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2008 (4) TMI 765 - GUJARAT HIGH COURT

2008 (4) TMI 765 - GUJARAT HIGH COURT - TMI - IT REFERENCE NO. 106 OF 1997 - Dated:- 9-4-2008 - D.A. MEHTA AND Z.K. SAIYED, JJ. B.B. Naik for the Applicant. S.N. Soparkar for the Respondent. JUDGMENT D.A. Mehta, J.:- The Tribunal, Ahmedabad, Bench-B, has referred the following two questions for the opinion of this Court under section 256(1) of the IT Act, 1961 (the Act), at the instance of the CIT: "1.Whether, the Tribunal is right in law and on facts in holding that disallowance under sect .....

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. In the assessment framed under section 143(3) of the Act, the AO adopted the figure of ₹ 17,36,625 for applying the provisions of section 37(3A) of the Act as being gross expenditure towards the advertisement, publicity and sales promotion. The plea of the assessee that the only amount which could be considered for the purposes of working out the limit for disallowance was ₹ 46,470 because the assessee had recovered ₹ 16,90,155 from the dealers of the assessee company was tur .....

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for the said year. 4. The assessee carried the matter by way of second appeal before the Tribunal. In relation to the first issue regarding disallowance under section 37(3A) of the Act, the Tribunal has held that the said provision along with other sub-sections like (3B), (3C) and (3D) of section 37 are part of section 37(1) of the Act; that an expenditure which is not claimed as deduction under section 37(1) of the Act cannot be taken into consideration for the purpose of working out limit for .....

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claimed as deduction. If the assessee does not claim the expenditure anywhere either in the return or in a letter same cannot be allowed or disallowed as a deduction. The assessee has claimed an expenditure of ₹ 46,473 only. Therefore, the disallowance if any, has to be considered from this amount only." 5. In relation to the second issue, after setting out the relevant data in para No. 4 of the order, the Tribunal has recorded following findings: "We have given the full details .....

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was not allowable for 1986-87 as it pertained to asst. yr. 1985-86. Here the claim was for 1986-87 and a finding was given that the same was available for 1985-86. The assessee at the very first opportunity moved before the CIT(A) with an additional ground of appeal. In this case the assessee was under genuine impression that the amounts in question were allowable in 1986-87 and not in 1985-86. The assessee came to know for the first time that the amounts in question pertained to 1985-86 when au .....

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made by reading the said section along with sub-section (3B) of the Act and the Tribunal has committed an error in referring to and relying upon the provisions of section 37(1) of the Act. According to the learned counsel, once the conditions prescribed in section 37(3B) of the Act were fulfilled, the AO had only to work out and apply the limit and the prescribed percentage laid down in section 37(3A) of the Act without looking at any other provisions of the Act. It was, therefore. urged that t .....

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correct in holding that there was no expenditure which was claimed. There can be no question of allowance or disallowance of an amount which is not claimed. In support of the submission, reliance has been placed on the decision of the apex Court in the case of Indian Molasses Co. Ltd. vs. CIT (1959) 37 ITR 66 (SC). to submit that the meaning of the term "expenditure" means something which is gone irretrievably. 9. In relation to the second question, it was submitted that on facts, the .....

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eafter, after allowability or otherwise, of an amount is decided, the last step would be of actually making allowance or disallowance. 11. Under section 37 of the Act any expenditure, which is not of the nature described in sections 30 to 36 and section 80VV of the Act, is allowable provided the expenditure is; (1) not in the nature of capital expenditure; (2) not in the nature of personal expenses of the assessee and; (3) laid out or expended wholly and exclusively for the purposes of the busin .....

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ture claimed by the assessee; is it the gross amount debited to the "Advertisement and sales promotion account", or is it the net amount after considering the credit to the "Advertisement and sales promotion account". To determine the same, the pronouncement of the apex Court as to the meaning of the term "expenditure" in the case of Indian Molasses Co. (P) Ltd. may be usefully reproduced. It is stated that: "Expenditure" is equal to "expense" an .....

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id tests to the facts of the case, it is not possible to state that the gross amount debited to the "Advertisement and sales promotion account" was the amount which was paid out or paid away, nor can it be termed to be something gone out irretrievably. In fact, the corresponding credit side of the very same account shows that a major portion of the amount had already been recovered by the assessee company from its dealers and in the circumstances, it is not possible to accept the conte .....

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which would come up for consideration as being allowable or otherwise under section 37(1) of the Act. The scheme of the Act itself envisages that only after amount is determined under section 37(1) of the Act as being allowable and the same falls within any of the specified categories of section 37(3B) of the Act, can the question of partial disallowance under section 37(3A) of the Act arise. 14. In the aforesaid fact situation and the position of law, as stated hereinbefore, there is no infirm .....

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he pending appeal before the CIT(A). That in fact, the claim of the assessee was genuine, the intention was bona fide in making the claim for the asst. yr. 1986-87 and, therefore, the Tribunal has held that in absence of any other evidence to point out to the contrary the assessee was entitled to raise an additional ground of appeal for the asst. yr. 1985-86 before the CIT(A). 16. In the case of New India Industries Ltd. vs. CIT (1993) 114 CTR (Guj) 52 : (1994) 207 ITR 1010 (Guj), this High Cour .....

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