1. The assessee is the appellant. The assessment year involved is 1985-86 for which the relevant previous year ended on 31-3-1985. The assessee is a registered firm and dealing in jewellery which has one shop in Broadway, Ernakulam. While completing the assessment, the Assessing Officer made disallowance under Section 37(3A) of the Act, amounting to Rs. 18,732, which is as follows:-Advertisement ...
Rs. 1,22,767Sales Promotion ...
Rs. 36,257Hotel Bill ...
Rs. 7,277Car Maintenance expenses ...
Rs. 27.357 ...
------------------Basic limit ...
Rs. 1.00.000 ...
-----------------Balance ...
Rs. 93,65820% thereon ...
Rs. 18,732.
2. The assessee went in appeal. The CIT (Appeals) issued a notice on 14-3-1988 in respect of a proposal to enhance the disallowance under Section 37(3A) of the Act. In the aforesaid notice, the assessee was asked to state as to why the items like sales discount, sales incentive and cost of fancy boxes for jewellery should not be included for the purpose of computation under Section 37(3A) of the Act. In response to this notice, the assessee filed a letter dated 17-3-1988. On a consideration of the contentions of the assessee, the CIT(A) held that expenses on sales discount and sales incentive given to the employees cannot be included for the purpose of computation under Section 37(3A) and they cannot be classified in the category of advertisement, publicity and sales promotion. However, the cost of fancy boxes amounting to Rs. 1,54,808 would be clearly an item which can be regarded as a part and parcel of advertisement, publicity and sales promotion under Section 37(3A) of the Act. Thus, he held that the Assessing Officer should have included the expenditure of Rs. 1,54,808 for the purpose of computation under Section 37(3A) of the Act, which considers 20% of the amount in excess of Rs. 1 lakh as inadmissible. As the total expenditure already considered by the ITO is more than Rs. 1 lakh, therefore, 20% of Rs. 1,54,808 which means Rs. 30,962 will be disallowable. Thus, he enhanced the income to the extent of Rs. 30,962.
3. We have heard rival submissions. The expenditure coming under Section 37(3A) are- In our considered opinion the value of fancy boxes in which the jewellery are given to the customers will not come under Section 37(3A) of the Act. In any jewellery shop usual practice is to give ornaments or jewellery purchased by the customer in the boxes in which they were kept in the show-room. The boxes are necessary to preserve and protect the shape and the size of the ornaments or jewellery as for example in the case of a necklace or Navaratnamala or Casumala. These cannot be given away without putting them in the proper boxes or containers. As a matter of fact they are given only after the sales are effected to enable the customer to carry home the articles. Thus, the impugned expenditure is in the nature of distribution expenditure, rather than advertisement publicity and sales promotion. Distribution takes place after the sales. Therefore, the provisions of Section 37(3A) cannot be invoked. Thus, we set aside the order of the CIT(A) on this point.
4. The other points raised in this appeal are not pressed at the time of hearing of the appeal.