TMI Blog1989 (11) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... the view of the learned Commissioner (A). In CIT v. Delhi Cloth General Mills Co. Ltd. [1978] 115 ITR 659 (Delhi) the assessee was annually organising sports tournaments in hockey and football to which teams from various parts of the country were invited. The expenses were held to be allowable on the ground of publicity. In the present case the connection of the expenses is even more intimate and perhaps necessary. This ground therefore fails. 6. The second ground relates to the allowance of the following reliefs : (a) Rs. 10,000 on account of gifts and articles presented to business associates, out of total amount of Rs. 14,303 (b) Rs. 24,029 on account of Diwali sweets (c) Rs. 1,009 on account of brief cases presented to the employees (d) Rs. 18,714 out of 'Kavi Sammelan' expenses. The Income-tax Officer had disallowed the entire expenses of Rs. 14,303 at (a) for which the details of the recipients were not given. The expenses at (b) to (d) were also disallowed by him. 7. The Commissioner (A) reduced the disallowance of Rs. 14,303 to Rs. 4,303 by holding that such presents were customary in business. The expenses on Diwali sweets and brief cases were allowed as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l preceding years, the Appellate Tribunal had upheld the write off of such irrecoverables on a similar pattern of facts holding it to be incidental to the business carried on by the assessee and therefore part of business expenses. He, therefore, upheld the assessee's claim. 11. After considering the rival submissions, we are of the view that the pattern of facts remaining the same as in the earlier years, the claim of bad debts/trade irrecoverables could not be said to be premature and that the write off was, in the circumstances justified according to the best judgment and discretion of the assessee on well-known principles. In this connection, the earlier orders of the Appellate Tribunal including paragraphs 2 to 5 of the order dated 28-2-1989 in I.T.A. Nos. 6132 (Del) of 1986 and 97 (Del) of 1987 for assessment year 1983-84 in the case of the assessee. We accordingly uphold the view of the learned Commissioner (A) on this point. 12. The next point relates to the addition of Rs. 2 lakhs. The newsprint and printing paper used by the assessee is that rolled on reels. At the end when some paper is left on the reels, it cannot be used because of very little thickness of the reel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer had made a similar addition of Rs. 7,27,690 which had been deleted by the learned Commissioner (A). We find from a perusal of paragraphs 17 to 20 of the order dated 28-2-1989 of the Tribunal for that year (in I.T.A. Nos. 6132/Del/86 and 97/Del/86) that the deletion of the addition was made and it was held that on mere suspicion, such an addition could not be made in the absence of material and in view of the conduct of the assessee. The position remaining the same on facts, we similarly uphold the finding of the learned Commissioner (A) on this point. 16. The next point relates to the claim for repairs to office and press premises. The Income-tax Officer held that the expenditure of Rs. 2,36,574 was of a capital nature. He allowed depreciation of Rs. 11,829. Thus the net disallowances was of Rs. 2,24,745. The details of the same were as under : (i) "Chajja" of mild steel at the main entrance of daphtary deptt. in the factory premises and painting thereof in place of old projection which had worn out and was ineffective Rs. 17,990 (ii) Mild steel railings with 'jali' on outer walls in replacement of barbed wire Rs. 1,47,407 (iii) Mild steel railings with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning capacity and what was done was to replace the old worn out 'chajjas', fencing and railings by improved or sophisticated ones. The expenditure incurred on such replacements was therefore clearly in the revenue field. We accordingly uphold the order of the learned Commissioner (A) on this point. 20. The next ground relates to the allowance of depreciation on commercialisation charges paid to the Land Development Office for the construction of a multistoreyed office and press premises. The learned Commissioner (A) found that the matter stood covered in favour of the assessee by the appellate orders from the assessment years 1973-74 to 1979-80 and that the department's Reference under section 256(2) had also been rejected by the Hon'ble Delhi High Court on 20-2-1987 [I.T.O. Nos. 72, 73, 84, 191, 193 and 194 of 1986]. Respectfully following these orders, we hold that the learned Commissioner (A) correctly decided the matter and there was no force in this ground. 