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TMI Blog1994 (4) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Ground No. 2 is against disallowance of Rs. 69,198 representing discretionary expenses. The Assessing Officer disallowed the claim of the assessee holding that the assessee had not proved as to how various amounts aggregating to Rs. 69,198 claimed as business expenditure were wholly and exclusively for the purposes of business. He also followed the order of the Tribunal in the case of the assessee himself for asst. yr. 1980-81, when on identical facts the disallowance made was upheld. The assessee failed before the learned CIT(A) also. 5. We have heard learned representatives for both the parties and have also perused the relevant record. A similar issue arose in assessee's own case in asst. yr. 1983-84 also when the Tribunal in its order dt.17th Dec., 1992following its order for asst. yr. 1981-82 and again in 1982-83 deleted the addition so made. There being no new facts and circumstances, respectfully following the order of the Tribunal for asst. yr. 1983-84, the addition made is deleted, the claim being accepted as expenditure wholly and exclusively laid out for the purposes of business of the assessee. 6. Ground No. 3 is against disallowance of Rs. 3,43,393 representing pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation being in accordance with the suggestion of the Company Law Board in connection with statutory cost audit. It was, thus, claimed that the book valuation of the cost should be ignored for income-tax purposes and the old basis of stock valuation should be adopted. While accepting the change in method of valuation of stock, the Assessing Officer did not allow any adjustment sought for by the assessee. The Assessing Officer accordingly found no basis for entertaining the claim made by the assessee during the relevant assessment year. 12. In appeal, the learned CIT(A) directed the Assessing Officer to re-examine the issue in the light of his order for asst. yr. 1983-84. The assessee is aggrieved. 13. We have heard both the learned representatives of the parties. This issue already stands discussed and decided against the assessee by the Tribunal in asst. yr. 1981-82, in its order dt.31st March, 1992. The facts and circumstances of the claim being the same respectfully following the order of the Tribunal, we reject the assessee's claim and dismiss this ground of appeal. 14. Ground of appeal No. 6 is against treatment of sales-tax amounting to Rs. 1,15,23,242 accorded by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realised sales-tax on sales made to this party for the credit period, there was no justification for treating the same as assessee's trading receipts, as also invoking provisions of s. 43B for making the impugned addition. He submitted that the change in method of accounting effected by the assessee with regard to sales-tax on sales made to Usha International was bona fide. Shri Vaish also submitted that the provisions of s. 43B are not attracted, inasmuch as the amount of sales-tax appeared on the liability side of the balance sheet and it was not claimed as a deduction by debit to P&L account, the sales-tax being directly taken to a separate account and not being treated as a part of assessee's sales. He referred to the judgment of Gauhati High Court in the case of India Carbon Ltd. vs. IAC (1993) 200 ITR 759 (Gau) in support of his proposition that s. 43B on facts and in the circumstances could not be invoked. 17. The learned Departmental Representative on the other hand, completely supported the reasoning of the Assessing Officer as also of the learned CIT(A) and submitted that the assessee was issuing a composite bill of sales which included sales-tax and, therefore, the mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only when sale is affected. The sales made to this very party are accounted for on mercantile basis. The sales-tax is involved on these very sales. The assessee is not entitled to account for different various items of the same sale, i.e., one on mercantile basis and the other on cash basis. We draw support from the order of the Hon'ble Calcutta High Court in the case of Reform Flour Mills (P) Ltd. as relied upon by the learned Departmental Representative, wherein it has been held that an assessee who is following a particular system of accounting and does claim to effect a change in the method of accounting cannot treat a particular transaction differently or separately from the method followed by him. Therefore, we are of the view that the authorities below were justified in rejecting the claim of the assessee. 18.1 With regard to applicability of s. 43B, here again we find that the issue has to be decided against the assessee in accordance with the ratio decidendi of jurisdictional High Court of Delhi in the case of Sanghi Motors vs. Union of India & Ors., Escorts Ltd. vs Union of India & Ors. In the result, this ground of appeal is rejected. 