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2016 (10) TMI 402 - BOMBAY HIGH COURT

2016 (10) TMI 402 - BOMBAY HIGH COURT - TMI - Expenditure on free distribution of exercise note books - whether was in the nature of advertisement, publicity and sales promotion within the meaning of subsection (3A) read with subsection (3B) of section 37? - Held that:- The issue stands concluded against the applicant assessee by the decision of Andhra Pradesh High Court in Commissioner of Income Tax Vs. Ampro Food Products [ 1995 (2) TMI 54 - ANDHRA PRADESH High Court ]on identical facts, namel .....

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et amount of expenditure on advertisement / sales promotion i.e. gross expenditure less amount recovered by the applicant / assessee from its dealer can be considered for disallowance under Section 37(3A) of the Act. It also observed that where no claim for expenditure under Section 37 of the Act is made then no disallowance under sub-Section (3A) of Section 37 of the Act can be made. The question as posed for our opinion itself records as a fact, that no expenditure was claimed by the applicant .....

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cord. 2. By this Reference under Section 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal (Tribunal) seeks our opinion in respect of Assessment Year 198485, 1985-86 and 198687 on the following substantial questions of law : (i) Whether in the facts and circumstances of the case and in law, the Tribunal was justified in holding that the expenditure of ₹ 13,97,962/( ₹ 16,25,038 for A.Y. 1985-86) on the free distribution of exercise note books was in the nature of a .....

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7; 37,55,543/for A.Y. 1985-86), on account of advertisement, particularly in view of the fact that the said expenditure was never claimed by way of deduction and the said expenditure incurred by the assessee for and on behalf of the Consignment Agent was subjected to disallowance under the provisions of Sec.37(3A) r.w.s. 37(3B) in the hands of the Consignment Agents? (iii) Whether in the facts and circumstances of the case and in law, the Tribunal was justified in disallowing the deduction u/s 8 .....

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In the said decision, on identical facts, namely, distribution of note books, the Andhra Pradesh High Court held that the same was in the nature of sales promotion / advertisement. (b) In the above view, he does not dispute the applicability of Ampro Food Products (supra) to the present facts. Consequently, question (i) as raised for our opinion is answered in the affirmative i.e. in favour of the respondent Revenue and against the applicant assessee. 4. Regarding question (ii) : (a) This issue .....

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agreement also provided that the advertisement / sales promotion expenditure which is incurred would be recoverable from the distributors. (c) For the assessment year 198485, the applicant assessee expended a sum of ₹ 22.68 lakhs on advertisement / sales promotion. However, in terms of the agreement with the distributors, the applicant assessee collected an amount of ₹ 27.93 lakhs from its distributors on account of sales promotion / advertisement expenses, leaving a surplus of S .....

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to its rigour. The contention of the applicant assessee is that it has not claimed any expenditure, as a deduction for the reason that it was incurred by the Distributors was negatived. (e) Before us, Mr. Patil, learned Counsel for the applicant urges that in any case, the amount to be considered as expenditure is only the net amount after excluding the amount recovered from its distributors. This was in the alternative to his submission that as is evident from the question as framed, no expendi .....

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mount recovered by the applicant / assessee from its dealer can be considered for disallowance under Section 37(3A) of the Act. It also observed that where no claim for expenditure under Section 37 of the Act is made then no disallowance under subSection (3A) of Section 37 of the Act can be made. (g) The relevant observations of the Gujarat High Court in Vadilal Industries Ltd (supra) are as under : 12. Therefore, the first thing is to determine what is the expenditure claimed by the assessee; i .....

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the word this element may not be present, as and when we speak of a joke at another's expense. But the idea of spending in the sense of paying out or away money is the primary meaning and it is with that meaning that we are concerned. Expenditure is thus what is paid out or away and is something which is gone irretrievably. 13. Applying the aforesaid 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 .....

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r deduction. In absence of any claim there can be no question, whether the amount is allowable or otherwise. In other words, there cannot be any disallowance of an amount which is not claimed as a deduction. The Tribunal has recorded a finding that the assessee has claimed an expenditure of ₹ 46,473 only; that would be the only amount which would come up for consideration as being allowable or otherwise under S.37(1) of the Act. The scheme of the Act itself envisages that only after amount .....

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