Law: Income Tax Act, 1961

Section: 37(2A)

Income-tax----Business expenditure---Disallowance---Entertainment expenditure--¬Expenditure on providing meals to merchants in accordance with custom--¬Expenditure could not be disallowed in assessment year 1973-74---Indian Income Tax Act, 1961, S.37(2-A). Held, that the expenditure on providing meals to the merchants in accordance with trade custom was deductible in the assessment year 1973-74. C.I.T. v. Supreme Motors (P.) Ltd. (1984) 147 ITR 48 (Delhi) and Sandal Kashmirilal v. C.I.T. (1986) 157 ITR 422 (Delhi) fol. JUDGMENT DR. M. K. SHARMA, J. --- For the assessment year 1973-74, the following question has been referred under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), by the Income-tax Appellate Tribunal "Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in upholding the order of the Appellate Assistant Commissioner deleting the disallowance of Rs.10,220 under the kitchen expresses by observing that the provision of meals to the beoparies by the assessee cannot be termed as entertainment expenditure?" The assessee is a registered firm carrying on solely the business of acting as a commission agent in pulses. The total amount of commission received by the assessee was Rs.1,14,221. The claim of the assessee was that under the condition of its trade it had to run a sort of kitchen to provide meals for the various Beoparies who come to it from various places as of business necessity and a trade custom. In maintaining such a kitchen and expenditure of Rs.10,220 was incurred which the assessee claimed as a deduction in computing its income. The Income-tax Officer held that the expenditure incurred by the assessee in running the kitchen was in the nature of entertainment expenditure and accordingly disallowed the same. On appeal, the Appellate Assistant Commissioner allowed the assessee's claim. Aggrieved by the order of the Appellate Assistant Commissioner, the Department preferred an appeal. The Tribunal, after referring to the decisions of various High Courts and its own decision in the earlier assessment years, came to the conclusion that the expenditure incurred by the…

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