ORDER
R.M. Mehta, Accountant Member
1. to 8. [These paras are not reproduced here as they involve minor issues.]
9. Ground No. 3 in the appeal pertains to the disallowance of a sum of Rs. 73,831 made by the ITO by resort to the provisions of Section 37(2A). The AO noted the aforesaid expenditure as having been incurred under the head “Business Promotion Expenses” and treating the same as being in the nature of entertainment, he made the impugned disallowance.
10. Before the CIT (Appeals), the assessee did not challenge the disallowance and all that was contended, was that the same be included for computing the disallowance under Section 37(3A). This argument was rejected by the CIT(A) on the ground that since the expenditure was in the nature of entertainment’, the same was required to be specifically dealt with under Section 37(2A) and not 37(3A).
11. Even before us, similar arguments as advanced before the CIT (Appeals) were tendered. According to the learned counsel, a sum of Rs. 63,059 out of the total expenditure related to payment to hotels and these were required to be considered under Section 37(3A) and (3B). As regards the balance, it was conceded that these could be considered under Section 37(2A). The learned Departmental Representative, on the other hand, supported the order passed by the CIT (Appeals).
12. We have examined the rival submissions and have also perused the details of the expenditure in question appended on the Paper Book filed by the learned counsel. Inasmuch as, there is a specific finding of fact recorded by the authorities below that the expenditure is in the nature of entertainment, we have no option but to treat the same as falling for consideration under Section 37(2A). There may be a case where payments to hotels may not be in the nature of entertainment and under these circumstances, the same can be considered under Section 37(3A) and (3B). It may not be out of place to mention that such a situation is envisaged in the latter provision, inasmuch as, the Explanation (a) to Sub-sections (3A) and (3B) speaks of the “aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act”. In our opinion, the provisions of Section 37(3A) and (3B) come into play only after a particular expenditure has been found to be allowable under other provisions of the Act, whereas the expenditure with which we are concerned, has been found to be disallowable under Section 37(2A). In the final analysis, we uphold the action of the tax authorities in processing the expenditure under Section 37(2A). The relevant ground in the appeal is rejected.
13. Ground No. 4 pertains to the question, whether a sum of Rs. 3,06,894 paid as conveyance allowance to the employees falls within the mischief of Section 37(3A) and (3B). The AO was of the view that the amount in question was to be included for the purposes of making the disallowance under Section 37(3A).
14. Before the CIT(A), it was contended that conveyance allowance paid to employees was not hit by Section 37(3A) & (3B). According to the assessee, the same formed part of the salary of the employees and was not covered by the aforesaid provisions. The CIT(A) took note of Explanation (b) whereby it was provided that expenditure on advertisement, publicity and sales promotion would not include remuneration paid to the employees of the assessee engaged in one or more of the said activities. According to him, the assessee had not been able to show that the employees who received conveyance allowance were engaged in any of the aforesaid three activities. He, accordingly, upheld the disallowance made by the AO.
15. The learned counsel of the assessee reiterated the arguments advanced before the tax authorities. It was contended that the idea behind the introduction of Section 37(3A) to (3D) was to curb wasteful and lavish expenditure including that on the ‘running and maintenance of…motor cars’. According to him, Explanation (c)(ii) to Sub-sections (3A) and (3B) of Section 37 clarified that expenditure on running and maintenance of…motor cars would include conveyance allowance paid to the employees and where the assessee was a company, to its Directors as well. The submission, thereafter, was that since the aforesaid Explanation referred to the running of motor cars, the conveyance allowance which was being paid to employees who were maintaining scooters or no vehicle at all, should be excluded from the purview of the disallowance. It was further stated that the relevant information could be provided to the AO in case the Tribunal, after accepting the view-point canvassed on behalf of the assessee, restored the matter back.
16. The learned Departmental Representative, on the other hand, strongly supported the orders passed by the tax authorities. According to him, the explanation specifically referred to the conveyance allowance paid to the employees and in the case of a company to the Directors and no distinction was to be drawn between those persons who were maintaining cars and those who were maintaining scooters or no vehicle at all.
17. After examining the rival submissions, we are of the view that there is merit in the arguments advanced by the learned counsel of the assessee. As rightly contended by him, the idea behind introducing Section 37(3A) to (3D) was to curb the lavish and wasteful expenditure incurred by assessees under various heads including the maintenance of motor cars, etc. In our opinion, conveyance allowance paid to those employees who are maintaining motor cars is required to be added in working out the disallowance, but conveyance allowance to those maintaining scooters or no vehicles at all is required to be excluded. The term ‘maintenance of motor cars’ according to us does not cover the last two categories. Inasmuch as, the relevant details of conveyance allowance bifurcated in the three categories, namely, those who are maintaining motor cars, those who are maintaining scooters and those who are getting conveyance allowance without having any vehicle are not available, we deem it fit to restore the matter back to the file of the AO for the limited purpose of obtaining the necessary details from the assessee and allowing necessary relief. The relevant ground in the appeal is partly allowed subject to necessary verification being carried out by the AO.
18. to 26. [These paras are not reproduced here as they involve minor issues.]