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Issues:
1. Allocation of interest between business income and other sources. 2. Allowance of advertisement and sales promotion expenses. 3. Disallowance of entertainment expenditure. 4. Levy of interest under section 215 of the IT Act. Analysis: Issue 1: Allocation of interest between business income and other sources The appeals before the ITAT Madras-B concerned the allocation of interest paid by the assessee-company between income from business and other sources for the assessment years 1973-74, 1974-75, and 1975-76. The primary contention was the higher allocation of interest against dividend income, affecting the relief under section 80-M admissible only in respect of dividends. The ITAT observed discrepancies in the allocation ratios provided by the ITO and the AAC for the respective years. The matter was remanded back to the first appellate authority for fresh consideration, emphasizing the need for a proper assessment of interest allocation in accordance with the law. Issue 2: Allowance of advertisement and sales promotion expenses In the assessment year 1974-75, a dispute arose regarding the allowance of Rs. 3,39,597 as part of advertisement and sales promotion expenses. The IT department contended that the expenditure was capital in nature due to the promotion of a new product, Ensore Blades, which was argued to bring an enduring benefit to the company. However, the AAC held that the expenditure was revenue in nature, emphasizing that the advantage did not survive beyond the year in which it was incurred. The ITAT upheld the AAC's decision, distinguishing the case from precedents involving expenses with enduring advantages, concluding that the expenditure on advertisement should be treated as deferred revenue expenditure. Issue 3: Disallowance of entertainment expenditure Another point of contention for the assessment year 1974-75 was the disallowance of entertainment expenditure amounting to Rs. 4,746, which was later deleted by the AAC. The ITAT concurred with the AAC's decision, noting that the expenses were related to providing coffee, tea, and refreshments to dealers, aligning with the decision of the Madras High Court. Hence, the disallowance was deemed unjustified. Issue 4: Levy of interest under section 215 of the IT Act For the assessment year 1975-76, a ground of appeal related to the levy of interest under section 215 of the IT Act. The dispute centered on the treatment of a payment received as advance tax after a specified date. The CIT (A) directed the ITO to consider the payment as advance tax, leading to the cancellation of the interest charged. The ITAT supported this decision, citing relevant precedents and confirming that the payment was received within the financial year, thus justifying the cancellation of interest. In conclusion, the ITAT allowed the appeal for the assessment year 1973-74 and partially allowed the appeals for the subsequent years based on the detailed analysis and findings on the various issues raised in the case.
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