CROYDON CHEMICAL WORKS P LTD Vs. INSPECTING ASSISTANT COMMISSIONER
INCOME TAX APPELLATE TRIBUNAL
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K.C. Singhal, Judicial Member -
(1.) THE only question which arises for consideration in this appeal is whether any disallowance can be made under Section 37(3A) of the Income-tax Act, 1961 in respect of the expenditure on advertisement.
(2.) This is a recalled matter. The appeal was originally decided on 18th December, 1992. The assessee had raised two contentions in respect of disallowance on expenditure on Physician information Pamphlets and distribution of samples etc., namely (i) that the expenditure itself was not an expenditure on advertisement, publicity or sales promotion; (if) no disallowance could be made legally under Section 37(3A). The Tribunal decided the first contention of the assessee but the other contention of the assessee left undecided. On the Misc. Application filed by the assessee, the Tribunal has recalled the matter to consider the alternative contention of the assessee vide its order dated 20th July, 1993.
The parties have been heard on this issue. The contention of the appellant is that no disallowance can be made under Sub-section (3A) of Section 37 in respect of expenditure on advertisement, inasmuch as, Sub-section (3A) is non obstante clause with reference to Section 37(1) only and not with reference to Section 37(3). According to the assessee, the expenditure on advertisement is allowable under Section 37(3) and therefore Sub-section (3A) has no overriding effect over Sub-section (3A). In support of his contention the learned counsel for the assessee has relied upon the decision of the Tribunal in the case of Bajaj Electricals Ltd. [IT Appeal Nos. 6254 and 6742 (Bom.) of 1987 dated 21-1-1992] a copy of which has been produced before us for our consideration. At this stage of hearing it was pointed out by the Bench to the learned counsel for the assessee that the contrary opinion has also been expressed by the Bombay Bench of the Tribunal in the case of Teksons (P.) Ltd. (IT Appeal No. 2331 (Bom.) of 1989, dated 17-6-1994] to which one of was a party. Faced with this situation, he requested the Bench to pass a speaking order after considering both the decisions of the Tribunal. On the other hand, the learned Departmental Representative relied upon the order of Commissioner of Income-tax (Appeals).
(3.) WE have gone through the decisions of the Tribunal in the case of Bajaj Electricals Ltd. [supra). The same contention which has been taken before us, had been raised by the counsel for the assessee in that case. The Tribunal in that case has simply accepted the contention of the assessee's counsel and corroborate the same and it has also been mentioned therein that Sub-sections (3A) to (3D) had been omitted by the Legislature with effect from 1 4-1986. The relevant extract of the decision has reproduced as under :
WE have carefully considered the rival submissions of the parties, as well as the provisions of Section 37 with particular reference to the expenditure incurred on advertisement, which has been amended from time to time and we find force in the stand taken on behalf of the assessee. It is pertinent to note that Sub-sections (3A) to (3D) of the Act have been omitted from 1-4-1986 by the Finance Act, 1985, which would lend support to the stand taken on behalf of the assessee that in deciding the allowance of the expenditure incurred on advertisement one has to see the provisions of Sub-section (3) of Section 37 of the Act, which is still on the statute. Viewed from this angle, we are inclined to accept the stand taken on behalf of the assessee. WE would, therefore, direct the ITO to rework the disallowance, if at all, keeping in view the provisions of Sub-section (3) of Section 37 of the Act and modify the assessment accordingly.
The basis of the Tribunal's decision is that the expenditure on advertisement is allowable under Sub-section (3) and therefore no disallowance under Section 37(3A) can be made, inasmuch as Sub-section (3A) has no overriding effect over Sub-section (3). The inference which can be drawn from the decision of the Tribunal is that the expenditure on advertisement is not allowable under Section 37(1) but is liable under Section 37(3).;
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