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Issues:
1. Interpretation of section 37(2) of the Income-tax Act, 1961 regarding entertainment expenses. 2. Calculation of deduction under section 80J and the applicability of rules inconsistent with the parent enactment. Analysis: Issue 1: The first issue revolves around the interpretation of section 37(2) of the Income-tax Act, 1961 concerning entertainment expenses. The case involved an assessee-company engaged in the manufacture of rayon and textile goods with multiple manufacturing units. The dispute arose regarding the computation of admissible entertainment expenses under section 37(2). The Assessing Officer disallowed a portion of the claimed expenses, aggregating them based on the total income of the company rather than considering each unit separately. The Appellate Tribunal, in line with a previous order, held that entertainment expenses should be worked out unitwise. The court emphasized that the statutory prohibition in section 37(2) must be strictly construed, allowing deductions only for expenses incurred by the company as a whole, not by individual units. The judgment highlighted that while separate accounts for each unit were maintained, the income of all units collectively constitutes the income of the assessee-company, warranting deductions under section 37(2) for the company as a whole. Issue 2: The second issue pertains to the calculation of deduction under section 80J and the relevance of rules inconsistent with the parent enactment. The assessee raised a claim under section 80J, which was initially overlooked by the Assessing Officer. The Appellate Assistant Commissioner directed the consideration of the claim, subject to rules that the assessee argued were inconsistent with the parent enactment. The Appellate Tribunal acknowledged the principle that rules conflicting with the parent enactment should be ignored. Citing a Supreme Court precedent, the Tribunal affirmed the validity of a specific rule (rule 19A) in computing relief under section 80J. The judgment endorsed the direction given by the Appellate Assistant Commissioner, emphasizing the importance of adhering to valid rules in determining deductions under section 80J. In conclusion, the court ruled in favor of the Revenue regarding the interpretation of section 37(2) for entertainment expenses, emphasizing the collective income of the company for deduction purposes. Additionally, the judgment affirmed the consideration of valid rules, such as rule 19A, in calculating relief under section 80J, underscoring the necessity of adhering to consistent and valid rules in tax assessments.
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