SHREYANS IND LTD vs. J.C.I.T. SPECIAL RANGE

Income Tax Appeal No. 145 of 2004 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 145 of 2004 Date of decision: 6.12.2010 Shreyans Industries through its Managing Director Sh. D.K. Oswal --- Appellant Versus J.C.I.T. Special Range Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. S.K. Mukhi, Advocate for the appellant. Mr. Rajesh Katoch, Standing Counsel for the respondent. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the assessee against the order dated 19.3.2004, passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘B’, (in short “the Tribunal”) in Income-tax Appeal No. 529/CHD/99, relating to assessment year 1996-97. This Court, on 9.9.2004, rejected all the questions of law proposed by the appellant and admitted the appeal for consideration of the following substantial question of law:- “Whether the Tribunal was justified in upholding the disallowance out of Diwali expenses by applying rule 6-B of the Income Tax Rules, 1962?”

Income Tax Appeal No. 145 of 2004 2 The facts, in brief, necessary for adjudication of the substantial question of law relating to Diwali expenses only as narrated in the appeal may be noticed. The assessee had claimed Diwali expenses at Rs. 3,41,880/- relating to the assessment year in question. However, the assessing officer, vide assessment order dated 29.12.1998 had disallowed a sum of Rs. 84,474/-, under rule 6B of the Income Tax Rules, 1962 (in short “the Rules”). However, on appeal, the Commissioner of Income-tax (Appeals) {in short “the CIT (A)”},, while accepting that these expenses were not covered under Rule 6B upheld the disallowance. On further appeal, the Tribunal affirmed the order of CIT(A) whereby disallowance of Rs. 84,474 was maintained.

We have heard learned counsel for the parties and have perused the record. Learned counsel for the assessee vehemently submitted that the Diwali expenses had been erroneously disallowed by taking the aid of Rule 6B of the Rules, which was not applicable. Learned counsel argued that in view of Board’s letter dated 3.10.1968 whereby earlier instructions issued in this behalf vide circular No.17 of 1943 had been withdrawn, the disallowance of Rs. 84,474/- on account of Diwali expenses was not justified. It was further submitted that the expenses were neither excessive nor unnecessary and, therefore, it calls for the indulgence of this Court to interfere therewith. On the other hand, learned counsel for the Revenue did not dispute that so far as the applicability of Rule 6-B of the Rules is concerned the same has no applicability. It was, however, submitted on behalf of the Revenue that all the three authorities below had Income Tax Appeal No. 145 of 2004 3 concurrently come to the conclusion that the expenses to the extent of Rs. 84,474/- out of the Diwali expenses, were excessive in nature. He referred to the details given as under: Debited under the Account Head Diwali Expenses 190 341839.04 75919.52 Sales Promotion 3 9804.00 3402.00 Gifts & presents 2 6700.00 2350.00 Travelling Exp. 1 6605.00 2802.00 Total: 84,474.00 Learned counsel for the Revenue, thus, submitted that the said finding being a finding of fact based on appreciation of evidence warrants no interference by this Court. We do not find any merit in the submission of the learned counsel for the assessee. The assessing officer had disallowed the Diwali expenses to the extent of Rs. 84,474/- by resorting to Rule 6B of the Rules but, the Department had accepted before the CIT(A) that though Rule 6B was not attracted to the Diwali expenses but the assessee had failed to provide the details of such expenditure to the Department. The relevant portion of the order of the CIT(A) reads thus: “I have perused the details of these expenses. In the details the major portion of expenditure has been shown under the head “Diwali Expenses” at Rs. 3,41,880/- which appear to be abnormally high. Though these expenses are not covered under Rule 6-B, but in the absence of details, Diwali expenses having been shown at Rs. 3,41,880/-, disallowance of Rs. 84,474/- is confirmed.” The Tribunal had affirmed the aforesaid finding with the following observations:

Income Tax Appeal No. 145 of 2004 4 “We have heard both the parties and carefully considered their rival submissions. We have also examined the facts, evidence and material on record. We have referred to the details of Diwali expenses placed at page 4 of the paper-book. The same indicated purchases of silver, tea- sets, bowls, glasses, tea-pans, pressure cooker etc. Page 5 of the paper book shows that while in the assessment year 1993-94 and 1994-95 the value of these articles never exceeded the limit prescribed under rule 6B, the same exceeded by Rs. 1,18,200/- for assessment year 1995-96. Even in the subsequent assessment year 1997-98, the value of items exceeding the prescribed limit was Rs. 25,846/- only. As against the same, the value of these items exceeded by Rs. 3,41,039/- which is abnormally high as compared to the past years and the next year. No details as to whom such costly items were presented were given. Under the circumstances, we are of the opinion that disallowance of Rs. 84,474/- was justified. We confirm the order of the CIT(A) and dismiss

this ground of assessee’s appeal.” Reference is now made to letter dated 3.10.1968 on which reliance has been placed by the assessee, which reads thus: “As the expenses incurred on the occasion of Diwali and Mahurat are in the nature of business expenditure, it has been decided not to lay down any monetary limits for the purpose of their allowance in the income tax assessments subject to the Income Tax Officer being

Income Tax Appeal No. 145 of 2004 5 satisfied that the expenses are admissible as a deduction under the law and are not expenses of a personal, social or religious nature.” A perusal of the said letter shows that the assessee is entitled to deduction of expenses incurred on the occasion of Diwali and Mahurat. However, the assessing officer is required to be satisfied that the expenses are admissible as a deduction under the law and are not expenses of personal, social or religious nature. As per details supplied in the paper book filed before the Tribunal at page 4 thereof, the assessee had given silver, tea-sets, bowls, glasses, tea-pans, pressure cookers etc. However, the assessee had failed to give to the Department the details of expenses and particulars of persons to whom such costly items were presented. In the light of the findings noticed above, in which the learned counsel for the assessee could not point out any element of perversity except that he made an effort in vain to persuade this Court to re-appreciate the evidence and record a different finding on the basis thereof, the substantial question of law is answered against the assessee. Resultantly, there being no merit in the appeal, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) December 6, 2010 JUDGE *rkmalik*