K.N. Oil Industries vs Commissioner of Income Tax

A.K. Mathur, C.J.—This is an Income Tax reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the assessee and the following question has been referred for answer by this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the disallowance for the purposes of Section 37(3A) of the Income Tax Act, 1961, should be made out of total specified expenses of the assessee and not from such expenses for separate business and/or separate offices computed separately u/s 37(3A) as claimed by the assessee ?"

The assessee is a registered firm engaged in the business of supply of different commodities at head office and branches. The accounts of the following branches are separately maintained :

(i) Swastik Industries, Mahasamund.

(ii) Shri Ganesh Twins Mills, Raipur.

(iii) Swastik Soaps and Detergents, Mahasamund.

The assessee was maintaining separate accounts. The specified expenditure covered in Section 37(3A) and the disallowance were worked out for each unit. The claim was not allowed by the Assessing Officer who had computed the disallowances, after taking the total of specified expenses of all units after allowing specified amount and percentage as specified in Section 37(5A).

The Commissioner of Income Tax (Appeals) allowed the claim taking each unit as a separate entity for purposes of Section 37(3A). The Revenue preferred an appeal before the Income Tax Appellate Tribunal which reversed the finding and held that each of these units could not be treated separately, but treated as one unit. u/s 37(3A), the expression used is "aggregate expenditure incurred by the assessee" and, therefore, it is not possible to treat the three units separately. In this view of the matter, the assessee was not permitted allowance under the Act of all the units for taking to be aggregate units and this disallowance has been given by the Income Tax Officer which has been rightly affirmed by the Tribunal.

Hence, in this view of the matter, we are of the opinion that the view taken by the Tribunal is justified and we answer this question against the assessee and in favour of the Revenue.