1. These three appeals by the assessee are directed against the orders of the CIT(A), Kolhapur, dt. 1st Nov., 1989 for asst. yrs. 1986-87, 1987-88 and 1988-89. Since identical issues are involved, these appeals are being disposed of by a single order for the sake of convenience.
1.1 The learned CIT(A) erred in holding that the expenditure on the presentation/gift articles such as leather bags, sweets, clothes, silver articles, etc., given to the executives of the customers with a view to keep good business relation are subject to disallowance under Rule 6B(1) of the IT Rules.
1.2 The learned CIT(A) failed to appreciate that the presentation/gift articles presented by the appellant did not bear the brand name of the company, nor these were meant for advertisements of the product of the company, but these were for keeping good business relations with the business connections and thus, were for the business promotion and hence, the restrictions laid down in Rule 6B(1)(a) are not applicable for such presentation articles.
1.3 The learned CIT(A) ought to have deleted the disallowance of Rs. 11,503 made on estimation basis out of the sales promotion expenditure.
2.1 The learned CIT(A) erred in holding that the expenditure of Rs. 37,232 incurred by the appellant on the seminar conducted by the Deccan Sugar Technologists Association at Pune as disallowable.
2.2 The learned CIT(A) has failed to appreciate that by sponsoring certain functions at the seminar the activity of sales promotion and advertisement is carried out at a very negligible cost and further that the customers of the appellant being limited, namely sugar factories, it is comparatively essential to make advertisements in newspapers.
2.3 The learned CIT(A) ought to have allowed the expenditure incurred on seminars as sales promotion expenses." 3. The ground No. 1 relates to the disallowance of Rs. 11,503 in respect of gift articles. The CIT(A) confirmed the disallowance made by the AO. The order of the CIT(A) has been challenged by the assessee in the present appeal.
4. Shri S.P. Joshi, the learned Authorised Representative of the assessee submitted that this issue was covered in favour of the assessee by the judgment of the Bombay High Court in the case of CIT v.Allana Sons (P) Ltd. (1995) 216 ITR 690 (Bom). Shri Joshi also placed reliance on the decision of this Bench of the Tribunal in the case of PCS Industries Ltd. v. Dy. CIT in ITA No. 994/Pn/1997, dt. 6th April, 1999.
5. Shri M.M. Shrivastava, the learned Departmental Representative relied on the order of the AO and of the CIT(A). He contended that the order of the CIT(A) needed to be upheld.6. We have considered the rival submissions and have perused the orders of the authorities below. While making the disallowance, the AO noted in para 13 of his order as under : "The assessee has incurred expenditure of Rs. 11,503 on gifts, etc.
where the value of each of the gifted items is more than 50 rupees.
The assessee claimed that these gifts are not in the nature of advertisement but are to have human and smooth relations. As the assessee has not established direct nexus between the expenditure and the assessee's business, I disallow Rs. 11,503 under this head." 7. The observations made by the CIT(A) in paras 8, 8.1 and 8.2 of his order are reproduced below : "8. Eighth ground is regarding a disallowance of Rs. 11,503 in respect of gift articles whose value exceeded Rs. 50. The AO considered the explanation of the appellant that the gifts were not in the nature of advertisement but were to maintain smooth business relations; 8.1 Before me, on behalf of the appellant, it was contended that the gift articles were in the nature of suit-case, etc. These did not bear the name of the appellant-company and were presented to the executives of sugar factories who are the clients of the appellant-company.
8.2 I have considered the submissions made by the appellant. This fact has been decided in appellant's own case in earlier year. The presentation articles were considered to be in the nature of advertisement and provisions of Rule 6B were held applicable (A. No. KOP/AW/86-87 of asst. yr. 1984-85). Accordingly, the claim of the appellant is rejected. The addition made by the AO is confirmed." 8. It is seen that in the case of CIT v. Allana Sons (P) Ltd. (supra), the application filed under Section 256(2) of the Act by the CIT was admitted by the Bombay High Court in respect of the following question : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure on articles intended for presentation is not to be considered for disallowance under Rule 6B(1)(a) of the IT Rules, 1962".
"This question pertains to the asst. yr. 1979-80. For that year, the AO disallowed, in the course of the assessment, a sum of Rs. 10,905 by applying the provisions of Rule 6B of the IT Rules. This expenditure was in respect of articles of presentation or gift incurred by the assessee. The Tribunal has held that these presentation articles did not bear either the name of the company nor its logo and could not be considered as meant for advertisement and, hence, Rule 6B would not be attracted. In view of these findings of fact which are arrived at by the Tribunal, if we examine the Rule 6B, it becomes clear that Rule 6B deals with expenditure on advertisement. Rule 6B(1) provides that the allowance in respect of expenditure on advertisement shall not, inter alia, in respect of articles intended for presentation, exceed the limits which are set out in that rule.
