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TMI Blog1986 (11) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... enses, and the remaining sum of Rs. 10 lacs would be expenditure on entertainment of the customers, which was not allowable in terms of sub-s. (2a) of s. 37 of the IT Act, 1961. Accordingly he disallowed Rs. 10 Lacs out of the aforementioned sum of Rs. 15,23,916. 2. The assessee appealed against the aforesaid disallowance to the CIT (A), who, after perusing the material on record, held that the estimate of the IAC (Assessment) was fair and deserve, interference. 3. The ld. counsel for the assessee assails the above finding of the ld. CIT (A). According to him, it would meet the ends of justice, if half of the expenditure is disallowed as being on entertainment and the remaining amount be taken as business expenditure. On behalf of the Revenue, however it was urged that the estimate made by the IAC was fair and that, therefore, it should not be interfered with. 4. We have given careful consideration to the facts of the case and rival submissions. The disallowance in question is based on mere estimate and in the absence of bifurcation of the details, it is impossible to arrive at any scientific classification of the expenditure. It is well settled that when it is a mere case of es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, are not of that type, as is clear from the samples given by the IAC (Assessment) at p. 23 of this order. No material has been placed on record before us to show that the said analysis does not reflect the real pattern of the expenses debited under the aforesaid head. The orders of the ld. CIT (A), therefore, stand confirmed on this point. 5. The next controversy is with regard to the weighted deduction under s. 35B in respect of the following: Name of the office Description of the expenditure in respect of which relief is being claimed. The amount of expenditure. . . Rs. 1. Trichy office Expenditure incurred on maintenance of site office. 2,34,67,378 2.Bhopal (i) Tender Expenses 20,000 . (ii) Entertainment expenses of foreign customers 1,64,470 . (iii) Share of expenses for export promotion 37,39,559 . (iv) Export market development expenses 4,06,937 . (v) Sales promotion expenses 8,964 3.Exports Departments (i) Tender expenses 7,48,000 . (ii) Establishment expenses 11,82,000 4. P.P.E.R. Expenses incurred in connection with foreign projects 58,972 5. O.P.D. Expenses incurred in connection with foreign projects 94,29,205 Claim regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) is supported. 9. We have given careful consideration to facts of the case and the rival submissions. The various sub-clauses of cl. (b) of sub-s. (1) of s. 35B in the context of which the arguments have been put forward by the ld. counsel for the assessee may be noted before examining the same on merits: "The expenditure referred to in cl. (a) is that incurred wholly and exclusively on-- (i) Advertisement or publicity outsideIndiain respect of the goods, services of facilities which the assessee deals in or profits in the course of its business. (iv) Maintenance outsideIndiaof a branch, office or agency for the promotion of the sale outsideIndiaof such goods, services or facilities. (vii) Travelling outsideIndiafor the promotion of the sale outsideIndiaof such goods, services or facilities including travelling outward from and return toIndia. (ix) Such other activities for the promotion of the sale outsideIndiaof such goods, services or facilities as may be prescribed". 10. Sub-cl. (i) referred to above refers, to expenditure incurred on advertisement or publicity outsideIndiain respect of the goods, services or facilities, which the assessee deals in or provides in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee by the authorities below. That only leaves sub-cl. (ix) for consideration. The rule which prescribed the various activities for the promotion of the sale outsideIndiaof the goods., services or facilities of the company being r. 6AA was inserted by the Income-Tax (Eighth Amendment) Rules, 1981 w.e.f.1st Aug., 1981. The accounting period of the assessee, company ended on31st March, 1981. The ld. departmental representative, therefore, submitted that relief in terms of r. 6AA could not be granted to the assessee for asst. yr. 1981-82, for the rule was enacted after the previous year had ended. On behalf of the assessee however, it was pleaded that the rule was in fact part of the sub-cl. (ix) of cl. (b) of sub-s. (1) of s. 35-B and once enacted it had to be read as part of sub-cl. (ix) and the said sub-cl. (ix), was there on the statute right from the very beginning and, therefore, if a concession could be allowed to the assessee in terms of sub-cl. (ix), it should be given to it and that the benefit of sub-cl. (ix) could not be denied to the assessee merely because the rule was enacted by IT (Eighth Amendment) Rule, 1981 w.e.f. 1st Aug., 1981. 11. In our opinion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction in respect of it in terms of sub-cl. (vii) referred to above. The assessee's claim with regard to the entertainment expenditure incurred on foreign customers to the extent of Rs. 1,64,470 is pressed before us in terms of sub-cl. (i) of cl.(b) of sub-s. (1) of s. 35B of the IT Act, 1961. We are, however, not impressed by this argument of the assessee for the entertainment of the foreign customers inIndiacannot, in our opinion, constitute an expenditure incurred on advertisement or publicity outsideIndia. The claim, therefore, stands rejected. The ld. Counsel for the assessee had cited the authority of J. Hemchand & Co. vs. ITO (1982) 1 SOT 150 (Bom)(SB) before us. We are, however, unable to read the case of J. Hemchand and Co. as laying down the proposition that the expenditure incurred on the foreign customers in Indian should be construed as expenditure incurred on publicity and advertisement outsideIndia. Exports Division 14. The assessee had claimed weighted deduction for Rs. 68.61 lacs as per annexure 11 to the assessment order. The entire claim of the assessee was rejected by the ld. IAC. The ld. counsel for the assessee submits that weighted deduction is, any cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed weighted deduction, inter alia, on travelling expenses incurred inIndiato the extent of Rs. 19,40,590. The assessees claim for weighted deduction was denied by the IAC (Assessment) by observing, inter alia that there was no provision in the amended s. 35B (1)(b) for weighted deduction in respect of travelling inIndia. The ld. counsel for the assessee submits that the IAC (Assessment) misunderstood the nature of the aforesaid expenses. This was not the expenditure incurred for travelling insideIndia. This was the expenditure incurred inIndiafor purchasing tickets for travelling outsideIndia. The payments for the tickets for travelling outside are made inIndiain rupees and simply because the money had been paid inIndiain rupees, the claim of weighted deduction under s. 35B(1) (b) (vii) cannot be denied to the assessee. Prima facie, there is merit in the assessee's submission, provided the nature of expenditure is what the assessee indicates it to be. The matter, therefore, deserves to be re-examined and, accordingly, we restore the matter back to the IAC (Assessment) for going into this the nature of this expenditure and re-determining the allowability of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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