TMI Blog1976 (12) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The ITO, however, disallowed a sum of Rs. 14,000 out of the total expenses in their depots of Rs. 1,76,046 on the ground that inflation in such expenses cannot be ruled out. The ITO also added back a sum of Rs. 5,072 as entertainment expenses. 2. On appeal the AAC found that the expenditure of Rs. 5,072 disallowed by the ITO did not represent expenditure by way of entertainment, but the same was expenditure incurred by the assessee purely out of commercial consideration and necessity. Having regard to the huge turn over of the assessee s business and following the decisions of the Tribunal in similar other cases, the AAC deleted the addition of Rs. 5,072. As regards the depot expenses the AAC found that the bulk of the expenditure was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d vs. Shri Patel Brothers Co. Ltd. Bardoli(4). 5. On a careful consideration of the rival submissions, we see no reason to interfere with the order of the AAC. The assessee is carrying on business of manufacture and sale of safety matches admittedly had a number of depots in various places in Andhra Pradesh and admittedly expenditure had been incurred in respect of those depots. The assessee had maintained books of accounts wherein the expenditure incurred was duly recorded. The ITO has not pin-pointed any particular item of expenditure as inflated. He has made a guess that inflation cannot be ruled out. The AAC has considered the nature of the expenditure in detail with reference to the books of accounts maintained in the depots. He ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure claimed was very reasonable and was not an lavish scale. Before us also the same grounds were urged on behalf of the assessee. The point for determination is whether the above expenses incurred by the assessee are admissible. As per the accounts of the assessee the turnover amounted to Rs. 80,58,726. The assessee was carrying the business in manufacture and sale of safety matches in various depots outside the State of Tamil Nadu, as pointed out earlier in para 1 supra. In the factory and in the depots the assessee had incurred very small expenditure ranging from Rs. 235 to Rs. 288. The Gujarat High Court in the case of CIT, Gujarat, Ahmedabad vs. Shri Patel Brothers Co. Ltd., Bardoli (4) considered at length the meaning of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cel of express or implied terms and condition of business, trade or profession, or on account of long standing custom in such trade, business or profession, they would not, in our opinion, amount to acts of entertainment. It is only in the area lying between these two termini that the benefit questions arise, and as regards acts falling such area we are of the opinion that we should adopt the broad dictionary meaning of the term "entertainment" which we have indicated above. We think that the Revenue was right when it was contended on its behalf that entertainment is hospitable treatment of guests and Act of entertainment includes hospitality. But in our opinion, that would not warrant converse position to be correct and every hospitality w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this problem; but in the context of legislative intent evinced from the gradual evolution of the present provisions contained in s.37(2A) and (2B), we venture to indicate a few broad tests so as to facilitate a taxpayer to understand and the Revenue to determine the nature of entertainment expenses though in each case in the ultimate analysis it would be a question of fact depending on many factors, more particularly in absence of a well defined scheme in the Indian statute. The following broad tests, in our opinion, will provide a guide-line to determine the nature of expenses allowed to be entertainment expenses: (a) If the provision of food, drinks or any assessment to client, constituent or customer is on lavish and extravagant s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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