Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee-company was manufacturer of Indian made foreign liquor (IMFL) - It depended to a large extent on orders from military canteen for sale of its products - It offered samples of its products at various military functions so that personnel could develop a taste for it and it could secure bigger orders from Canteen Store Department (CSD) - Modus operandi of offering such samples was that concerned defence establishment used to buy requisite quantity of assessee's liquor from army's liquor shop against actual payment and later on cash memos were forwarded to assessee for reimbursement - Assessee claimed such reimbursements as sales promotion expenses - Assessing Officer disallowed said expenses on ground that it was clear entertainment of customers - Appellate authorities upheld disallowance observing that such expenses were against public policy - Whether amount had been spent by way of commercial expediency for promoting assessee's product and such an expenditure was not against public policy - Held, yes - Whether therefore, expenditure incurred by assessee for sales promotion was allowable under section 37(1) - Held, yes FACTS The assessee-company was manufacturer of Indian made foreign liquor (IMFL). It was depending to a large extent on orders from military canteen for the sale of its products. During the relevant assessment year, it offered samples of its products at various military functions so that the personnel could develop a taste for it and it could secure bigger orders from the CSD (Canteen Stores Department). The modus operandi of offering such samples was that the concerned defence establishment used to buy the requisite quantity of company's liquor from the army liquor shops on actual payment and later on the regiment or the defence establishment forwarded the cash memos to the assessee-company for reimbursement. The assessee claimed said amounts as business promotion expenses. The Assessing Officer disallowed such expenses on ground that it was clear entertainment of customers. On appeal, the Commissioner (Appeals) upheld the disallowance on the ground that…

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