1 to 3. [These paras are not reproduced here as they involve minor issues].
4. Ground No. 2(a) relates to disallowance of Rs. 18,208 out of sales promotion expenses. The learned counsel for the assessee contended that out of the total expenditure of Rs. 26,335, assessing officer has made a disallowance of Rs. 18,208 under the garb of Section 37(2A). The learned counsel pointed out that though the addition of Rs. 26,335 had separately been made, this injustice has been set right by the first appellate authority. In respect of disallowance of Rs. 18.-208 the learned counsel contended that most of the expenditure related to purchase of sweets etc. provided to the customers on Diwali and other occasions. The learned counsel accordingly contended that the expenditure related to the business and thus was allowable as a deduction in computing the income from business. The learned counsel relied upon the decision of IT AT Chandigarh Bench in the case of Sandika (P.) Ltd. v. ITO [1982] 13 TTJ 394 and on the decision of the Ahmedabad Bench in the case of ITO v. SLM Maneklal Industries Ltd. [1986] 17 ITD 575, for the proposition that the Diwali expenses is expenditure relating to business and accordingly allowable as a deduction. It was accordingly urged that the disallowance made by the assessing officer may be deleted.
5. It is not disputed that the expenditure has been incurred for providing hospitality to the customers, whatever may be the occasion.
Under Section 37(2A) read with Explanation 2 inserted by Finance Act, 1983 with retrospective effect from 1-4-1976, entertainment expenditure includes expenditure on provision of hospi tality of every kind by the assessee to any person whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade. The only exception is with regard to expenditure on food or beverages provided by the assessee to his employees in office, factory and other place of their work. The decision cited by the assessee are not applicable in view of the retrospect have amendment referred to above. Diwali expenses incurred by the assessee are undisputedly expenses related to business of the assessee. Whereas under Section 37(1) expenditurelaid out or expended for the purposes of business is allowable as a deduction. Section 37(2A) is a proviso for such allowance. Considering the fact that the expenditure incurred by the assessee falls within Explanation 2 to Section 37(2A) the disallowance made by the assessing officer is clearly in order and no interference is called for.
216. Assessee filed a statement of advance tax as required Under Section 209 A, on 15th September, 1982 declaring income of Rs. 10,58,000. Simultaneously Form No. 29 being higher estimate of income was filed showing an income of Rs. 16 lakhs. Two advance tax instalments on the basis of estimated income of Rs. 16 lakhs had been paid by the assessee. On 15th March, 1983 assessee revised the estimate showing income of Rs. 25 lakhs and paid the advance tax within time.
According to the assessing officer assessee has under-estimated the advance tax payable by him and accordingly thereby reduced the amount payable in two instalments. Thus assessee has been held to be liable to interest under Section 216. The CIT(A) has confirmed the levy. The learned counsel for the assessee contended that bona fides of the assessee are established by the fact that immediately on filing of statement of advance tax showing an income of Rs. 10,58,000, assessee filed revised estimate of income showing an income of Rs. 16 lakhs. If the assessee had the intention of withholding the payment of advance tax the assessee would have paid advance tax on the basis of statement of advance tax and the estimate of income would not have been revised voluntarily. The learned counsel further pointed out that first estimate of income was filed on 15th September, 1982.
Relying on the decision of the Allahabad High Court in the case of CIT v. Elgin Mills Co. Ltd. [1980] 123 ITR 712, the learned counsel contended that the furnishing of under-estimate should be deliberate in order to attract the provisions of Section 216. Assessee having estimated the income much before the end of the accounting year, the revenue is to establish that the under-estimate was conscious or deliberate. It was accordingly urged that the interest under Section 216 is not attracted in this case.
7. We have given our careful consideration to the issue involved in this case and have perused the records. Under Section 209A assessee is required to file statement of advance tax on or before the date on which the first instalment of advance tax is due on the basis of last assessed or returned income, whichever is higher and to pay the advance tax as accords with such statement in equal instalments. Sub-section (2) of Section 209A gives an option to the assessee to file estimate of income in lieu of statement of advance tax if the current income of the assessee is likely to be less than the income on which advance tax is payable on the basis of statement of advance tax under Sub-section (1).