19. Ground No. 7 is against the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 To H.P. Sales-tax Payable...........10 On receipt of the hire charges in the first year and subsequent four years (assuming that the price of Rs. 110 was to be received in 5 years), the following entry was passed in each year: Bank..........................Dr. 22 To Buyer..........................22 At the end of the hire period, the buyer's account was debited and credited with Rs. 110, the H.P. Sale account was credited with Rs. 100 (the sale price of the goods) and the sales-tax payable account showed a credit of Rs. 10. When the H.P. sale crystallised on receipt of the last instalment and sales-tax became payable, the following entry was passed when the liability was discharged: Sales-tax Payable.................. Dr. 10 To Bank.................................10 20.3 Shri Vaish submitted that in a hire purchase transaction the sale as per s. 4 of Sales of Goods Act, takes place only when the final instalment is received. Prior to that stage sales-tax is neither chargeable nor payable. He submitted that when a notional entry is made on account of sales-tax in the first year to the credit of the H.P. Sales-tax payable account, provisions of s. 43B are not attracted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India (1988) 71 CTR (AP) 34 : (1988) 173 ITR 708 (AP) and Tribunal's order 'Delhi Bench' in the case of IAC vs. Indian Aluminium Cables Ltd. (1991) 40 TTJ (Del) 148 : (1992) 41 ITD 80 (Del) wherein it has been held that Expln. 2 to s. 43B is not applicable to the sums referred to in cl. (b) of s. 43B. The learned Departmental Representative on the other hand submitted that the proviso is applicable by implication. 21.1 We have heard both the parties and have also perused the relevant record. A plain reading of Expln. 2 to s. 43B reveals that for the purposes of cl. (a), any sum payable means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. Examined in this background, we notice that the sums involved are not payable during the relevant previous year under the relevant laws governing PF, ESI, etc. Therefore, we find merit in the contention of the assessee. The judgment of Hon'ble Andhra Pradesh High Court as also order of the Trbunal, fully support the case of the assessee. This ground of appeal is, therefore, allowed. Ground No. 10A 22. The issue involved in this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e supported the order of the learned CIT(A). 22.5 We have heard both the parties. In our view the leaflets and hand bills containing basic information on the products manufactured by the assessee would not amount to advertisement, the same being in the nature of catalogue for educating the public. We accordingly allow the claim of the assessee. 22.6 Item No. (iv) is with regard to Folders and literature. The nature of Folders and literature is the same as in the case of leaflets and hand bills and, therefore, we allow the assessee's claim on this account also. 22.7 Item Nos. (iii), (v), (vi) and (vii) represent expenditure on posters, town development, exhibition and expenditure on cooperative basis. In so far as the poster is concerned, we are not impressed with the argument of the learned authorised representative for the assessee that the same merely displays the products manufactured by the assessee when the assessee is also claiming expenditure on leaflets and folders. After having met the basic requirement of educating the public through leaflets and folders, the expenditure on posters is nothing but advertisement. 22.8 Similarly, the expenditure on town development is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to remaining items of expenditure by the Revenue are upheld. This ground of appeal is accordingly partly allowed. 23. Ground No. 10B is that the learned CIT(A) erred in upholding that the expenditure of Rs. 9,73,580 on advertisement for recruitment, sale of assets, sale of scrap and statutory notices are covered by the provisions of s. 37(3A). The learned authorised representative for the assessee submitted that none of the items is covered within the meaning of s. 37(3A) and, therefore, the amount of Rs. 9,73,580 could not have been taken into account for working of disallowance. He has invited our attention to various judgment of the Tribunal, including United India Insurance Co. Ltd. vs. IAC (1989) 31 ITD 215 (Mad), Buckau Wolf India Ltd. vs. IAC (1992) 44 TTJ (Bom) 30 and Dy. CIT vs. Secals Ltd. (1991) 41 TTJ (Mad) 261 as also the order dt. January, 1993 of the Tribunal, Delhi 'A' Bench in the case of Modi Rubber Ltd. ITA 4062/Del/91, asst. yr. 1984-85, wherein it has been held that providing the public with information relating to issue of debentures and raising of loans would not amount to advertisement. 