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Issues:
1. Disallowance of remuneration paid to directors as business promotion expenses. 2. Disallowance of expenditure on advertisements as charity and donation. 3. Short deduction under section 32AB due to treatment of dividend income from chits as income from other sources. Issue 1: Disallowance of Remuneration to Directors: The appeal concerned disallowance of Rs. 14,208 paid to two directors as business promotion expenses. The Assessing Officer treated it as entertainment expenditure, leading to the disallowance. The CIT (Appeals) upheld the disallowance citing lack of evidence on services rendered by the directors. However, the tribunal found that the payment was for business purposes as accepted by the Assessing Officer. The tribunal noted that similar payments to another director were allowed in previous years. Therefore, the disallowance was deleted due to lack of evidence proving it was entertainment expenditure. Issue 2: Disallowance of Advertisement Expenditure: The disallowance of Rs. 6,205 for advertisements was made by treating it as charity and donation. The assessee argued that the expenses were for advertisements in association souvenirs, not charity. The tribunal confirmed part of the disallowance but directed the Assessing Officer to verify if the remaining amount was indeed spent on advertisements. If proven, the expenses would be allowable based on CBDT Circulars 200 and 203. Issue 3: Short Deduction under Section 32AB: The dispute involved the disallowance of Rs. 24,155 under section 32AB due to treating dividend income from chits as income from other sources. The assessee contended that the dividend income was part of its business profits eligible for deduction under section 32AB. The tribunal analyzed the conditions for deduction under section 32AB and concluded that the dividend income on chits should be considered as part of the business profits eligible for deduction. It was emphasized that the dividend income had a close link with the business activities of the assessee, justifying its treatment as income chargeable to tax under the head 'business or profession.' The tribunal reversed the lower authorities' decision and allowed the deduction, ruling in favor of the assessee. In conclusion, the tribunal partly allowed the assessee's appeal by overturning the disallowances related to remuneration to directors and short deduction under section 32AB. The tribunal confirmed part of the disallowance for advertisement expenditure but directed verification for potential allowance based on specific conditions.
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