21. The next ground relates to the addition of Rs. 8,63,540 made up of two items: (i) Rs. 2,85,000 as representing the payments made for purchase of newsprint over and above the cost of newsprint but not accounted f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... white cream Vova or Cream paper, although the bills showed as if the newsprint was sold. In response to some other questions put to him, he mentioned that he was doing this kind of business for a commission of Rs. 50 for over two years and that he was selling the paper on behalf of one Sanjay Enterprises to Paras Vyapar Sangthan P. Ltd. Darya Gunj, Delhi from whom the assessee company purchased its requirements. He also stated that the goods were directly delivered to Paras Vyapar Sangthan P. Ltd. by Sanjay Enterprises P. Ltd. through transport. In passing he also mentioned that Paras Vyapar Sangthan P. Ltd. used to sell these goods to various customers, which included Hindustan Times Ltd., the assessee company and he gave some instances of bills. It was on the basis of this statement of Shri S.K. Jain that the Income-tax Officer drew the inference that the assessee company was not purchasing from Paras Vyapar Sangthan P. Ltd. white cream paper as it showed in the bills but only newsprint by paying excess amounts over and above what was recorded in the bills. The assessee company was asked to examine Shri S.K. Jain, but somehow the assessee company did not avail of this opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n P. Ltd. the newsprint and not white printing paper and when he categorically stated that it was that paper that was supplied to the assessee company, the Commissioner (A) should not have brushed aside this important evidence and came to the erroneous conclusion that the Income-tax Officer had failed to prove the inflation in the purchase price. The fact that the bills did not disclose what was actually purchased proved the falsity of the accounted version and amounted to furnishing of inaccurate particulars. The Income-tax Officer might be wrong in estimating the quantum of inflation but the point to be noted and missed by the Commissioner of Income-tax was that there was inflation in the purchase price and that the assessee was acquiring newsprint only by paying higher price by camouflaging it as white paper. He therefore submitted that since the falsity of the particulars furnished by the assessee was proved beyond doubt, the additions made by the Income-tax Officer must be restored or at least some estimate of it must be made towards the inflation in purchase price. 24. The learned counsel for the assessee had submitted relying upon the order of the Commissioner(A) that noth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any any on-money was involved. He made only a general and a vague statement about the existence of practice of payment of on-money in the market. That vague statement, it is very unsafe to attribute to the assesee unless there was some corroborative evidence. The corroborative evidence could have come from Paras Vyapar Sangthan P. Ltd. by examining it or from Sanjay Enterprises P. Ltd. Neither of it was attempted. It cannot therefore be said by eliminating the prime witness, that reliance could be placed upon the version of a party, who is not even remotely connected with the assessee company and that too on a vague and general statement. In any case the assessee company should not have spurned the opportunity given to it to vindicate its stand by examining Shri S.K. Jain. It is possible to draw adverse inference but did the evidence on record show that the only conclusion possible was the one that the department had drawn. All the payments made by the assessee to Paras Vyapar Sangthan P. Ltd. were all by account payee cheques. Nothing was brought on record to show that a part of the money paid by account payee cheque had come back to the assessee in some form or the other so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri S.K. Jain, which was a vague and general statement. He then concluded that as the exact amount of overpayment was not known, he would estimate Rs. 2,85,000. This is absolutely without any basis, logic or reason. The same suspicion prevailed as the basis for making the other addition of Rs. 5,78,540. Merely because the cost of newsprint as per record worked out to Rs. 15,10,000, it did not mean that what was paid to Paras Vyapar Sangthan P. Ltd. of Rs. 20,90,000 by account payee cheques represented inflation in purchase price by Rs. 5,78,540. There is no connection whatsoever for this conclusion to be drawn from any of the facts mentioned by the Income-tax Officer. This addition is an undiluted conjecture. The Commissioner (A) is therefore justified in deleting both these additions as baseless. We agree with his conclusion. Further even if it is agreed for the sake of argument that the assessee had actually purchased newsprint describing it as white printing paper, still there was no evidence to establish that the assessee had paid anything more than the amount actually accounted for in the books resulting in fictitious payments, which alone can be called inflation. What is rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derstood. We therefore uphold the deletion of this disallowance as well. 30. With reference to serial No. 4 above, the learned Commissioner (A) held that there was no evidence that part of the travelling was done for sale promotion. Therefore he deleted the disallowance. 31. We have considered the rival submissions on this point. The Income-tax Officer made this disallowance on estimate on the ground that the assessee had not given the purpose of each journey. We have seen the details of the travelling expenses and we are of the view that no disallowance could be justified merely on the basis of assumptions and surmises, in the absence of a disallowable purpose. We therefore uphold the deletion of this disallowance. 32. With reference to serial No. 6 above, the learned Commissioner (A) upheld the assessee's contention that it was in the nature of an expenditure for the welfare of employees. 