Law: Income Tax Act, 1961

Section: 4,37(2)

JUDGMENT Rajesh Bindal, J.-This is an appeal filed by the Revenue raising the following substantial questions of law, arising out of order dated May 26, 2004 passed by the Income-tax Appellate Tribunal, Chandigarh Bench "A", (for short "the Tribunal"), for the assessment year 1994-95: "(i)Whether on the facts and circumstances of the case, the hon'ble Income-tax Appellate 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 Income-tax Appellate 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 Income-tax Appellate 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 ?" 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 Assessing Officer 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 section 37(2A) of the Income-tax Act, 1961 (for short, "the Act"). Aggrieved against the order of assessment, the assessee preferred appeal before the Commissioner of Income-tax (Appeals) (for short, "the CIT (Appeals)") who following his earlier order for the assessment year 1992-93, wherein the expenditure on purchase of silver jewellery and Titan watches was held…

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