Law:

Section:

Section 37(2A), read with section 37(1), of the Income-tax Act, 1961 - Entertainment expenditure - Assessment year 1984-85 - Assessee-company spent certain amount on account of presentation articles and on cigarettes for guests, purchase of handicraft articles and tea packets, etc. - Whether expenditure towards presentation articles would not fall either within meaning of terms 'entertainment' or 'hospitality' and, therefore, such expenditure could not be termed to be either entertainment expenditure or in nature of entertainment expenditure - Held, yes - Whether since expenditure on cigarettes for guests, purchase of handicraft articles and tea packets had been incurred for extending hospitality to various persons, expenditure was an item of expenditure, which would fall within meaning of term 'entertainment expenditure' - Held, yes FACTS Assessee-company spent certain amount and claimed deduction. During the course of assessment for the assessment year 1984-85 the Assessing Officer disallowed the sums of Rs. 16,121 on account of presentation articles and Rs. 35,226 shown as sales expenses. The latter included expenses on cigarettes for guests, handicraft articles and tea packets, etc. According to the Assessing Officer, both the items of expenditure were incurred for entertaining the guests of the company and, hence, the same fell within the provision of section 37(2A), read with Explanation 2 to the said section. He, therefore, disallowed both the items of expenditure and made the additions. On appeal, the Commissioner (Appeals) confirmed the impugned disallowance. On second appeal, the Tribunal deleted the additions. On reference : HELD Section 37(2A) opens with non obstante clause whereby it is laid down that no allowance shall be made in respect of so much of the expenditure which is in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30-9-1967, except to the extent of specified limit laid down in the section. Therefore, any expenditure, which is otherwise allowable under section 37(1) or 37(2), would be hit by provisions of section 37(2A) if the expenditure is in the nature of entertainment…

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