- (1.) The instant appeal was admitted on the following substantial questions of law: (i) Whether the tribunal was justified in law in restoring the disallowance of business expenditure of Rs. 52,21,367/- incurred by the appellant for car hire, printing, hire of manpower and sampling and display of the goods dealt with by it which was deleted by the Commissioner of Income Tax (Appeals) and its purported findings in that behalf are arbitrary, unreasonable and perverse ? (ii) Whether and in any event the said disallowance was made by the Assessing Officer in violation of the principles of natural justice - a) by relying upon enquires conducted from Banks in respect of parties to whom car hire charges, printing charges and manpower hire charges were paid behind the appellant's bank, without disclosing the same to it or affording to it any opportunity to controvert or deal with the same; b) by relying upon enquiries conducted in respect of sampling and display of the goods dealt with by the appellant without disclosing the same to the appellant or affording it any opportunity to controvert or deal with the same; c) by not providing to the appellant copies of the reports relating to local enquires conducted in respect of the three concernes to whom car hire charges, printing charges and manpower hire charges were paid and without affording to the appellant an opportunity to cross-examine the persons from whom such enquiries were alleged to have been made.
(2.) The appellant assessee filed return of income on 28.10.1994 in respect of assessment year 1994-95 showing a total income of Rs. 15,464,906/-. On perusal of the profit and loss account it was found that the appellant had debited a sum of Rs. 69,59,507/- towards advertisement and sale. In the assessment year 1993-94 the amount so debited was Rs. 14,19,197/- and in the assessment year 1992-93 was Rs. 2,03,507/-. In the course of scrutiny of such return, the assessee was called upon to furnish necessary details of expenditure as to how such steep rise had occurred on advertisement and sale promotion in that year.
(3.) The assessee stated that the sale had gone up by nearly 17% in that year and hence the sales promotion and advertisement expenses had to be increased correspondingly. It was found that although the sales in the said year had in fact gone up net profit had suffered a drastic fall.;