D.K. Seth, J. - (1.) In the present case in respect of the assessment for the year 1988-89, the AO had disallowed the sum of Rs. 9,25,983 out of Rs. 9,37,257.40 claimed by the assessee to have been spent on sales promotion since split up as : (i) conference--Rs. 6,26,538.25 (ii) articles presented--Rs. 2,99,445.49 (iii) sales promotion--Rs. 11,273.55. (1) The AO held that the expenditure was incurred on entertainment like lodging, food, and presentation of valuable gifts to distributors and guests. The articles presented were gold necklace, gold rings, gold bangles, silver articles and other articles to various distributors along with the lodging and boarding. It had also found that these expenses although were booked under sales -promotion expenses but those were actually in the nature of entertainment. (2) On the other hand the CIT(A) held that the expenditure was actually incurred in holding conference with the various distributors and agents, a normal practice in this line of business carried on by the assessee. The articles were presented to the distributors and agents as an incentive to increase the sales of the company's products and the presentations were as per specific schemes floated by the company. It further held that from the details and facts presented before him, it is apparent that there was no entertainment of customers nor were any articles presented to the dealers which had any' advertisement value. It further found that the conferences were held and the articles were presented out of the commercial expedience and as such these are allowable as normal business expenditure under Section 37(1) of the IT Act, 1961. It also found that the AO did not bring on record any fact to prove that these expenses were incurred to entertain the customers and, as such, it could not be treated as entertainment expenses. Therefore, it deleted the disallowance of Rs. 9,25,983. (3) The learned Tribunal on the other hand had found from the materials available on record (1) that the AO had no doubt about the genuineness of the expenditure incurred; but his objection was that the same was exceeding the limit prescribed under Section 37, and considered those expenditures as entertainment expenses; (2) but the fact remains that he had dealt with the entertainment separately and disallowed Rs. 69,993; (3) therefore, he could not delete on account of entertainment twice. The learned Tribunal found that the expenditures were on the higher side and that the scheme for the sales promotion was submitted to the AO. It also recorded that in the subsequent year such expenditure was selected under the said head. After having so found, the learned Tribunal recorded that considering the totality of the facts and circumstances of the case and according to the doctrine of justice, equality and good conscience, the orders of CIT(A) and the AO were modified restricting the disallowance to Rs. 3,00,000 under the said head and thus the assessee would get a relief of Rs. 6,25,983.'
(2.) Mr. S. Bagchi, learned Counsel for the appellant, contends that it is the qualitative nature of the expenditure, which makes the assessee eligible for deduction, not the quantitative nature that would stand in the way. He relied on the decisions in CIT v. Kirloskar Oil Engines Ltd. and CIT v. Chemcrown (India) Ltd. in order to substantiate his contention on this point. He also relied on CIT v. Edward Keventer (P) Ltd. in order to contend that it is only when the test is satisfied and the eligibility is fulfilled the benefit cannot be denied. Once the test is fulfilled the IT authority has no other alternative but to allow the eligible deduction.
(3.) Mr. Sailen Dutta, learned Counsel on behalf of the Department, on the other hand, pointed out that the AO had found that the expenditure was in the nature of entertainment from the break-up pointed out in his order. He contends that only Rs. 11,273.55 was spent on sales promotion. The rest were spent on conference and presentations of very high value and that the company had incurred loss in that particular year. These amounts have been spent on food, beverage and presentation, which, according to him, are costly. On the basis of the findings of the learned Tribunal that these were on the higher side, these are to be treated as entertainment and accordingly would be eligible for deduction only within the restriction provided in the said section. He drew our attention to the various Sub-sections of Section 37 and sought to distinguish the decisions cited by Mr. Bagchi.;