- (1.) THIS is an application under S. 256(2) of the IT Act, 1961, filed on behalf of the Department to direct the Tribunal to draw up a statement of case and refer the following questions of law : "(1) Whether, on the facts and in the circumstances of the case, there was any material before the learned Tribunal in law to delete the addition of Rs. 97,824 towards entertainment expenditure under S. 37(2A) of the IT Act ? (2) Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in deleting the additions of Rs. 1,39,658 made by the AO under S. 40A(5) of the IT Act and holding that the disallowance should be worked out in view of r. 3C(ii) of the IT Rules, 1962 ? (3) Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in deleting the addition of R. 3,67,872 made by the AO towards claim of bonus pertaining to previous accounting year as a result to charge in the method of accounting in respect of bonus from cash system in the asst. year 1984 -85 to mercantile system in the asst. year 1985 -86 in view of the decision of the Supreme Court in the case of CIT vs. British Paints India Ltd. (1991) 188 ITR 44 (SC) ? (4) Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in holding that the expenditure of Rs. 4,32,730 disallowed by the AO under S. 40A(3) of the IT Act was admissible being covered under exceptional circumstances as laid down under r. 6DD(j) of the IT Rules ?"
(2.) THE assessee is a public limited company and manufacturer of jute bags and automobile batteries. The assessment proceedings were taken for the year 1985 -86. The assessee claimed certain deductions, which were allowed by the Tribunal. The Department filed an application under s. 256(1) of the Act for referring the questions of law framed above. The Tribunal has already referred questions Nos. 2 and 3 to this Court vide order dt. 4th Feb., 1998. It is not necessary in these circumstances to ask the Tribunal to refer those questions. We have heard Sri A.N. Mahajan, learned counsel for the applicant. Learned counsel for the applicant present questions Nos. 1 and 4 referred to above. As regards question No. 1 it is contended that the Tribunal has allowed 50 per cent expenditure considering the provisions under S. 37(2A) of the IT Act. The Tribunal has allowed it only on the ground that for earlier years 50 per cent allowance was given for such expenditure. He neither refers to the provision of S. 37(2A) of the Act nor considers the material in this respect. The Tribunal is directed to draw up a statement of the case in respect of question No. 1, referred to above. As regards question No. 4 learned counsel for the applicant urged that the amount was not paid either by cheque or by bank draft so the expenditure should be disallowed keeping in view S. 40A(3) of the IT Act.
(3.) THIS Court interpreted this provision in CIT vs. Kohli Khan Bhandar (1978) 111 ITR 419 (All) and held that the assessing authority has to consider the facts and circumstances before applying the provisions of S. 40A(3) of the IT Act.;