Therefore, articles intended for presentation must be such articles which advertise the company's wares in some manner or the other. In the present case, the Tribunal has found as a fact that the presentation articles were not in the nature of advertisement. In view thereof, the Tribunal has rightly come to the conclusion that Rule 6B is not attracted." 10. It is seen that in the case of Allana Sons (P) Ltd (supra), the Bombay High Court referred to the Tribunal's finding of facts that the presentation articles were not in the nature of advertisement and consequently, upheld the conclusions arrived at by the Tribunal that Rule 6B was not attracted. In our opinion, in the above case, the Bombay High Court did not hold that no disallowance could be made in respect of presentation articles which were not in the nature of advertisement and to which Rule 6B did not apply. Therefore, we do not agree with the learned Authorised Representative of the assessee that the ground No. 1 is covered in favour of the assessee by the above judgment of the Bombay High Court.PCS Industries Ltd. v. Dy. CIT in ITA No. 994/Pn/1997, dt. 6th April, 1999 for asst. yr. 1994-95, this Bench of the Tribunal had considered the applicability of Section 37(1) of the Act to the expenses on presentation articles which did not have the logo of the company and therefore, were not in the nature of advertisement. In para 7 of its order dt, 6th April, 1989, it was held by the Tribunal that such expenses were allowable under Section 37(1) if the following conditions were satisfied : (ii) it is customary practice in the commercial trade to give such items by way of gifts to customers and suppliers in order to maintain relations; (iii) the expenditure is reasonable vis-a-vis the volume of the business.
12. In the present case, the claim of the assessee was for an expenditure of only Rs. 11,503 and therefore, considering the facts and circumstances of this case and respectfully following the decision of this Bench of the Tribunal in the case, of PCS Industries Ltd. (supra), we allow the assessee's claim under Section 37(1) of the Act. The ground No. 1 is accordingly allowed, 13. The ground No. 2 relates to the expenditure of Rs. 37,232 incurred by the assessee on the seminar conducted by the Deccan Sugar Technologists Association at Pune. The disallowance made by the AO was confirmed by the CIT(A). It was admitted by Shri Joshi, the learned Authorised Representative of the assessee, that this issue was covered against the assessee by the decision of this Bench of the Tribunal in the assessee's own case in ITA No. 1185/Pn/1994 dt. 16th March, 2001 for asst. yr. 1991-92. Therefore, respectfully following the above decision of this Bench of the Tribunal, the ground No. 2 is rejected.
The ground No. 1 relates to the expenditure of Rs. 10,730 in respect of presentation articles. We have allowed an identical claim for asst. yr. 1986-87 in para 12 above. The facts in respect of the claim of Rs. 10,730 for asst. yr. 1987-88 are identical and therefore, for the reasons discussed in paras 11 and 12 above, the assessee's claim is accepted. The ground No. 1 is accordingly allowed.
15. The ground No. 2 relates to the refund of excise duty of Rs. 9,25,689 received by the assessee during the previous year relevant to asst. yr. 1987-88. It was admitted by Shri Joshi, the learned Authorised Representative that this issue was covered against the assessee by the decision of this Bench of the Tribunal in ITA Nos.
405/Pn/1992 and 263/Pn/1994 for asst. yrs. 1989-90 and 1990-91. The facts of this case are identical and therefore, respectfully following the above decision of this Bench of the Tribunal in the assessee's own case, we reject the ground No. 2.
The ground No. 1 relates to the assessee's claim for expenditure of Rs. 3,135 in respect of presentation of gift articles. We have decided an identical issue for asst. yr. 1986-87 in para 12 above.
The facts in respect of the claim of Rs. 3,135 for asst. yr. 1988-89 are identical, and therefore, for the reasons discussed in para 11 and 12 above, we accept the assessee's claim. The ground No. 1 is accordingly allowed.
17. The ground No. 2 relates to refund of excise duty of Rs. 8,36,290.
It was admitted by Shri Joshi, the learned Authorised Representative, that this issue was covered against the assessee by the decision of this Bench of the Tribunal in ITA Nos. 405/Pn/1992 and 263/Pn/1994 for asst. yrs. 1989-90 and 1990-91. The facts of this case are identical and therefore, respectfully following the above decision of this Bench of the Tribunal in the assessee's own case, we reject the ground No. 2.