1983 (12) TMI 322 - AT - Income Tax

Issues Involved:
1. Allowability of expenditure on distribution of dry fruits as business expenditure.
2. Allowability of sales promotion expenditure.
3. Disallowance of expenditure on presentation of articles.
4. Allowability of popja expenses.
5. Treatment of house maintenance expenditure as perquisites.
6. Nature of expenditure incurred on amalgamation.
7. Entitlement to relief under section 80J of the Income-tax Act.
8. Chargeability of interest under sections 215 and 139(8) of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Allowability of Expenditure on Distribution of Dry Fruits as Business Expenditure:
The revenue appealed against the Commissioner (Appeals)' decision to allow the expenditure of Rs. 14,855 incurred on distributing dry fruits during Diwali and New Year's Day as business expenditure. The Income Tax Officer (ITO) had disallowed this expenditure, treating it as entertainment expenditure. The Tribunal upheld the Commissioner (Appeals)' decision, referencing its own previous decision for the assessment year 1977-78, affirming that such expenditure is for business purposes and not entertainment.

2. Allowability of Sales Promotion Expenditure:
The revenue challenged the allowance of Rs. 2,57,705 as sales promotion expenditure. The assessee had claimed Rs. 3,61,624 under this head, but the ITO disallowed Rs. 2,57,705 applying rule 6B of the Income-tax Rules, 1962, as the value of some articles exceeded Rs. 50 each. The Commissioner (Appeals) deleted this addition, following earlier Tribunal decisions. The Tribunal agreed with the Commissioner (Appeals), citing consistency with its previous rulings.

3. Disallowance of Expenditure on Presentation of Articles:
A sum of Rs. 1,88,941 was disallowed by the ITO under rule 6B, as the expenditure on articles exceeded Rs. 50 each. The Commissioner (Appeals) deleted this disallowance, and the Tribunal upheld this decision, reiterating the reasons provided for the sales promotion expenses.

4. Allowability of Popja Expenses:
The ITO disallowed Rs. 14,938 incurred as popja expenses, claiming it was unrelated to business promotion. The Commissioner (Appeals) allowed this expenditure, treating it as staff welfare expenditure. The Tribunal upheld this view, distinguishing the case from Kolhapur Sugar Mills Ltd. v. CIT, where substantial staff welfare expenditure had already been allowed.

5. Treatment of House Maintenance Expenditure as Perquisites:
The ITO included Rs. 5,456 as perquisites for determining disallowance under section 40(c)/40A in respect of the managing director. The Commissioner (Appeals) deleted this amount, relying on the Kerala High Court's decision in CIT v. Travancore Tea Estates Co. Ltd. The Tribunal upheld the Commissioner (Appeals)' decision, noting that the expenditure on maintenance did not amount to perquisites unless special repairs were undertaken for the employee's convenience.

6. Nature of Expenditure Incurred on Amalgamation:
The ITO treated Rs. 35,898 incurred on amalgamation as capital expenditure. The Commissioner (Appeals) deleted this disallowance, referencing decisions in Addl. CIT v. W.A. Beardsell & Co. (P.) Ltd. and CIT v. Bush Boake Allen (India) Ltd. The Tribunal upheld this view, citing the Madras High Court's decision in Bush Boake Allen (India) Ltd., which applied the principle from India Cements Ltd. v. CIT.

7. Entitlement to Relief Under Section 80J of the Income-tax Act:
The assessee claimed relief under section 80J for the PVC division profits post-amalgamation. The ITO rejected this claim, as relief had already been granted to the amalgamating company, T. Maneklal, for the same assessment year. The Commissioner (Appeals) upheld the ITO's decision. The Tribunal, however, allowed the assessee's claim, emphasizing that the amalgamated company should continue to receive relief for the period post-amalgamation, aligning with the CBDT's instructions and the principle of continuity of relief.

8. Chargeability of Interest Under Sections 215 and 139(8) of the Income-tax Act:
The ITO levied interest under sections 215 and 139(8). The Commissioner (Appeals) upheld the levy under section 215 but directed reconsideration for section 139(8) if levied for less than a month. The Tribunal found that with the relief granted, the advance tax paid was within the statutory margin, nullifying the interest under section 215. For section 139(8), the Tribunal remitted the matter to the ITO for reconsideration based on the revised tax liability.

Conclusion:
The revenue's appeal was dismissed, and the assessee's appeal was partly allowed, with specific directions for reconsideration of interest levied under section 139(8).

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