1992 (2) TMI 150 - AT - Income Tax

Advertisement Expenditure, Assessing Officer, Entertainment Expenditure, Manufacture And Sale

Summary

Issues Involved:
1. Suppression of production and sales.
2. Disallowance of expenditure as entertainment expenses.
3. Disallowance u/s 40A(9) for contributions to school, staff club, and cooperative store.
4. Relief on account of closing balance of excise duty paid.

Summary:

1. Suppression of Production and Sales:
The assessee, a limited company engaged in the manufacture and sale of cement, was accused by the Assessing Officer (AO) of suppressing production and sales. The AO observed discrepancies in the production records, particularly in the quantity of crushed lime stone, and applied provisions of section 145(2), estimating an undisclosed sale of 28,320 MT and making a trading addition of Rs. 1,22,04,569.44. The CIT (Appeals) found that the AO had wrongly considered the sale of 20,627.08 MT twice and reduced the addition to Rs. 35 lakhs. However, the Tribunal noted that no specific defects were pointed out in the assessee's records, and the overall quantity of material remained the same. The Tribunal concluded that there was no basis for the addition as there was no evidence of suppressed sales or production, and thus, no addition was warranted.

2. Disallowance of Expenditure as Entertainment Expenses:
The AO disallowed Rs. 2,78,896.58 treating it as entertainment expenses, including amounts spent on presentation articles and other items. The CIT (Appeals) upheld the disallowance. The Tribunal, however, differentiated between presentation articles and hospitality, noting that the gifted articles did not carry any advertisement value and were not covered under rule 6B. The Tribunal held that the expenditure on gifts or presentations did not amount to "hospitality" and thus could not be disallowed as entertainment expenditure. The Tribunal allowed the expenditure under section 37(1) as it was laid out wholly and exclusively for business purposes.

3. Disallowance u/s 40A(9):
The AO disallowed amounts given as subsidies to a school, staff club, and cooperative store based on the Tax Audit Report. The CIT (Appeals) confirmed the disallowance. The Tribunal found that section 40A(9) did not seem to be attracted as the payments were not for setting up or contributing to any fund or institution. However, the Tribunal restored the matter to the AO for a fresh decision after examining the exact nature of the claims and details thereof.

4. Relief on Account of Closing Balance of Excise Duty Paid:
The assessee claimed relief on account of the closing balance of excise duty paid (Rs. 9,60,481) looking to the provisions of section 43B. However, this ground was not pressed during the appeal hearing and thus no longer survived for consideration.

Conclusion:
The Tribunal partly allowed the appeal filed by the assessee, providing relief on issues related to suppression of production and sales, and disallowance of expenditure as entertainment expenses, while restoring the issue of disallowance u/s 40A(9) for fresh consideration by the AO. The relief on account of the closing balance of excise duty paid was not considered as it was not pressed during the hearing.