2005 (11) TMI 44 - HC - Income Tax

Capital or revenue expenditure - (1) Whether the Appellate Tribunal is right in allowing the claims of the assessee in respect of production bonus amounting to Rs. 7,32,449 apart from the staff bonus which was allowed? (2) Whether Tribunal is right in directing the Assessing Officer to allow the discount on sales amounting to Rs. 2,02,754 holding the same not to be caught by the mischief of section 37(3A)? - in the absence of any infirmity in the impugned order of the Tribunal question No. 1 is required to be answered in the affirmative, i.e., in favour of the assessee and against the Revenue - In relation to the second question, it cannot be stated that the discount allowed on sales of diesel engines worth Rs. 2,02,754 could be treated to be sales promotion within the meaning of section 37(3A) read with section 37(3B) of the Act. The Tribunal was therefore right in holding that the said payment of discount could not be termed to be expenditure for sales promotion

Summary

Issues:
1. Allowance of production bonus as deductible expenditure.
2. Allowance of discount on sales as not caught by section 37(3A).

Production Bonus Issue Analysis:
The case involved two questions referred by the Income-tax Appellate Tribunal regarding the allowance of production bonus and discount on sales for the assessment year 1985-86. The Tribunal allowed the claims of the assessee, a private limited company, regarding a production bonus of Rs. 7,32,449 and a discount on sales amounting to Rs. 2,02,754. The Assessing Officer disallowed both claims, which were confirmed by the Commissioner (Appeals) but overturned by the Tribunal.

The Tribunal found that the payment of production bonus was made in accordance with an agreement with employees for achieving production beyond the normal expectations. The bonus was quantified based on the extra production achieved and was treated as part of regular wages for statutory contributions. The Tribunal's findings were undisputed, and since the payment was treated as part of wages deductible by the Revenue, the same treatment was required for the production bonus. The court upheld the Tribunal's decision, ruling in favor of the assessee and against the Revenue.

Discount on Sales Issue Analysis:
Regarding the discount on sales issue, it was acknowledged that the discount constituted a reduction in the sale price. The legal position on items mentioned in section 37(3A) read with section 37(3B)(i) had been clarified in a previous judgment by the court. Applying the precedent set in the case of CIT v. Zippers India, it was determined that the discount on sales of diesel engines worth Rs. 2,02,754 could not be considered as expenditure for sales promotion under section 37(3A) and 37(3B) of the Act. The Tribunal's decision to allow the discount was upheld, ruling in favor of the assessee and against the Revenue.

In conclusion, both questions raised by the Income-tax Appellate Tribunal were answered in favor of the assessee, and the reference was disposed of with no order as to costs.