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TMI Blog1991 (9) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... 38,614 and also the commission paid to advertising agents amounting to Rs. 2,49,067 being expenditure for the purpose of business. The Assessing Officer also allowed the claim of repairing and maintenance expenses claimed by the assessee at Rs. 7,01,273. 3. On examination of the assessment records of this assessment year 1985-86, it was noticed by the CIT that the Assessing Officer had not properly taken into account the above expenses which would otherwise be disallowable under the provisions of section 37(3A) of the Act. Omission to do so on the part of the Assessing Officer resulted into the under-assessment of income by Rs. 10,97,536 with consequent short levy of tax and interest and, therefore, the CIT was of the view that the order w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, there was no error or prejudice caused to the revenue by the order of the Assessing Officer. The assessee has been paying commission to selling agents in the normal course to advertising agencies, advertisers, local selling agents, outstation selling agents, Central/State Governments, Railways, Public Sector undertakings, etc. and the bills have been raised after allowing commission/trade discount as per usual trade agreements with them. Advertisement and sales bills are raised and accounted for in the books of account on the basis of net amount and disclosure of the total amount of the commission/trade discount was made in the account only to meet the requirement under section 211 of the Companies Act, 1956 and the Schedule VI thereto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly supported by Bill of Lading and the Customers Clearance made by the assessee. In such a case it is submitted that these items could not be treated as in the nature of machinery of capital nature. It is also pointed to us that the details were duly given in the Annual Report for the year ending 1984 at page 76 under the head " Other expenses " as repairs and maintenance for plant and machinery and further details have been incorporated at page 78 under the head " Notes on accounts ". These items have not been capitalized by the assessee as they are in the nature of spare parts not amounting to capital assets as evident from the details of the fixed assets given at page 73 of the Annual Report. It is, therefore, submitted that there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission basis or partly on retaining basis. The genuineness of the payment and the services rendered have not been doubted. The only issue that falls for our consideration is whether these expenses will assume the character of 'sales promotion' as contemplated under section 37(3A) of the Act. The term 'sales promotion' used in section 37(3A) came up before the Tribunal in the case of Mopeds India Ltd. v. IAC [1984] 7 ITD 324 (Hyd.) and in that it was held as follows : " A selling agent's commission, in our opinion, can never be treated as an outlay on advertisement, publicity or sales promotion. This is part of selling cost. If it is allowed directly as a discount to the buyer, it is an abatement in the price. Even if the goods are route ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue came up before the Tribunal in the case of the well-known newspaper Statesman Ltd. [IT Appeal No. 917 (Cal.) of 1988]. In that case under similar circumstances the Commissioner invoked the provisions of section 263 and directed the Assessing Officer to apply the provisions of section 37(3A) of the Act on the above items. The Tribunal after elaborate discussion of the provisions of the Act and the relevant decisions on the point held as follows : " 17. In view of above discussion and background, we are unable to hold that the commission paid to sales agents or advertisement agents can be disallowed under section 37(3A) of the Act. It is not possible to pick up and isolate words 'sales promotion' out of expression 'advertisement, publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 37(3A) of the Act. 8. Respectfully following the above decisions we hold that the provisions of section 37(3A) of the Act were not at all applicable to the expenses in question and, therefore, the order of the Assessing Officer cannot be said to be erroneous and prejudicial to the interest of the revenue. In that view of the matter, the learned Commissioner has not correctly assumed the jurisdiction and his order is liable to be vacated on this point. 9. With regard to the direction given by the Commissioner regarding purchase of machinery of a capital nature for a sum of Rs. 7,01,273 it is seen that the learned CIT has not brought on record any material to show that the items purchased are in the nature of a capital asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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