- (1.) This income tax appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter mentioned as, the Act), filed by the Commissioner of Income Tax, Jalandhar against order dated 11.2.1999 (Annexure P-3) of the Income Tax Appellate Tribunal, Amritsar passed in ITA No.261(ASR)/1993, was admitted for hearing on the following substantial questions of law:- "1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in dismissing the appeal of the revenue whereby upholding the action of learned CIT(A) directing deletion the disallowance of expenditure of Rs.10,36,879/- and Rs.4,29,485/- incurred by the assessee as secret commission and specimen distribution respectively? 2. Whether on the facts and in the circumstances of the case, the incurring of expenses like secret commission and specimen distribution to public servants was not an offence or was not prohibited by law e.g. Under the Prevension of Corruption Act, 1988 and/or the Indian Penal Code, 1860/ the Code of Criminal Procedure, 1973 whereby attracting its deemed disallowance in view of the newly inserted Explanation to Section 37 of the Income Tax Act, 1961 though retrospectively?"
(2.) The assessee, a partnership concern of eight persons, is engaged in publication of books. In the assessment year 1990- 1991, the assessee inter-alia had sought/claimed deduction on account of commission paid to the tune of Rs.10,36,879/- claiming that these expenses were of secret nature and payments were made to educational institutions, teachers and individuals for promotion of sales of books. Similarly expenses of Rs.8,61,900/- had been claimed by the assessee as having been incurred with regard to supply of specimen copies of books (published by them) to the teachers.
(3.) The Assessing Officer disallowed the expenditure made on payment of commission of secret nature to various schools for promotion of sales, but so far as the matter of expenses incurred on supplying specimen of books published by them was concerned, only expenses @ 2% of the turnover were allowed. Consequently, disallowance of Rs.4,29,.485/- out of total amount claimed as expenses of supplying copies of specimen of books, was made. Sequelly, expenses of Rs.10,36,879/- of commission allegedly paid to the teachers of various schools and part expenses of Rs.4,29,485/- allegedly incurred on supply of specimen of copies of books published, were disallowed to the assessee in assessment order finalized by the Assessing Officer vide order dated 20.12.1991 (Annexure A- 1).;