1999 (8) TMI 49

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..... on of Rs. 54,305 ?" The material facts giving rise to the question are as under : The assessee is engaged in the business of manufacture of plastics. It has its factory at Poiser, Kandivali. It has an office at Bombay, which is situated at Lotus House. The assessee has also offices in Delhi, Calcutta, Bhagwara and Sonipat. During the previous year ended March 31, 1977, relevant to the assessment year 1977-78, to which the reference pertains, the assessee incurred expenditure of Rs. 59,305 in its various offices for the purpose of providing tea, coffee, cold drinks, snacks, and at times, meals to its customers. The assessee debited this expenditure under the head "Sales promotion expenses". The Income-tax Officer did not allow this claim .....

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..... o. Ltd. [1995] 215 ITR 165 had held that despite the restrictions imposed in allowing "entertainment expenditure" as a business expenditure by virtue of sub-section (2A) of section 37 of the Act, the expenditure incurred in extending customary hospitality by offering ordinary meals as a bare necessity, was not "entertainment expenditure" within the meaning of sub-section (2A) of section 37 of the Act. That position, however, has changed with the enlargement of the meaning of "entertainment expenditure" by insertion of Explanation 2 to subsection (2A) of section 37 of the Act by the Finance Act, 1983, with retrospective effect from April 1, 1976. Explanation 2 reads : "Explanation 2.---For the removal of doubts, it is hereby declared tha .....

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..... iew of the amendment to section 37(2A) by insertion of the Explanation set out above, the action of the Income-tax Officer is correct. Deduction cannot be allowed in respect of such expenses now under section 37(1) of the Act as has been done by the Tribunal. In the premises, it is clear that the Tribunal was not justified in holding that the assessee was entitled to deduction of the expenditure of Rs. 54,305 incurred by the assessee in extending customary hospitality to the customers by offering meals, etc., under section 37(1) of the Act. The question referred to us is, therefore, answered in the negative, i.e., in favour of the Revenue and against the assessee. This reference is disposed of accordingly with no order as to costs. - .....

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