Law:

Section:

Section 37(2A) of the Income-tax Act, 1961 - Entertainment expenditure - Assessment year 1976-77 - Whether expenses incurred by assessee on boarding and lodging facilities given to auditors and other Government and semi-Government servants visiting its factory, formed part of entertainment expenditure - Held, yes CASE REFERRED TO CIT v. Patel Bros. & Co. Ltd. [1995] 215 ITR 165/81 Taxman 156 (SC) [Para 3] A.N. Mahajan for the Applicant. JUDGMENT Prakash Krishna, J. - At the instance of the Revenue the following question of law has been referred to this Court for its opinion under section 256(1) of the Income-tax Act, 1961 : "Whether on the facts and circumstances of the case, the learned Tribunal was legally correct in holding that incurring expenses on boarding and lodging facilities given to auditors and Government and Semi-Government servants visiting the factory did not amount to entertainment and that it should be deemed a necessary expenditure under section 37(1) of the Income-tax Act, 1961 ?" 2. The dispute relates to the assessment year 1976-77. During the assessment proceedings, the Assessing Officer disallowed certain expenditures which according to him were in the nature of entertain expenditures, vide order dated 15-11-1979. The said order was confirmed in appeal by the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has held that the disallowance of entertainment expenses to the extent of Rs. 20,555 is fully justified. The matter went in further appeal before the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal). The Tribunal deleted the disallowance of the expenses incurred towards auditors' boarding and lodging. At the instance of the Revenue the above question has been referred to this Court for its opinion. The question itself suggests that the said expenditures/expenses were incurred by the assessee for boarding and lodging facilities given to the Auditors and Semi-Government Servants visiting the assessee fac- tory. Section 37(1) of the Income-tax Act had been amended in the mean time. Explanation 2 to section 37 of the Act was inserted by Finance Act of 1983 retrospectively w.e.f. 1st…

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