33. We have already observed earlier in this order that the expenses on "Kavi Sammelam" are expenses on a labour welfare activity in order to maintain cordial relations with the employees. Therefore the deletion of this disallowance is also upheld. 34. The next ground relates to the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63,92,683. The Income-tax Officer noted while examining the accounts of the assessee that there was a steady increase in the income from advertisement from the assessment year 1980-81 to the assessment year 1984-85 and he attributed the increase in the advertisement income to the expenditure incurred by the assessee on sales promotion by allowing it as a discount to the selling agents. After noticing the expenditure incurred on payment of selling agents commission and commission to advertising agencies, the Income-tax Officer required the assessee to explain as to why the amount paid by way of commission should not be considered for disallowance u/s 37(3A). The assessee was also asked to give the figures of commission paid to the commission agents and also to the advertising agencies. The assessee replied stating that the bills were prepared after reducing the commission allowable to the agents a-ad only the net amount of the bill was accounted for in the books. Similarly bills for advertisements published on behalf of the advertising agencies were also prepared after reducing the commission payable thereon and only the net amount was accounted for in the books. Thus the details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertising revenue, it cannot be inferred that the increase was only on account of the sales promotion efforts by paying commission to the agents. This, it was submitted, a wrong inference and illogical to the newspaper industry. It was also submitted that the advertising is also controlled by the Directorate of Advertisement and Visual Publicity. Reliance was also placed upon an order of the Chandigarh Bench of the Tribunal dated 25-6-1985 in the case of ITO v. Meera Co. [1986] 15 ITD 227 where the commission paid to agents for procuring orders and for after sales-service was held to be an expenditure not in the area of sales promotion. Reliance was also placed upon a decision of the Bombay Bench 'B' of the Tribunal in the case of L.D. Wvg. Industries Ltd. v. ITO [1986] 26 Taxman (Tax - Mag.) 84, where it was held that incentive bonus commission and brokerage paid to dealers and agents and brokers fell out of the ambit of sales promotion expenses. 41. On the other hand, the learned Departmental Representative drawing our attention to clauses 5, 6 and 16 of the Agency Agreement submitted that since the discount varied according to the sales and since clause 16 specifically re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only provides that the agent shall make efforts to promote the sales of all the publications to the mutual advantage by providing a sort of punishment clause that any decrease in sales except in exceptional would be as a ground leading to the termination of the agency. As it has provided for increase in sales, it has also provided for the determination of the agency in case of any indifference. Judged from the point of view of the penalty provided for termination of the agency, this clause can only be looked at as a clause providing for situations whereby the agents shall not be negligent or show any let up in their efforts to increase the sales. This clause cannot therefore be regarded as a clause providing for the sales promotion and as we have said looked at from the point of view of providing for punishment for negligence, this is a clause acting as a safeguard against negligence. It is now seen that but for the payment of the commission, the assessee would not be able to distribute its publications to the wide net of readers spread over the country. It is therefore inherent in the very nature of the assessee's business that the payment of commission must be made and here we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransportation of the assessee's publications to various places in the country by road. While the department's view was that this was expenditure incurred by section 37(3B)(ii) and clause (c) of the Explanation, the case of the assessee was that the expenditure of hiring taxies for despatch of newspapers and magazines was in the nature of freight charges paid to transport contractors for the transportation of its publications, which could not be treated as an expenditure incurred on the hiring of taxies for the use of the assessee's personnel. While both the Income-tax officer and the Commissioner (A) held it to be expenditure incurred by section 37(3B), we are not able to share that view for the reason that the expenditure incurred by the assessee on transportation of its publications by road can be considered to be an expenditure incurred on running and maintenance of aircraft or motor cars. What the restrictive clause of section 37(3B) provides is that the expenditure on running and maintenance of motor cars for purposes other than transportation of goods is to be disallowed. Explanation (c) states that the expenditure on running and maintenance of aircraft and motor cars shall i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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