By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
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11 Eyetech Industries v.
ACIT
ITAT ‘G’ Bench, Mumbai
Before J. Sudhakar Reddy (AM) and
P. Madhavi Devi (JM)
ITA No. 1799/Mum./2005
A.Y. : 2001-02. Decided on : 31-7-2008
Counsel for assessee/revenue : N. R. Agarwal/
B. K. Singh
S. 37(1) of the Income-tax Act, 1961 — Business expenditure
— Amount spent on the prizes given under the lottery system allowed as
business expenditure.
Per P. Madhavi Devi :
Facts :
The assessee was trading in eye-testing equipments. During
the year under appeal it had claimed Rs.7.68 lacs as expenditure incurred
towards sales promotion campaign. The same was explained thus: The assessee
conducted lottery at the exhibition centre from 11-3-2000 to 15-1-2001. As per
the scheme, the purchaser of the assessee’s products during the defined period
was entitled to a lottery ticket. At the annual optical fair, a lucky draw was
announced in which three lucky winners were given the prizes. According to the
AO, this was a lottery business not related to the business of the assessee.
Hence, he disallowed the expenditure claimed. On appeal, the CIT(A) confirmed
the addition.
Held :
The Tribunal agreed with the assessee that the expenditure
was to attract customers and to encourage them to purchase the assessee’s
products. It disagreed with the AO who held such activity of the assessee as
in the nature of gambling. Accordingly, the expense claimed was allowed by the
Tribunal.
à
The flat in question was exclusively used for the purpose of the business of
the assessee. It was used for accommodating the business executives of various
suppliers, who visited the assessee’s shop for business purpose. Apart from
that, some senior staff of the assess was also residing in the flat;
à
No rent was paid by the assessee for the use of the flat;
à
The assessee had substantial amount of interest-free funds during both the
years under appeal;
à
The AO was unable to pinpoint as to which part of the interest-bearing funds
had been diverted.
In view of the above, the Tribunal upheld the order of the
CIT(A).
(iii) In the case of SCM Creation, which was the intervener
in the case of Rogini Garments before the Special Bench of Chennai Tribunal,
the Madras High Court relying on its own decision in the case of V.
Chinnapandi, had allowed the appeal filed by the assessee;
(iv) The Bombay High Court in the case of Nima Specific
Family Trust, which decision was again based on the decision of the M. P. High
Court in the case of J. P. Tobacco Products Pvt. Ltd., had held that both the
Sections were independent and hence, deduction could be claimed on the gross
total income, subject to ceiling of 100%.
Cases referred to :
1. Ifunik Pharma Ltd. (ITA No. 4389/M/02);
2. CIT v. V. Chinnapandi, (2006) 282 ITR 389 (Mad.);
3. J. P. Tobacco Products Pvt. Ltd. v. CIT, 229 ITR
123 (M.P.);
4. SCM Creation (Tax case Appeal No. 310 & 311 of 2008 —
Madras High Court);
5. Nima Specific Family Trust, 248 ITR 291 (Bom.)
6. ACIT v. Rogini Garments, (2007) 108 ITD 49 (SB)
(Chennai)
