- (1.) THIS is an application under Section 256(2) of the Income -tax Act, 1961, preferred by the Commissioner of Income -tax, Jodhpur.
(2.) THE Assessing Officer allowed the following expenses which were shown in the return of income of the assessee -Digvijay Textiles, Jodhpur : Rs.'(1) Advertisement expenses12,454(2) Commission paid to selling agent5,17,107(3) Sales incentive96,060(4) Cash discount8,99,490Total15,25,111.' Later on, on a perusal of the records, the Commissioner of Income -tax noticed that the above expenditure was in the nature of advertisement, publicity or sales promotion and the same having exceeded Rs. 1 lakh, 20 per cent, of the excess was required to be disallowed as per the provisions of Section 37(3A) of the Income -tax Act, 1961. Since the Assessing Officer did not do so, the assessment framed by him was considered erroneous and prejudicial to the interests of the Revenue and accordingly, the said assessment was revised under Section 263 of the Income -tax Act. The assessee being aggrieved by this assessment order filed an appeal before the Income -tax Appellate Tribunal. The Tribunal however accepted the totality of the claim of the assessee and held that the expenditure on commission by way of payment to selling agent does not come within the purview of Section 37(3A) of the Income -tax Act, in view of the decision of the Calcutta High Court in CIT v. Hindusthan Motors Ltd. : [1991]192ITR619(Cal) . As regards the sales incentive, it has been held that it is neither an extravaganza nor a wasteful expenditure and hence cannot be subjected to partial disallowance under Section 37(3A) of the Income -tax Act. Similarly, the cash discount has been held to be wholly out of the purview of Section 37(3A) of the Income -tax Act.
(3.) THE Revenue thereafter moved the Tribunal for making a reference under Section 256(1) of the Income -tax Act, but the Tribunal rejected the reference application holding it, inter alia, to be basically a question of fact. The Commissioner of Income -tax hereafter makes a reference application on the following amongst other questions : '(1) Whether, on the facts and in the circumstances of the case, the Income -tax Appellate Tribunal is right in holding that expenditure incurred on commission payment to selling agent, sales incentive and cash discount do not come within the purview of Section 37(3A) of the Income -tax Act, 1961 ? (2) Whether in order to apply the provisions of Section 37(3A) the Income -tax Appellate Tribunal's observation that the expenditure is neither an extravaganza nor a wasteful expenditure is relevant ? (3) Whether the Income -tax Appellate Tribunal is justified in not upholding the Commissioner of Income -tax action under Section 263 on all the points in spite of the fact that the nature of all the expenses was only to boost the sales, so these were clearly covered under Section 37(3A) of the Income -tax Act, 1961?' ;