1983 (2) TMI 22

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....he provisions of section 37(2B) and maintaining disallowance of Rs. 14,462 out of sales promotion expenses ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in disallowing the sum of Rs. 37,206 being balance of actual payment made in respect of bonus ? " The facts giving rise to this reference a set out in the statement of the case are as follows : The assessee is a limited company and is carrying on the business of manufacture and sale of insecticides and paints. During the accounting year relevant to the assessment year 1974-75, the assessee claimed deduction of a sum of Rs. 50,962 under the head " Sales Promotion Expenses ". The ITO disallowed the entire amount. On appeal, the ....

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....t the deduction of the amount of Rs. 14,462 claimed by the assessee related to the expenses incurred by the assessee in extending hospitality in the sense of providing meals, drinks or other wants of guests as part and parcel of the express or implied terms and conditions of the business of the assessee and, therefore, cannot be termed as entertainment in the context of s. 37(2B) of the Act, and, therefore, the Tribunal was not justified in disallowing the said deduction. He placed reliance upon Division Bench decision of this court in CIT v. Lakhmichand Muchhal [1982] 134 ITR 234. The contention cannot be upheld. In the present case, the Commissioner (Appeals) held that this expenditure has been incurred on entertaining the customers an....

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.... during the year of account and debited to the provision account. This claim appears to be in order. The ITO has not given a deduction for this sum through possible oversight. On this account, therefore, the assessment is reduced by Rs. 37,206. " The Tribunal reversed the order passed by the Commissioner (Appeals) on the ground that even if the assessee had bona fide changed its system of accounting it can claim deduction for payment of bonus either on accrual or on actual payment basis. It cannot possibly have the benefit of both payment as well as accrual in any particular year. In fact the assessee should have switched on to provision basis from the year 1965 itself when under the Payment of Bonus Act bonus became an enforceable liabi....