COMMISSIONER OF INCOME TAX Vs. RAJ BROTHERS

JUDGEMENT

(1.) This reference raises a short but interesting question concerning the effect of section 37(3A) of the Income-tax Act, 1961 ("the Act", for short). For the assessment year 1979-80, the assessee incurred, inter alia, the following expenditure on advertisement, publicity and sales promotion :

(2.) The assessee claimed deduction of the aforesaid sum in its entirety while computing its income for the assessment year under consideration. The Income-tax Officer held that the expenditure being an expenditure on advertisement, publicity, and sales promotion, it is liable to be governed by the limits specified in section 37(3) of the Act read with rule 6B of the Rules. The Income-tax Officer first quantified the expenditure to be allowed on the above exceeded Rs. 40,000. He then applied the provisions of section 37(3A) of the Act and worked out the expenditure qualifying for deduction. He eventually disallowed a sum of Rs. 38,228.

(3.) The assessee filed an appeal to the Commissioner of Income-tax (Appeals). The contention urged before the Commissioner was that the expenditure incurred on presentation articles was less than Rs. 50 each and in terms of rule 6B, the entire expenditure should be allowed. There was no difficulty in accepting this part of the claim of the assessee, because the presentation articles supplied by Mahaveer Trading Company cost less than Rs. 50 each and also the cost of glasses purchased from Black Diamond Glass per dozen. But then the Commissioner held that even though the expenditure incurred fell within the limits specified in rule 6B and no amount fell to be disallowed in terms of section 37(3) of the Act, still the further limits specified in section 37(3A) of the Act would apply. Doing so, the Commissioner found the order of the Income-tax Officer to be in order and declined to interfere in the matter.