TMI Blog1984 (11) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the reason that they represented entertainment expenditure incurred by the assessee in giving lunches and dinners to its customers in five star hotels. The Commissioner (Appeals) found that what the ITO had done in all these years, was to have disallowed only the expenditure in respect of lunches and dinners given in five star hotels and that he had not even considered the sales promotion allowance paid to the assessee's employees as entertainment expenses, though these allowances partook of the character of entertainment allowance and as per the Explanation given to section 37(2A) of the Income-tax Act, 1961 ('the Act'), it had to be considered as part of the entertainment expenses. The Commissioner (Appeals) was of the opinion that the ITO has been fair in making the impugned disallowance. He pointed out that the assessee has a separate head of expenditure named 'Tea and coffee expenditure', which could be considered as expenses incurred in connection with the extending customary courtey and hospitality to its clients. He, therefore, confirmed these disallowances made by the ITO. Only in the assessment year 1978-79, the Commissioner (Appeals) reduced the disallowance from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions urged on both sides, we do not see any reason to interfere with the order of the Commissioner (Appeals) on this point in all the four years. There is no dispute before us that the expenses in question were mainly incurred for giving lunches and dinners to the customers of the assessee-company in Five Star Hotels. We are unable to see how these expenses would cease to be an entertainment expenditure merely because the assessee-company classified these expenses under the different nomenclature, viz., sales promotion expenses. The revenue is right in its submission that even judged by the standards laid down by the Gujarat High Court in CIT v. Patel Bros. Co. Ltd. [1977] 106 ITR 424, which has been followed in Shah Nanji Nagsi's case, the expenditure in question would certainly be regarded as entertainment expenditure even for the assessment year 1975-76. We are unable to agree with the assessee's learned counsel that the sales promotion allowances paid to its employees in the two years 1976-77 and 1978-79, amounting to Rs. 10,800 and Rs. 10,900, should be excluded for the purpose of disallowance as we are of the view that these allowances would fall within the mischief of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,690 1980-81 1,37,620 1981-82 2,23,892 1982-83 3,25,463 The Commissioner (Appeals) had upheld these disallowances by following the decision of the Bombay High Court in the assessee's own case for the assessment years 1963-64 to 1968-69, now reported in Goodlas Nerolac Paints Ltd. v. CIT [1982] 137 ITR 58. 9. It was submitted by Shri S.P. Mehta, the learned counsel for the assessee, that though this decision of the Bombay High Court in Goodlas Nerolac Paints Ltd.'s case is against the assessee, there are decisions of the Tribunal in the assessee's own case for the later assessment years, when the matter was again re-examined and decided in favour of the assessee on the same issue. In support on this submission, Shri Mehta relied on the order of the Tribunal in IT Appeal No. 702 (Bom.) of 1971-72 and 2153 (Bom.) of 1973-74, dated 28-2-1975, for the assessment years 1970-71 and 1971-72. He particularly invited our attention to the assessee's contentions set out in paragraph No. 4 of this order as well as the contentions of the revenue set out in paragraph No. 5 of the same order and also the findings of the Tribunal, in paragraph Nos. 6 and 7 of the said order. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, between the years presently under appeal and the years which were considered and decided by their Lordships of the Bombay High Court in Goodlas Nerolac Paints Ltd.'s case. He argued that the said decision of the Bombay High Court squarely applies to the facts of the present case and that we should follow this decision, as the later orders of the Tribunal were also the subject-matter of further reference pending before the Bombay High Court though at the instance of the revenue. 12. We have carefully considered the rival submissions of the parties in the light of the materials placed before us and the decisions relied on by them. Since the matter has already been considered by the Hon'ble High Court, it is necessary that we should first examine the ratio of the decision in Goodlas Nerolac Paints Ltd.'s case. A careful reading of this judgment, a copy of which has been placed at pages 35 to 42 of the paperbook, shows that reliance was placed before the High Court on the decision of Ciba Dyes Ltd. v. CIT [1954] 25 ITR 102 (Bom.). After setting out the ratio of the earlier decision, their Lordships distinguished the case of the present assessee in the following words : " . . . I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the affirmative and against the assessee. 13. In Mills Stores Trading Co. India (P.) Ltd.'s case, the Commissioner sought a direction under section 256(2) of the Act to the Tribunal to state a case and refer four questions set out in his application. Their Lordships rejected this petition, since their Lordships were of the view that all the questions turned over the basic controversy as to whether an amount of Rs. 26,112 should be allowed to be deducted out of the assessee's total income for the purpose of the assessment. The said sum was claimed by the assessee as a deduction on account of secret commission, paid by the assessee to the employees of various mills purchasing the goods of the assessee. After setting out the salient facts, their Lordships held as follows in paragraph Nos. 2 to 4 of their judgment, which is quoted below : " 2. The facts giving rise to this application are that the assessee carries on the business of the supplying mill stores to various mills. The assessee claimed an amount of Rs. 26,112 by way of secret commission paid to the employees of various mills who had purchased goods from the assessee. The ITO disallowed the sum of Rs. 26,112 on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the persons to whom secret commissions were alleged to have been paid. . .' 