INCOME TAX OFFICER Vs. QUALITY WINES
LAWS(IT)-1989-8-15
INCOME TAX APPELLATE TRIBUNAL
Decided on August 29,1989

Appellant
VERSUS
Respondents

JUDGEMENT

K.S. Viswanathan, Accountant Member - (1.)THIS is a departmental appeal. The question is whether a part of the expenditure incurred by the assessee in the course of their business to increase the sales is hit by provisions of rule 6B of the Income-tax Rules.
(2.)The assessee is a dealer of wines and spirits manufactured by M/s. Shaw Wallance Company, Vijayawada. This company had a scheme for increasing sales. For every 5 cases purchased by the dealers, the company was giving one case free. The assessee also introduced a scheme as an incentive for furthering the sales. On purchase of every six cases, the assessee would give the customer one lucky draw coupon. This scheme was in force for the month of September 1983. After this period was over, a draw was arranged and the persons holding the lucky coupons were given prizes like Refrigerator, Steel Almirah, Phillips Radio etc. In purchasing these presents, the assessee had incurred an expenditure of Rs. 40,382. Out of this, a part of expenditure i.e. Rs. 8,104 was in respect of a party given at the end of the prize scheme. The balance of the expenditure represented the cost of the goods purchased.
Before the Income-tax Officer, the assessee had claimed that these expenditure are allowable. The Income-tax Officer, however, held that the expenditure incurred in purchase of the gifts and presents for the lucky draw would be hit by the provisions of rule 6B. He considered the cost of each item and after allowing Rs. 50 against the cost of such item, the balance amount of expenditure was disallowed. Such disallowance amounted to Rs. 34,949.

(3.)AGAINST this finding, the assessee appealed. The Commissioner (Appeals) relying on an order of the Hyderabad Bench of the Tribunal held that the cost of the presents amounted to a trade discount and therefore it cannot be considered as advertisement expenditure. Apart from that, he also held that these expenditure which should be considered as an advertisement expenditure comes under Section 37(3A). Under this section, a disallowance of expenditure can be made only if the expenditure exceeds Rs. 1 lac. In this case, the total expenditure was below Rs. 1,00,000 and therefore nothing can be disallowed. He also held that there was no need to invoke the provisions of rule 6B since the expenditure incurred would be allowable as trade discount as well as sales promotion or publicity expenditure.


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