TMI Blog1982 (7) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1970-71, the assessee claimed deduction of business expenses amounting to Rs. 94,665. This claim included the expenditure of Rs. 20,680 made up of the following items : Rs. (1) Ganeshji hi Puja 958 (2) Rickshaw, etc., for customers (Rs. 4,620): only 1/4th taken in view of the assessee's explanation 1,155 (3) Festival allowance to staff 1,276 (4) Entertainment of jalpan, etc., to customers 17,118 (5) Deepawali sweetmeats 135 (6) Glasses-for drinking water to customers 38 ------ Total 20,680 ------ The ITO treated the aforementioned expenditures as part of the assessee's expenditure incurred in furtherance of his business activities. He, however, came to the conclusion that these expenditures partook the nature of entertainment expenditure within the meaning of s. 37(2A) of the I.T. Act and as such only a deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has referred the aforementioned question of law for the opinion of this court. In so far as the disallowance of the expenditure amounting to Rs. 958 incurred by the assessee for Ganeshji ki Puja is concerned, the assessee had explained that it was a customary expenditure incurred by the Hindus. The ITO did not reject the aforementioned explanation of the assessee. He seems to have accepted that the said expenditure was business expenditure by the assessee but as in his opinion it fell within the ambit of the expression " entertainment expenses " contemplated by s. 37(2A), a sum of Rs. 5,000 alone could be allowed from out of all the expenses, including the expenses on Ganeshji ki Puja, that could properly be described as entertainment expenses. The AAC also accepted the assessee's explanation that the said expenditure was a customary expenditure by Hindus but concluded that it was in the nature of personal expenditure of the assessee which had not been laid out wholly and exclusively for purposes of business and, as such, no deduction in respect thereof could be allowed treating it as business expenditure. The Appellate Tribunal merely stated that it agreed with the AAC that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion further by stating that as the expenses incurred on the occasion of Diwali and Mahurat are in the nature of business expenditure, it bad been decided not to lay down any monetary limits for the purpose of their allowance in the income-tax assessments subject to the ITO being satisfied that the expenses were admissible as a deduction under the law and were not expenses of a personal, social or religious nature. It is thus obvious that Ganeshji ki Puja expenses which are incurred by Hindu traders in a customary way at the time of Mahurat or opening of their account books on the auspicious occasion of Diwali are to be treated as expenditures laid out wholly and exclusively for the purposes of the assessee's business. As pointed out by the Board such expenses are incurred in the interest of the business. We are accordingly of the opinion that both the AAC and the Income-tax Appellate Tribunal went wrong in holding that the sum of Rs. 958 spent by the assessee on Ganeshji ki Puja in the assessment year in question was an expenditure of a nature unconnected with the petitioner's business. Correctly interpreting the explanation given by the assessee, the said expenditure had to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered to be entertainment expenditure, contemplated by s. 37(2A) of the Act. The court observed that a Full Bench of the Kerala High Court had in the case of CIT v. Veeriah Reddiar [1977] 106 ITR 610, approved the decision of this court in the case of Brij Raman Dass Sons v. CIT [1976] 104 ITR 541, and that the said decision of this court was binding on it. It accordingly decided the case in accordance with the decision of this court in Brij Raman Dass Sons' case and held that the amount spent by the assessee on the messing of its constituents could not be treated as entertainment expenditure. The question again came up for consideration before a Division Bench of this court in the case of CIT v. Kunji Lal Dhanpat Rai [1979] 116 ITR 608. This court again refused to follow the decision of the Gujarat High Court in the case of CIT v. Patel Brothers Co. Ltd. [1977] 106 ITR 424, and preferred to follow its earlier decision in the case of Brij Raman Dass Sons [1976] 104 ITR 541 (All). In the case of CIT v. Bagraj and Company [1979] 117 ITR 694 (All) the question that arose for consideration before a Division Bench of this court was as to whether the expenditure incurred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure within the meaning of s. 37(2A) of the I.T. Act, the expenditure incurred by the assessee in relation to his business must be in connection with the entertainment of his customers and constituents and that an expenditure incurred on the messing or fooding of such customers or constituents, qualifies as such expenditure. We now proceed to consider as to whether the various items of expenditure other than that relating to Ganeshji ki Puja (the item which has already been discussed by us) can, for purposes of s. 37(2A) of the I.T. Act, be treated as expenditure on entertainment of customers or constituents. Item No. 2 is an expenditure amounting to Rs. 1,155 said to have been incurred by the assessee in connection with the transportation of its customers. Transporting of customers can hardly be described as providing entertainment to them. We are accordingly of the opinion that the expenditure of Rs. 1,155 in item No. 2 cannot be described as an entertainment expenditure. So far as items Nos. 3 and 5 are concerned (festival allowance to staff Rs. 1,276 and Deepawali sweetmeats Rs. 135) the case of the assessee, which seems to have been accepted by all the I.T., authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ji ki Puja (disallowed as personal expenditure) (ii) Rs. 1,155 Rickshaw, etc., } for customers } only a sum of Rs. 5,000 (iii) Rs. 1,276 Festival allowance } - from out of these to staff, and } allowed as entertainment (iv) Rs. 135 Deepawali sweet-meats. } expenditure. --------- Total Rs. 3,524 as business expenditure under s. 37(1) of the I.T. Act and that no portion of the same can be added back to the assessee's income. From out of total expenditure of Rs. 17,118 spent by the assessee on jalpan, etc., on its customers and Rs. 38 spent for purchasing glasses, etc., for providing drinking water to customers (total Rs. 17,156) the assessee is entitled to claim a deduction of Rs. 5,000 as entertainment expenses. From out of this amount, only a sum of Rs. 12,156 could be added back to the assessee's income. In the result, we answer the question referred to us as follows : On the fact and circumstances of this case, disallowance of Rs. 15,680 was not justified under s. 37(2A) of the I.T. Act, 1961. In this regard only a sum of Rs. 12,156 could have ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