23.1 The learned Departmental Representative submitted unlike the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (Cal), CIT vs. Sutlej Cotton Mills Ltd. (1992) 194 ITR 66 (Cal), Hindustan Times Ltd. vs. ITO (1990) 33 ITD 427 (Del) and ITO vs. Meera & Co. (1986) 24 TTJ (Chd) 44 : (1986) 15 ITD 227 (Chd). 24.3 The learned Departmental Representative submitted that the commission is paid to dealers under agreement between the assessee and various dealers. He invited our attention to the terms of agreement and in particular to the function assigned to an agent vide cl. (3) of the agreement under which the Agent is to undertake to: (i) Canvass and procure orders on account of Government/bulk institutional buyers and exports; (ii) Arrange for sales promotion measures as may be necessary from time to time, on mutually agreed basis; (iii) Provide after-sale service throughoutIndiain the agreement territory; (iv) Provide such other services as may be required in the interest of sales, on mutually agreed basis from time to time; He also referred to cl. 6 of the agreement under the head sale promotion, which provides that the assessee-company "shall bear the cost of such sales promotion measures including publicity, off-season discount and or turnover bonus, etc., as may be considered necessary a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount of Rs. 1,47,374 could be considered for working out disallowance under s. 37(3A). The learned CIT(A) did not admit the working given by the assessee and confirmed the action of the Assessing Officer. 25.1 The learned authorised representative for the assessee submitted that before the Assessing Officer it was not possible to give exact details of such expenditure but when the matter was taken before the CIT(A) exact amount on this account was worked out at Rs. 1,47,374 and, therefore, the learned CIT(A) should have entertained the claim made by the assessee. It was submitted that being a matter of record and evidence, the assessee should not have been denied due opportunity to substantiate its claim, on the other hand, the learned Departmental Representative pointed out that proper opportunity was allowed by the Assessing Officer then the assessee without substantiating its claim, estimated the same at 30% and it is only before CIT(A) that it has come out with the plea that an expenditure of Rs. 1,47,374 only is covered under s. 37(3A). He, therefore, opposed any relief on this account being given to the assessee. 25.2 We have heard the learned representatives for bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's expenditure on running and maintaining a motor car in the light of the clarification available from Expln. (c)(ii) to s. 38(3A) and (3B) of the Act. The facts and circumstances being the same, following the ratio in the case of Coates ofIndia, this ground of appeal is rejected. 27.1 For similar reasons the driver's salary is also held to be covered by s. 37(3A), the drivers being essentially employed for running of cars. 28. 10-H. It is the grievance of the assessee that while working out disallowance under s. 37(3A) statutory deduction of Rs. 1 lakh has not been allowed. From the order of the learned CIT(A), it is noted that this ground of appeal was not pressed. However, the learned authorised representative submitted that being a statutory deduction there was no question of not pressing this ground of appeal, when a specific ground was raised before the learned CIT(A). We have heard the learned representative of the parties on the issue and have also perused the relevant record. The deduction claimed is statutorily available to the assessee while computing the disallowance under s. 37(3A), whether claimed or not. We notice from the order of assessment that while working ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and held that notwithstanding any order of the Supreme Court on assessee's own petition, the judgment of the Hon'ble Court delivered in the case of Bombay Tyre International was equally applicable, the same also having been relied upon by the assessee for write back of the liability. He, thus, made the impugned addition under s. 41(1). The addition so made was upheld by the learned CIT(A). 29.2 The learned authorised representative for the assessee Shri A. Vohra submitted that it is not disputed by the Revenue that assessee's own petition is pending before the Hon'ble Supreme Court and the mere fact that the assessee, following the judgment of the Hon'ble Court given in the case of Bombay Type International as interpreted by the assessee, wrote back the amount involved did not lead to cessation of liability. It was submitted that the decision of Hon'ble Supreme Court given in another case did not per se apply to the assessee without assessee's petition having been disposed of. It was submitted that it is only when the assessee's petition is disposed of, there will be finality as to whether the liability involved ceased or not. The learned authorised representative broadly expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is as per its own working. He submitted that the assessee made provisions on account of excise duty in anticipation of the demand. He submitted that price list, which excludes post-manufacturing expenses, as prepared by the assessee, stands accepted by the excise department no doubt subject to bond and bank guarantee being furnished by the assessee. He submitted that the assessee does not deny that it has written back the amount involved in the light of judgment of the Supreme Court given in the case of Bombay Tyre International. yet the assessee contests the cessation of liability for the purposes of s. 41(1). He referred to the judgment of Hon'ble Supreme Court in the case of Bombay Tyre International itself where, according to the learned Departmental Representative it had been specifically mentioned that "individual appeal, writ petition, Special Leave Petition in case will be listed now for appropriate order in the light of this judgment." According to the learned Departmental Representative, this clearly shows that the judgment given by the Supreme Court in Bombay Tyre International is applicable on such similar petitions, including that filed by the assessee, as already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own petition is still pending before the Hon'ble Supreme Court and the judgment given by theHon'ble Courtin the case of Bombay Tyre International is in persona. This apart, the bond and bank guarantee given by the assessee to the Excise Department is still in force. The liability has not ceased to exist and the write back is strictly unilateral. Therefore, we are clearly of the view that the provisions of s. 41(1) are not attracted in the case of the assessee subjecting the amount of excise duty written back, to tax as assessee's income for relevant previous year. In the result, the addition of Rs. 50.07 lakhs is deleted. 30. Ground of Appeal No.12-B is covered by our decision on ground of appeal No.12-A. 31. Ground of Appeal No.12-C is not pressed. This ground is accordingly dismissed. 32. Ground No.13 is against assessability of Rs. 53,60,878 as assessee's income, being the amount received under cash compensatory support. This is not pressed and is, thus, dismissed as such. 33. Ground No.14-A is with regard to working of disallowance under s. 37(2A). The only issue involved is with regard to percentage of expenditure attributable to employees. In assessee's case, such expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the relevant record as also Order of the Tribunal given in the case of Modi Rubber. It is not possible to accept the view of the Revenue that presentation articles essentially constitute entertainment without ignoring the relevant facts and circumstances as also the nature of articles presented and the occasions as also the business necessity. In our view, there is no basis for making the impugned addition. The claim is held allowable under s. 37 of the IT Act as business expenditure. 37. Ground Nos. 17 & 18 are not pressed. 38. Ground No. 19 is against disallowance of investment allowance under s. 32A on cost of motor car etc., amounting to Rs. 14,83,013 held as road transport vehicles. The learned authorised representative for the assessee has invited our attention to the order of the Tribunal in assessee's own case for asst. yr. 1983-84 as also earlier order of the Tribunal for asst. yr. 1981-82 allowing assessee's claim for investment allowance on motor cars, accepting the claim of the assessee that motor transport vehicles are those which are given on hire like buses and trucks and not cars. On the other hand, the learned Departmental representative referred to the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in turn referred to the order of the learned CIT(A) and submissions made before him that the amount involved is related to commission paid for procuring export order and provisions of s. 37(3A) are not applicable in respect of such expenditure incurred by the assessee. He submitted that when legally such expenditure is excluded from the purview of s. 37(3A), the CIT(A) was justified in upholding assessee stand. 46. We have heard both the learned representatives and have also perused the relevant record. The amount involved is constituted of two items i.e. (i) Rs. 26,51,006 paid to Usha International Ltd. on export sales for procuring orders and (ii) paid to various parties other than Usha International Ltd. on export sales for procuring order, Rs. 8,87,118 or Rs. 35,38,124. Sub-s. (3C) provides that nothing contained in sub-s. (3A) of s. 37 shall apply in respect of expenditure incurred by an assessee being a domestic company or a person other than a company, which is a resident in India in respect of expenditure incurred wholly and exclusively on : (i) advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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