RAJESH BINDAL, J. - (1.) 2004 passed by the Income -tax Appellate Tribunal, Chandigarh Bench 'A' (for short 'the Tribunal'), for the asst. yr. 1994 -95: "(i) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was justified in deleting the disallowance of Rs. 90,883 made on account of disallowance out of festival expenses incurred by the assessee? (ii) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was justified in law in deleting the disallowance of Rs. 55,24,250 made on account of interest on interest -free advances given to sister -concern for non - business purposes ? (iii) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was justified in law in deleting the additions relating to disallowance of Rs. 1,28,16,194 claimed by the assessee on account of sales -tax exemption granted by the State Government -
(2.) THE assessee is engaged in the business of manufacture of fertilizer and paper. While filing the return, the assessee claimed a sum of Rs. 4,67,097 on account of festival expenses out of which Rs. 90,883 are on account of purchase of silver jewellery and Titan watches. The claim of the assessee that such expenditure was incurred with a view to generate goodwill and to facilitate the conduct of business, therefore, were incurred as a matter of commercial expediency. The claim made by the assessee was rejected by the AO on the ground that no proof was adduced to the effect that the items were distributed for the purpose of business. However, the same was ordered to be treated as entertainment expenditure to be dealt with under s. 37(2A) of the IT Act, 1961 (for short, 'the Act').
(3.) AGGRIEVED against the order of assessment, the assessee preferred appeal before the Commissioner of Income -tax (Appeals) [for short, 'the CIT(A)'] who following its earlier order for the asst. yr. 1992 -93, wherein the expenditure on purchase of silver jewellery and Titan watches was held to be entertainment expenditure, upheld the disallowance made by the AO. In further appeal before the Tribunal, the assessee succeeded, where the Tribunal following its earlier order passed for the asst. yr. 1991 -92, accepted the plea of the assessee. Though, neither much details nor the copies of the orders passed for the asst. yr. 1991 -92 were placed on record, however, on the asking of the Court copies thereof were made 2001 for the asst. yr. 1991 -92 are as under : "5.1 We have considered the rival submissions. The AO while examining the accounts found that the assessee had spent an amount of Rs. 2,51,964 on account of shawls/wrist watches, etc. claimed to be given to the staff members and other representatives of the bulk buyers of the company's products on the occasion of Dewali. The AO held that these are not distributed in the ordinary course of business and are not wholly and exclusively for the purpose of business. He accordingly made the disallowance of Rs. 2,51,964 and learned CIT(A) confirmed his action. There is no finding by the AO that the expenditure incurred for wrist watches/shawls was an expenditure of personal nature. The only basis for making disallowance appears to be that the assessee has not disclosed the names of the persons to whom wrist watches/shawls were given. Disclosure of names might cause embarrassment to some of the recipients and in a given case the name given out by the assessee might not be correct which may lead to harassment in individual cases. However, this alone would not preclude the assessee to claim deduction under s. 37(1). Giving of costly gifts may not be desirable but nonetheless it is a business expenditure so far as the assessee is concerned and keeping in view the turnover of the assessee the amount spent on giving gifts at the time of Dewali in the form of wrist watches/shawls cannot be called excessive or unreasonable." ;