. Disallowance of Advertisement Expenditure:

The primary issue in this appeal is the disallowance of Rs. 25,438 as advertisement expenditure by the Assessing Officer (AO). The AO observed that the advertisement expenditure claimed by the assessee was significantly higher than the previous year and was based on a debit note raised by M/s Lakhmi Chand Matwal Chand (LCMC), an allied concern of the assessee. The AO noted that there was no evidence of any advertisement being undertaken on behalf of the assessee and concluded that the expenditure was not genuine and not covered under Section 37 of the Income Tax Act.

The CIT(A) upheld the disallowance, stating that the debit notes were issued on an arbitrary basis and the expenditure was not dictated by business expediency. The CIT(A) also noted that there was no evidence of any agreement between the assessee and LCMC for sharing advertisement expenses.

In the Tribunal, the assessee's counsel argued that LCMC was obligated to incur advertisement expenses as per an agreement with Bombay Dyeing & Manufacturing Co. Ltd., and that a portion of these expenses was recovered from the sub-agents, including the assessee. The counsel emphasized that similar expenses had been allowed in previous assessment years and provided documentary evidence to support the claim.

The Departmental Representative contended that the advertisement expenditure was not genuine and was not related to the assessee's business. It was argued that there was no agreement between LCMC and the assessee, and the expenditure was an ex gratia payment.

The Tribunal, after considering the submissions and evidence, concluded that the AO's argument that the expenditure was remotely connected with the assessee's business was fallacious. The Tribunal noted that the advertisement related to goods produced by Bombay Dyeing Mills, with which the assessee was dealing as a sub-agent. The Tribunal also observed that the genuineness of the expenditure was proved as LCMC had taken credit for the same in their advertisement expenditure account. The Tribunal held that the lower authorities were not justified in disallowing the assessee's claim for deduction of Rs. 25,438 and allowed the appeal.

2. Disallowance of Depreciation on Motor Car:

The AO disallowed 1/4th of the depreciation on the motor car, amounting to Rs. 4,705, without providing any reasons. The CIT(A) upheld this disallowance, stating that it was fair and reasonable.

The Tribunal did not specifically address this issue in the detailed judgment provided, implying that the primary focus was on the advertisement expenditure.

3. Disallowance of Motor Car Expenses:

Similarly, the AO disallowed 1/4th of the motor car expenses, amounting to Rs. 3,360, again without providing any reasons. The CIT(A) upheld this disallowance, stating that it was fair and reasonable.

As with the depreciation on the motor car, the Tribunal did not specifically address this issue in the detailed judgment provided.

Conclusion:

The Tribunal allowed the appeal, primarily focusing on the issue of disallowance of advertisement expenditure. The Tribunal found that the lower authorities were not justified in disallowing the claim for deduction of Rs. 25,438, as the expenditure was related to the business of the assessee and was genuine. The issues of disallowance of depreciation on the motor car and motor car expenses were upheld by the CIT(A) and were not specifically addressed by the Tribunal in the detailed judgment.