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2006 (8) TMI 151 - PUNJAB AND HARYANA HIGH COURTDisallowance u/s 37 - festival expenses - expenditure incurred with a view to generate goodwill and to facilitate the conduct of business - whether the expenses incurred on purchase of gifts for distribution on occasion of festival would amount to entertainment or not" to be dealt with u/s 37(2) Or the same is "in the nature of expenditure made for the purpose of business" - Commercial expediency - Interest on the interest-free advance - HELD THAT:- As is evident from the facts of the present case, the expenditure of the kind claimed by the assessee as a deduction, has not been incurred in its premises. The expenses have not been incurred on a hospitality provided by the assessee to any guest or any other person. All that has been claimed is that certain gifts have been distributed on festival which are for the business expediency. We cannot lose sight of the fact that certain festivals in this area like Diwali are celebrated with much fanfare and not only in the business circles but even in friend circles, gifts and sweets are distributed. This cannot in any way may be held to be an expenses in the nature of hospitality. We have examined the facts of the present case and keeping in view the nature of business, scale thereof, the amount of expenditure claimed on account of purchase of articles for distribution as gifts on festivals, cannot be held to be excessive or not being for business purposes. Accordingly, the first question raised by the Revenue is decided against the Revenue and in favour of the assessee and the appeal on that count is dismissed. Interest on the interest-free advance - As we have already held in Abhishek Industries' case [2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT] when the assessee itself was incurring liability to interest on the amount raised as loan, there was no justification for advancing interest-free loans to sister concerns for the purpose of business. Accordingly, following the same, the claim of interest on the amount of interest-free loan advanced to sister concerns for non-business purpose, as calculated in the assessment order, to the extent of ₹ 55,24,250 is disallowed and appeal to that extent is allowed and the order of the Tribunal is set aside. Receipts Of sales tax subsidy - capital or revenue - HELD THAT:- We have examined the nature of the receipt in the case of Abhishek Industries, where the same type of sales tax subsidy was involved and held that to be revenue in nature. Following the judgment, we hold that the sales tax subsidy received by the assessee be treated as revenue receipt. Accordingly, question No.(iii) is decided in favour of the Revenue and against the assessee and the appeal of the Revenue to that extent is allowed and the order of the Tribunal is set aside. The appeal is disposed of in the manner indicated above.
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