RAJESH BINDAL, J. - (1.) CHANDIGARH Bench 'B' (for short, 'the Tribunal') in ITA No. 967/Chd/1996, for the asst. yr. 1993 -94, raising the following substantial questions of law : "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding expenses of Rs. 1,55,795 spent on silver vessels, carpets, silver ornaments and other gift items for distribution to the dealers as business expenditure ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the disallowance of interest of Rs. 2,43,000 on the ground that there is no direct nexus between the borrowings and interest -free advances made to certain parties ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing to consider interest income as forming part of business profits for computing deduction under s. 80HHC ? (iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing to exclude sales -tax/central sales -tax, discount receipts, amounts written off and claim receipts from the total turnover for computing deduction under s. 80HHC of the IT Act - Question No. (i)
(2.) REGARDING question No. (i), the AO, while framing the assessment, disallowed the claim of the assessee of a sum of Rs. 1,55,795 on account of expenses claimed under the head "Sale promotion expenses" on account of silver vessels, carpets, silver ornaments and other gift items distributed to the dealers, who visited the factory of the assessee from time to time. The claim of the assessee was that distribution of such gifts is customary in nature. The claim was rejected on two counts - -first, no evidence was produced to the effect that gift items were actually distributed amongst dealers and secondly, reliance was placed on a judgment of Kerala High Court in CIT vs. Alleppey Co. Ltd. (1994) 116 CTR (Ker) 15 : (1994) 207 ITR 598 (Ker), wherein it was held that expenditure incurred on account of presentation of curios to foreigner -buyers visiting the factory amounts to entertainment expenses.
(3.) IN appeal, the assessee failed before the Commissioner of Income -tax (Appeals) [for short, 'the CIT(A)']. The Tribunal, while referring to the judgments of this Court in H.M.M. Ltd. vs. CIT (1998) 144 CTR (P&H) 371 : (1998) 231 ITR 726 (P&H) and Avon Cycles (P) Ltd. vs. CIT (1999) 157 CTR (P&H) 221 : (1999) 238 ITR 85 (P&H), relied upon an order passed by it in the case of the assessee for the asst. yr. 1992 -93 and held that expenditure incurred on distribution of gift articles to various dealers was for business consideration as it does promote goodwill among the dealers for the assessee.;