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TMI Blog1985 (6) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO was neither erroneous nor prejudicial to the interests of the revenue and hence there was no need to invoke the revisional powers under section 263. The Commissioner for the reasons contained in the impugned order held that there was no substance in the objections filed by the assessee and his assumption of jurisdiction was quite in order. He, accordingly, set aside the assessment for being redone. He directed the ITO that while framing the reassessment, the assessee should be given a reasonable opportunity of being heard on the points mentioned in paragraph Nos. 5 and 6 of his order and allow appropriate deduction after duly taking into consideration the finding given by him in his order in paragraph No. 4. Aggrieved against the said order of the Commissioner, this present appeal is filed by the assessee. 2. The two main points in controversy are, whether the graded disallowance contemplated under section 37(3A) is to be applied to the whole of the expenditure incurred towards advertisement, publicity and business promotion expenses by the assessee or whether such disallowance is to be applied for such expenses incurred for each business held by the assessee. The second que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e separately computed, but should thereafter be all put together and aggregated to arrive at the profits and gains taxable under this head." This statement of law by the learned author is dependent upon the decisions of the Madras High Court in South Indian Industrials Ltd. v. CIT [1935] 3 ITR 11 and Ram Chandra Munna Lal v. CIT [1949] 17 ITR 394 (Punj.) as well as the decision of the Supreme Court in CIT v. P.M. Muthuraman Chettiar [1962] 44 ITR 710. The learned counsel submitted that section 28 is a provision under which the profits and gains of business or profession will be computed. When profits or gains from each business are to be separately computed then the provisions of section 37(3A) should also be applied to each of the businesses carried on by an assessee. The learned counsel also submitted that a harmonious construction of the provisions of section 37(3A) would also justify his stand. 5. Section 37(3A) omitting the unnecessary portion reads as follows: "(3A) Notwithstanding anything contained in sub-section (1) but without prejudice to the provisions of sub-section (2B) or sub-section (3), where the aggregate expenditure incurred by an assessee on advertisement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sub-section (3A) on the one hand and sub-section (3A)(i) on the other, the learned departmental representative tried to explain that for quantifying the disallowance only section 37(3A) may be used. But that is quite different from saying the aggregate expenditure incurred by an assessee on advertisement, etc., should not be considered for disallowance under section 37(3A). This argument of the learned departmental representative is not appealing to us. Each business carried on by the assessee is separate and distinct from another. Radha's Perfumery Enterprises is engaged in manufacturing soaps Radha's Ayurvedic Soap, whereas Kerala Sabdam is a weekly, published by the assessee. Two separate books of account were maintained for the two businesses. Profit and loss account and balance sheets were separately maintained and in fact, the profits derived by each of the businesses were separately arrived at and subsequently they were aggregated. When in fact the profits and losses suffered by two businesses are to be separately computed under the provisions of section 28 unless the disallowance for each of the businesses is quantified, the real profits in each of the businesses cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have started manufacture or production only from 1-4-1978 and as such, the entire expenditure on advertisement, publicity and sales promotion incurred by him for the purposes of the said business is not liable for disallowance under section 37(3A) as it comes under the exempted category of business within the meaning of section 37(3D) which is as follows: "In a case where an assessee has set up an industrial undertaking for the manufacture or production of any articles, nothing in sub-section (3A) shall apply in respect of any expenditure on advertisement, publicity or sales promotion incurred by the assessee, for the purposes of the business of such undertaking, in the previous year in which such undertaking begins to manufacture or produce such articles and each of the two previous years immediately succeeding that previous year." 11. The learned departmental representative opposed this argument and invited our attention to the wordings of sub-section (3D). According to him, the important test is, who had set up the industrial undertaking. Under the said sub-section the emphasis is on the undertaking and not on the assessee. According to him, a business can continue irrespect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently the right of carrying on such business was made over to the assessee. We fully agree with the learned departmental representative that the stress in sub-section (3D) of section 37 was on the undertaking but not on the assessee. If that be so, the manufacture of Radha's Ayurvedic Soap began only from 1-9-1977. For Radha's Perfumery Enterprises the accounting year was from 1-9-1977 to 31-3-1978. That means in the accounting year relevant to the assessment year 1979-80 that is on 1-4-1978 the business came into the hands of the assessee as a proprietary concern. Therefore, while submitting his return for this assessment year, he disclosed the profits of Radha's Perfumery Enterprises only from 1-4-1978 to 30-11-1978. It cannot be disputed that in the hands of the firm the manufacture of Radha's Ayurvedic Soap would be a new undertaking. Under sub-section (3D) the exemption would be available in the year in which the 'industrial undertaking' begins to manufacture and the succeeding two previous years. Now the question that falls for consideration is what will happen if in the succeeding two years there is a change in the ownership of business. Whether on that ground sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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