TMI Blog1993 (3) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-company claimed expenses of Rs. 1,01,934 under the head "Inaugural expenses". The Income-tax Officer allowed a sum of Rs. 79,071 which were in the nature of advertisement expenses. The Income-tax Officer disallowed the expenditure to the tune of Rs. 22,863 and rejected the contention of the assessee that the said expenses were incurred for popularising the company's products or for carrying on the business. It was submitted that a number of distinguished guests including Ministers, press parties as well as future customers were invited on the inauguration day and the expenses had been incurred on lunch, dinner and for payment of air tickets, etc. The claim of the assessee was rejected on the ground that the expenses were in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court in the case of ACC-Vickers Babcock Ltd. v. CIT [1976] 103 ITR 321, it was held that the inaugural expenses are not allowable. Learned counsel for the assessee has submitted that the list of the expenses, which has been given at pages 50 to 54 of the paper book includes only Rs. 7,941.25 which was the amount paid for lunch charges and, at the most, the said amount could have been disallowed. But, in respect of other expenses which are in the nature of tent charges, photographs, air tickets, tax charges, etc., the Income-tax Appellate Tribunal has erred in considering the same as hit by section 37 of the Act. Reliance was placed on the decision of the Bombay High Court in CIT v. Merck Sharp and Dohme of India Ltd. [1983] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring benefit by incurring this expenditure and a sum of Rs. 9,128 + 27,318 = 36,446 would in any case fall under the category of entertainment expenditure for which the maximum limit admissible was Rs. 5,000 and since the maximum limit has already been exhausted, the entire claim was liable to be disallowed. The Appellate Assistant Commissioner held that the expenditure was incidental to the carrying on of the assessee's business and no asset of any enduring benefit came into existence. The Income-tax Appellate Tribunal held that the expenditure was incurred wholly and exclusively for the purposes of the assessee's business and only Rs. 9,128 which was in respect of hotel bills for lodging and boarding of guests in the hotel and Rs. 27,318 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions imposed under sub-section (2) of section 37 of the Act. The expenditure which are on hospitality or provision on food or beverages have to be excluded subject to the restrictions contained in the sub-section, The inaugural function of a unit is exclusively for the purposes of business and the business normally comes into existence before the inauguration which is Only a formal function, In the present case also, the inauguration function was hold on April 23, 1976, whereas the production bad started on March 15, 1976, and, therefore, the expenses which are in the nature of inaugural function have to be allowed subject to the restrictions imposed by section 37(2) of the Act. We are, therefore, of the opinion that the expenditure which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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