COMMISSIONER OF INCOME TAX Vs. VADILAL INDUSTRIES LTD.

JUDGEMENT

(1.) The Tribunal, Ahmedabad, Bench -B, has referred the following two questions for the opinion of this Court under Section 256(1) of the IT Act, 1961 (the Act), at the instance of the CIT: 1. Whether, the Tribunal is right in law and on facts in holding that disallowance under Section 37(3A) was required to be considered on the net amount and not the gross amount ?

(2.) WHETHER , the Tribunal is right in law and on facts in holding that the CIT(A) should have entertained the additional ground with regard to expenditure of Rs. 4,14,955 on account of payments made to the suppliers of skimmed milk, when the assessee had claimed the said amount for asst. yr. 1986 -87 ? 2. The assessment year is 1985 -86 and the relevant accounting period is the year ended on 30th June, 1984. In the assessment framed under Section 143(3) of the Act, the AO adopted the figure of Rs. 17,36,625 for applying the provisions of Section 37(3A) of the Act as being gross expenditure towards the advertisement, publicity and sales promotion. The plea of the assessee that the only amount which could be considered for the purposes of working out the limit for disallowance was Rs. 46,470 because the assessee had recovered Rs. 16,90,155 from the dealers of the assessee company was turned down by the AO. The assessee did not succeed in appeal before the CIT(A) on this count. During the course of hearing before the CIT(A), an additional ground of appeal was sought to be raised in relation to a sum of Rs. 4,14,955 which was the amount paid to suppliers of skimmed milk. The need for raising additional ground of appeal arose because the assessee's claim relating to deduction of the same amount for asst. yr. 1986 -87 had been disallowed by the AO and confirmed by CIT(A) for the said year.

(3.) IN relation to the second issue, after setting out the relevant data in para No. 4 of the order, the Tribunal has recorded following findings: We have given the full details of the dates which are relevant to the issue in question. There is no dispute that the expenditure has been incurred and is of allowable nature. The question is whether the assessee's intentions were bona fide or not in claiming the expenses for 1986 -87 and not debiting the accounts for 1985 -86. We are of the opinion that the decision of the Supreme Court in Gurjargravures cited supra is not applicable to the facts of this case. There was a finding by the AO. That the claim of the assessee was not allowable for 1986 -87 as it pertained to asst. yr. 1985 -86. Here the claim was for 1986 -87 and a finding was given that the same was available for 1985 -86. The assessee at the very first opportunity moved before the CIT(A) with an additional ground of appeal. In this case the assessee was under genuine impression that the amounts in question were allowable in 1986 -87 and not in 1985 -86. The assessee came to know for the first time that the amounts in question pertained to 1985 -86 when auditors report was under process. However, as the return for asst. yr. 1985 -86 was already filed, the moment it was found that no such claim was allowable for 1986 -87, it moved with immediate urgency to the CIT(A) for permitting it to raise that additional ground of appeal. There is no dispute that such a claim in this case is allowable for 1985 -86.