1988 (1) TMI 70 - AT - Income Tax

Appeal partly allowed on tax issues including hundi loans repayment. Publicity expenses allowed, others confirmed. Ground not raised earlier declined.

The appeal was partly allowed, with the key points being the finding that Section 69D did not apply to the repayment of hundi loans made in cash and the ... Amount Borrowed Or Repaid On Hundi, Advertisement Expenditure, Powers Of Tribunal Issues Involved:1. Applicability of Section 69D to the repayment of hundi loans made in cash.2. Disallowance of hotel expenses as entertainment expenses.3. Disallowance of the cost of high power bulbs.4. Disallowance of various expenses related to shooting, set erections, and costumes.5. Disallowance of claim under Section 35B for export market development.6. Disallowance of publicity expenses.Issue-wise Detailed Analysis:1. Applicability of Section 69D to the Repayment of Hundi Loans Made in CashThe main question addressed was whether the repayments of hundi loans made in cash attracted the provisions of Section 69D. The Income-tax Officer (ITO) had disallowed the repayments of Rs. 50,000 and Rs. 30,000 to two parties, stating that the repayments were made in cash, which contravened Section 69D. The Commissioner of Income-tax (Appeals) confirmed this disallowance. The Tribunal examined whether the instruments in question were hundis or bills of exchange. They concluded that the instruments were bills of exchange and not hundis, as they were negotiable only by endorsement and delivery, not by mere delivery. Therefore, Section 69D did not apply, and the disallowance of Rs. 80,000 was deemed inappropriate.2. Disallowance of Hotel Expenses as Entertainment ExpensesThe ITO disallowed Rs. 22,320 on account of hotel expenses, categorizing them as entertainment expenses. The assessee claimed these expenses were incurred in the normal course of business and were a long-standing trade practice. However, due to the retrospective effect of Explanation 2 in Section 37(2A) of the Finance Act, 1983, which expanded the definition of 'entertainment expenditure,' the claim became disallowable. The assessee's counsel did not press this point, and the disallowance was confirmed.3. Disallowance of the Cost of High Power BulbsThe ITO disallowed Rs. 25,000 from the cost of high power bulbs, estimating the cost of unutilized bulbs. The Tribunal noted that the assessee had no stock account to verify the number of bulbs purchased, utilized, or held in stock. Given that a similar disallowance was confirmed in the previous year, the Tribunal found the disallowance of Rs. 25,000 neither unwarranted nor excessive and confirmed it.4. Disallowance of Various Expenses Related to Shooting, Set Erections, and CostumesThe assessee did not press the disallowances of Rs. 1,00,000 for shooting expenses, Rs. 50,000 for set erections and costume expenses, Rs. 35,068 for shooting set erections, and Rs. 8,474 for entertainment expenses. Consequently, these disallowances were confirmed.5. Disallowance of Claim Under Section 35B for Export Market DevelopmentThe Tribunal examined whether it could entertain a new ground regarding the disallowance under Section 35B, which was not raised before the Commissioner of Income-tax (Appeals). The Tribunal referred to the Bombay High Court's decision in Ugar Sugar Works Ltd.'s case, which held that if a ground was not raised before the AAC, it could not be entertained by the Tribunal. Therefore, the Tribunal did not consider this ground.6. Disallowance of Publicity ExpensesThe ITO disallowed Rs. 1,10,482 out of publicity expenses under Section 37(3A). The assessee argued that the production of the film 'Satyam Shivam Sundaram' constituted setting up an industrial undertaking, thus falling under Section 37(3D). The Tribunal referred to a previous decision where it was held that each film produced constituted a new industrial undertaking. Following this precedent, the Tribunal directed the ITO to apply the provisions of Section 37(3D) and allow the expenditure of Rs. 1,10,482.ConclusionThe appeal was partly allowed, with significant points being the non-applicability of Section 69D to the repayments of hundi loans and the allowance of publicity expenses under Section 37(3D).