M/S.g.a.vasant Madras v. The Commissioner Of Income Tax, Tamil Nadu Madras

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 31/07/2002 CORAM THE HONOURABLE MR.JUSTICE V.S.SIRPURKARANDTHE HONOURABLE MR.JUSTICE N.V.BALASUBRAMANIAM Tax Case No.1337 of 1990and Tax Case Nos. 1338 to 1342 of 1990 M/s.G.A.VasantMadras. .. Applicant in T.C.Nos.1337 to 1339of 1990 and Respondent in T.C.Nos.1340 to 1342 of 1990. -Vs- The Commissioner ofIncome Tax, Tamil NaduMadras. .. Respondent in T.C.Nos.1337 to 1339of 1990 and Applicant in T.C.Nos.1340 to 1342 of 1990. References under Section 256(2) of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal 'B' Bench, Madras. !For Applicant in : Mr.P.P.S.Janardhana RajaT.C.Nos.1337 to 1339 of 1990and Respondent in T.C.Nos.1340to 1342/ 1990. ^For Respondent in T.C.Nos.1337 : Mr.T.C.A.Ramanujamto 1339 of 19 90 and Applicant Senior Standing Counsel for Income Taxin T.C.Nos.1340 to 1342/1990. :O R D E R (Order of the Court was made by V.S.SIRPURKAR, J.) This judgment shall dispose of all these tax cases, as the questionsare common and can be conveniently disposed of.2. The questions which are referred to us at the instance of theassessee are as under:-" 1.Whether on the facts and in the circumstances of the case, theTribunal was right in law in holding that a sum of Rs.1,15,514/-, Rs.6,19,944/- and Rs.2,54,212/- for the assessment years 1979-80, 1981-82 and1982-83, debited by the assessee under the head 'Business Promotion expenses'expended to run the business smoothly and profitably by way of secretcommission payments and other unvouched non-descript payments, such astips/mamools/speed money, was not a deductible business expenditure u/s.37(1)of the Act in computing the business income of the assessee? 2.Whether, on the facts and in the circumstances of the case, theTribunal was right in law in not following the binding decisions of the MadrasHigh Court reported in 61 I.T.R.480, 93 I.T.R.49 and 122 and 125 I.T.R.753? 3.Whether on the facts and in the circumstances of the case, theTribunal was right in law in treating the business expenditure claimed fordeduction u/s.37(1) as one falling under the head "expenditure in the natureof entertainment expenditure" as envisaged u/s.37(2) of the Act? 4.Whether, on the facts and in the circumstances of the case, theappellate Tribunal is justified in law in limiting the deduction ofexpenditure claimed in the manner it had done, either as entertainmentexpenditure u/s.37(2) of the Act or otherwise?" The questions proposed by the Revenue and referred to us are as under:- " 1.Whether, on the facts and in the circumstances of the case andhaving regard to the findings that the expenditure incurred were in the natureof entertainment expenditure as contemplated u/s.37(2) and the provisions ofSection 37(2A), the appellate Tribunal is right in law in directing to allow asum of Rs.25,000/-, Rs.50,000/- and Rs.40,0 00/- for assessment years 1979-80,1981-82 and 1982-83 in addition to the allowance under section 37(2A) in theentertainment expenditure claimed as deduction? 2.Whether, the appellate Tribunal's order allowing deduction on adhocestimate basis which is not in accordance with the provisions of section37(2A) is reasonable and sustainable in law?" 3.The following facts will highlight the controversy involved. The " 1.Whether, on the facts and in the circumstances of the case andhaving regard to the findings that the expenditure incurred were in the natureof entertainment expenditure as contemplated u/s.37(2) and the provisions ofSection 37(2A), the appellate Tribunal is right in law in directing to allow asum of Rs.25,000/-, Rs.50,000/- and Rs.40,0 00/- for assessment years 1979-80,1981-82 and 1982-83 in addition to the allowance under section 37(2A) in theentertainment expenditure claimed as deduction? 2.Whether, the appellate Tribunal's order allowing deduction on adhocestimate basis which is not in accordance with the provisions of section37(2A) is reasonable and sustainable in law?" 3.The following facts will highlight the controversy involved. The assessee is in the business of canvassing / contract agents for M/s.G.A.Vasanth Exchange. They claimed certain expenditure in the nature of salespromotion expenditure. They claimed various sums in the three assessmentyears with which are concerned. The assessment years are 1979-80, 1981-82 and1982-83. The assessee claimed pretty huge sums in the name of expendituremade for their sales promotion and claimed deduction on that count. Thatclaim was accepted only in part by the assessing officer, the appellateauthority and also the Tribunal. Some of these amounts were in the nature ofMamools etc., But, it is clear from the judgment of the Tribunal that, thatpart of the payments which were made by way of bribes (Mamools) etc., have notbeen allowed by the Tribunal. However, the Tribunal, considering the totalextent of the business, came to the conclusion that some deductions can begiven on account of the entertainment expenditure, more properly covered undersub-clause (d) to sub-section 2A to Section 37. The Tribunal has given some increased amounts by way of deductions. Insofar as the year 1979-80 isconcerned, it has given a total deduction of Rs.30,000/-, while for the year1981-82 it has given a deduction of Rs.50,000/- and for the year 1982-83, ithas given a deduction amounting to Rs.40,000/-. 4.The learned counsel Mr.Janardhana Raja, appearing for the assessee,tried to submit that the Tribunal should have treated all the expenditure asthe sales promotion expenditure and should not have treated it asentertainment expenditure. Considering the fact that the expenditure made isnot supported by receipts and also considering the nature of the expendituremade, we do not think that such argument is possible on behalf of theassessee. In our view, the Tribunal was absolutely correct in holding thatthe expenditure made on the trips to Tirupathi, Mahabalipuram etc., and theexpenditure made for some parties by making payments to various hotels, couldbe treated only as entertainment expenditure, which would be well coveredwithin Section 3 7(2A). The Tribunal was also right in rejecting the otherexpenditure, which was claimed to have been made by way of bribes etc., Thequestions, therefore, are answered against the assessee and in favour of theRevenue. 5. Insofar as the questions referred at the instance of the Revenueare concerned, the learned Standing Counsel tried to urge that the Tribunalhad arbitrarily granted some expenditure without reference to the actualentries in the account books. We do not think such argument is possiblebecause the Tribunal has granted the expenditure well within the limitsprescribed by the Section in consideration of the extent of the business doneby the assessee. We, therefore, do not find fault with that finding of thetribunal also and choose to answer the reference against the revenue and infavour of the assessee. With this, we dispose of all the references, withoutany orders as to the costs. KST. To: 1.The Assistant RegistrarIncome Tax Appellate TribunalRajaji Bhavan, II FloorBesant Nagar, Madras. 2.The Secretary, Central Boardof Revenue, New Delhi. 3.The Commissioner of Income TaxTamil Nadu-V, Madras. 4.The Commissioner of Income Tax (Appeals) I, Madras-34. 5.The Income Tax Officer, CityCircle VI, Madras. �