1982 (7) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 15,680 u/s 37(2A) of the Income-tax Act, 1961.
2. Disallowance of expenses on Ganeshji ki Puja amounting to Rs. 958 u/s 37(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Disallowance of Rs. 15,680 u/s 37(2A) of the Income-tax Act, 1961
The Income-tax Appellate Tribunal, Allahabad Bench, referred the question of whether the disallowance of Rs. 15,680 was justified under section 37(2A) of the Income-tax Act, 1961. The assessee, a registered firm dealing in Banarsi goods, claimed business expenses including Rs. 20,680 under various heads. The ITO treated these as entertainment expenditure, allowing only Rs. 5,000 as a deduction and disallowing Rs. 15,680. The AAC and the Appellate Tribunal upheld this decision. The court held that expenditures on rickshaws for customers, festival allowance to staff, jalpan for customers, Deepawali sweetmeats, and glasses for drinking water to customers could not all be treated as entertainment expenditure. Specifically, the court ruled that:
- Rs. 1,155 for rickshaws for customers was not entertainment expenditure.
- Rs. 1,276 for festival allowance to staff and Rs. 135 for Deepawali sweetmeats were not entertainment expenditure.
- Rs. 17,118 for jalpan to customers and Rs. 38 for glasses were entertainment expenditure, allowing only Rs. 5,000 as a deduction.

Issue 2: Disallowance of expenses on Ganeshji ki Puja amounting to Rs. 958 u/s 37(1) of the Income-tax Act, 1961
The court examined whether the expenses on Ganeshji ki Puja amounting to Rs. 958 could be disallowed under section 37(1). The ITO and AAC considered it personal expenditure, not laid out wholly and exclusively for business purposes. The court disagreed, stating that the expenditure was customary for Hindu traders and connected with the trade, thus allowable as business expenditure under section 37(1). The court referenced a Board of Direct Taxes Circular, which clarified that such customary expenses should be allowed as business expenditure.

Conclusion:
The court concluded that the disallowance of Rs. 15,680 was not justified under section 37(2A); only Rs. 12,156 could be disallowed. Additionally, the expenses on Ganeshji ki Puja amounting to Rs. 958 could not be disallowed under section 37(1). Both parties were directed to bear their own costs.