4. In that case, on the facts, the Tribunal had disbelieved the case of the assessee regarding payments of such amounts as secret commission and we declined to interfere with that finding for the reasons stated above. In the present case, the Tribunal has believed the case of the assessee that the payments were made as well as that there was nexus between the said payment and the business of the assessee and we do not see how these findings of fact can be interfered with in a reference. " 14. When we examine the earlier orders of the Tribunal in the assessee's own case for the assessment years 1970-71 and 1971-72, we find that the Tribunal has decided the issue after examining the materials placed before them in the following words in paragraph Nos. 6 and 7 of their order in IT Appeal Nos. 702 (Bom.) of 1971-72 and 2153 (Bom.) of 1973-74, dated 28-2-1975 : " 6. The assessee must satisfactorily establish two facts for successfully claiming the deduction of the amount under dispute. It should first establish the payment. It should next establish that the amount was paid wholly and exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The company employed checks and counter-checks to satisfy itself on the point. The payment cannot be held not to have been paid or its claim cannot be rejected merely because the names of the recipients have not been furnished. If the company furnishes the names, it would defeat the very purpose of the payment. It would not take such a suicidal measure. That, however, does not debar it from claiming the deduction of the payment if the payments and purposes are satisfactorily established. There can be not doubt that the payments and the purpose can be satisfactorily established even without disclosing the names of the final recipients. The reference made by the revenue to the non-disclosure of the details of the payments in section C (sic) of the return is irrelevant. Section 133 requires details regarding the payment of commission to be furnished. The payments under consideration were not payments of commission. They were payments made for keeping the employees of some of the principal customers on the right side and to induce them to render proper co-operation in dealing with its transactions. The assessee-company was, therefore, under no obligation to furnish the details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is a well known fact that in trade circles such payments have to be given. It is also known as kick-back to the executives. So, we can accept as a fact that such payments had been made by the company. At any rate, the vouchers clearly show that these amounts had gone out of the coffers of the company. 6. The next issue is whether this is a business expenditure. The answer is obviously 'yes'. It has been paid for the sale of the company's goods. The vouchers are given by the salesmen. Now, the AAC has referred to illegal payments. On the facts shown, there is no apparent illegality. If any of the consumers happens to be a Government department, then there might be a question of illegality. But the consumers are all industrial companies, not Government departments. Besides, we also find that the payment made hardly comes to 0.1 per cent of the turnover. Reliance placed on Amritlal Co. (P.) Ltd. v. CIT [1977] 108 ITR 719 (Bom.) is of no help. That case dealt with excess payments made to the directors. We are of opinion, therefore, that considering the matter afresh, the assessee's contention should be accepted on this point. " It will again be noticed that this decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as excessive nor unreasonable considering the increase in the turnover for these years. We, therefore, respectfully follow the orders of the Tribunal for the assessment years 1970-71, 1971-72 and 1974-75 and hold that the assessee is entitled to this deduction of selling expenses in the computation of its business income under section 37(1). Accordingly, this ground is allowed in all the eight years. 16. The last ground for consideration arises only in the assessment year 1978-79. It is against the disallowance of the assessee's claim for investment allowance under section 32A of the Act, amounting to Rs. 4,21,564, in respect of the new plant and machinery installed for the manufacture of synthetic resin and Rs. 44,809 in respect of the new plant and machinery installed for the manufacture of pigments. 17. As regards the investment allowance of Rs. 44,809 on the plant and machinery of pigment plant, the learned counsel for the assessee, Shri Mehta, fairly conceded that the assessee would not be entitled to this investment allowance in view of the fact that pigments are specified in item 26 of the Eleventh Schedule of the Act. However, he did not want to give up the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for this year. 21. We have perused the order of the Commissioner (Appeals) for the assessment year 1979-80, wherein he had examined this issue in great detail. He had also examined the order of his predecessor for the year under appeal as well as the order of the Commissioner (Appeals) in the case of Garware Paints Ltd. After examining these orders and the relevant provisions of the Act, the Commissioner (Appeals) allowed the assessee's claim in the following words in paragraph 4 of his order : " 4. After considering both the views, I am of the opinion that the view held by the learned Commissioner (Appeals) in the case of Garware Paints Ltd. has to be preferred to the view of my predecessor in this case because the language of section 32A(2A) is quite clear on this point. This sub-section states that the deduction under section 32A(1) shall not be denied in respect of any machinery or plant installed and used mainly for the purpose of manufacture of article or thing, which is not listed in the Eleventh Schedule only by the reason that such machinery or plant is also used for the purpose of business of manufacture of any article or thing specified in the said list. Thus, inves ..... X X X X Extracts X X X X X X X X Extracts X X X X
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