Under Sub-section (3) of Section 209A assessee is also given an option to file an estimate of income at any time before the last instalment is due in such case if his current income is likely to be less than the income on which advance tax is payable by him on the basis of statement of advance-tax is filed by him. Sub-section (4) of Section 209 A makes it obligatory for those assessees whose income is likely to be higher than estimated or computed in accordance with the statement of advance tax and the advance tax payable exceeding the amount of advance tax computed by more than 33.33%, to file a revised estimate of income before the date on which last instalment is due in such cases. Now in this case assessee has strictly acted in accordance with Section 209A.A statement of advance tax due by 15th September, 1982 has been filed on the due date in accordance with Section 209 A(1). Assessee has not exercised the option under Sub-section (2) or Sub-section (3) of Section 209A for estimating the income at lower than shown in the statement of income. The current income of the assessee having been likely to be greater and the advance tax payable exceeding the advance tax computed under Sub-section (1) of Section 209 A by 33'/3% assessee was under an obligation to file a revised estimate before the last date for payment of advance tax. This has promptly been done by the assessee. Now the issue before us is as to where the assessee has strictly acted in accordance with law in payment of the advance tax, whether interest under Section 216 is chargeable. Section 216 reads as under : 216. Where, on making the regular assessment, the Assessing Officer finds that any assessee has- (a) under Section 209A or Section 212 under-estimated the advance tax payable by him and thereby reduced the amount payable in either of the two instalments; or (b) under Section 213 wrongly deferred the payment of advance tax on a part of his income, he may direct that the assessee shall pay simple interest at 15 per cent per annum- (i) in the case referred to in Clause (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance tax actually paid during the year; and (ii) in the case referred to in Clause (b), for the period during which the payment of advance tax was so deferred.
For the purpose of levy of interest Under Section 216 the assessing officer must be satisfied that by reason of under-estimatc" of income the assessee has reduced the amount payable in either of the first two instalments. In order to attract Section 216, two conditions must be satisfied : (a) There should be an obligation of the assessee to pay the advance tax; and (b) Assessee must be shown to have reduced the liability by reason of under-estimation of income. As pointed out above assessee after having filed statement of advance tax was not under any obligation to file a revised statement of advance tax till the date on which the last instalment of advance tax was due. Under Section 209A when a statement of advance-tax is filed assessee's obligation is to pay the first two instalments in accordance with such statement of advance tax unless an estimate is filed by the assessee under Sub-section (2) or Sub-section (3) of Section 209A, estimating the income at less than the amount as per statement of advance tax.
Sub-section (4) of Section 209A makes it obligatory to file a revised estimate before the last instalment of advance-tax is payable. When a statement of advance tax was filed by the assessee, the first two instalments were to be paid in accordance with statement of advance tax. The payment of higher amount of advance tax and filing of the revised estimates under Sub-section (4) of Section 209 A was to be made by 15th March, 1983 for the year in appeal. The assessee had not filed an estimate of income under Sub-section (2) or under Sub-section (3) of Section 209A underestimating the income so as to defer or reduce the payment of advance tax. On the contrary assessee filed a revised estimate of income showing an income of Rs. 16 lakhs on 15th September, 1982 though the assessee's obligation to file revised estimate was to be fulfilled by the date on which the last instalment of advance tax was due. The bona fides of the assessee are established when it is seen that assessee has paid more advance tax than could lawfully be expected from it In our view, interest Under Section 216 is imposable in such cases where assessee files an estimate of income claiming his current income to be less than the income on the basis of which the advance tax is lawfully due. Thus where an estimate is filed under Sub-section (2) or Sub-section (3) of Section 209A, assessee would be duty bound to show that the estimate filed by him was a bona fide estimate and that there was no deliberate attempt to defer the payment of advance tax instalments. This is so as under Sub-section (2) and Sub-section (3) of Section 209A assessee is given an option to file estimate of income showing less income than the income on the basis of which advance tax is due as per Sub-section (1) of Section 209A. The levy of interest under Section 216, in our view is to prevent the misuse of the option given to the assessee to file such estimates of income. In this case assessee has not filed any estimate under Sub-section (2) or Sub-section (3) of Section 209A under-estimating the income or claiming that its income was likely to be less than the income on which advance tax was due. Mere fact that assessee has filed an estimate of Rs. 16 lakhs in March 1982 which is higher than the income as per the statement of advance tax, should not cloud the issue against the assessee. Assessee could have deferred the higher payment of advance tax till the date when the last instalment was due. Assessee's eagerness to pay more tax by way of advance tax as early as possible cannot be construed against it. Interest under Section 216 is chargeable only when assessee under-estimates the income to reduce the liability of payment of first two instalments lawfully payable. In this case there was no obligation under law for the assessee to pay more tax in first two instalments than as per the statement of advance tax filed and thereafter as per his own estimate which incidently was higher than as per the statement of advance tax. Interest under Sections 215 and 217 is chargeable under different circumstances with which we are not concerned in this case. Considering the facts and circumstances of the case, we are of the view that interest under Section 216 is not chargeable in this case. By filing an estimate showing income of Rs. 16 lakhs on 15th March, 1982 as against the income of Rs. 10,58,000 on which advance tax was payable, the assessee has not underestimated the advance tax payable by him to reduce the amount payable in either of the first two instalments but on the contrary has enhanced his liability to pay more advance tax than payable by him under Sub-section (1) of Section 209 A. As such interest charged under Section 216 is hereby deleted.