1996 (8) TMI 151 - AT - Income Tax

Advertisement Expenditure, Allowable Expenditure, Assessing Officer, Assessment Year, Expenditure Incurred, Previous Year, Trading Liability

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 1,82,000 on account of advertisement expenses.
2. Deletion of Rs. 7,30,102 claimed as expenses for promoting sales.
3. Deletion of the addition of Rs. 69,46,154 under section 41(1) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 1,82,000 on Account of Advertisement Expenses:

The first ground in the appeal pertains to the deletion of the disallowance of Rs. 1,82,000 on account of advertisement expenses. The assessee had introduced a sales promotion scheme involving coupons of different denominations placed inside beedi packets. Successful customers would collect the money from selling agents. Another scheme involved placing currency directly in the packets. The Assessing Officer disallowed Rs. 1,82,900 on the grounds that the process was not verifiable, relying only on the statements of two accountants. However, the CIT(A) accepted the assessee's claim, noting that the Assessing Officer had not pointed out any errors in the statements or accounts produced. The Tribunal confirmed the CIT(A)'s decision, emphasizing that the preponderance of possibility, rather than proof beyond a reasonable doubt, is required under tax law. The Tribunal concluded that there was no material to disbelieve the assessee's claim.

2. Deletion of Rs. 7,30,102 Claimed as Expenses for Promoting Sales:

The next ground relates to the deletion of Rs. 7,30,102 claimed by the assessee as expenses for promoting sales. The assessee had given items such as attache cases, steel almirahs, steel tanks, and scooters as rewards to dealers who achieved specific sales targets under an "inami scheme." The Assessing Officer disallowed these expenses, applying the provisions of Rule 6B read with section 37(3), considering them as part of advertisement expenses. However, the CIT(A) found that these items were given to dealers, not customers, and thus did not form part of advertisement expenses. The Tribunal confirmed the CIT(A)'s decision, stating that the expenditure incurred was not for giving presents to customers but as rewards to dealers, and thus, Rule 6B was not applicable.

3. Deletion of the Addition of Rs. 69,46,154 under Section 41(1) of the Income-tax Act:

The third issue involves the deletion of the addition of Rs. 69,46,154 under section 41(1) of the Income-tax Act. This amount was shown as bidi workers' outstanding liabilities in the balance sheet, carried forward since the assessment year 1980-81. The Assessing Officer required the assessee to furnish details about this liability, including how it was worked out, lists of workers, and payment details. The assessee failed to provide these details, relying on judicial pronouncements to argue that there was no cessation of liability. The Assessing Officer concluded that the liability had ceased, as no payments had been made for over a decade, and the workers were unidentifiable. The CIT(A) disagreed, stating that the liability arose from a government notification and there was no cessation of liability.

The Tribunal, however, sided with the Assessing Officer. It emphasized that the onus was on the Revenue to prove cessation of liability, which was established by the lack of payments and the unidentifiability of workers. The Tribunal noted that the assessee did not furnish necessary details and that the liability had not been paid for a decade. The Tribunal concluded that the Revenue had discharged its burden of proof and that section 41(1) was applicable. The Tribunal restored the Assessing Officer's order, making the addition of Rs. 69,46,154 under section 41(1).

Conclusion:

In summary, the Tribunal confirmed the CIT(A)'s decisions regarding the deletion of disallowances related to advertisement expenses and sales promotion expenses. However, it reversed the CIT(A)'s decision on the addition under section 41(1), restoring the Assessing Officer's order and allowing the Revenue's appeal in part.