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Issues Involved:
1. Nature of expenses incurred for entertaining clients and customers. 2. Disallowance of motor car upkeep expenses. 3. Disallowance of donation and subscription expenses. Detailed Analysis: Issue 1: Nature of Expenses Incurred for Entertaining Clients and Customers The primary issue was whether the expenses incurred by the assessee in furtherance of his profession to various clubs of Kolkata for entertaining clients and customers on account of hospitality are in the nature of business expenses or entertainment expenditure. The assessee, a legal practitioner, claimed expenses amounting to Rs. 1,28,561 for developing clientele relationships, which included payments to clubs and other related expenses. The Assessing Officer treated these expenses as "entertainment expenses" and disallowed Rs. 59,280 under section 37(2A) of the Income-tax Act, 1961. The assessee argued that these expenses were for Customer Relationship Management (CRM) programs aimed at enlightening clients about emerging business opportunities and legal aspects. The assessee emphasized that the meetings were held at exclusive clubs to provide an appropriate ambiance for professional discussions. The Tribunal noted that the definition of "entertainment expenditure" includes hospitality of every kind, as per the amended section 37(2) of the Income-tax Act. The Tribunal referred to various judicial precedents, including the Supreme Court's ruling in Patel Bros. & Co. Ltd., which defined "entertainment expenditure" strictly and not expansively. The Tribunal also considered that in the assessee's own case for the assessment year 1995-96, similar expenses were allowed after verification. Ultimately, the Tribunal allowed Rs. 68,561 as business expenses and treated the remaining Rs. 60,000 as "entertainment expenditure" under section 37(2), reducing the disallowance from Rs. 59,280 to Rs. 25,000. Issue 2: Disallowance of Motor Car Upkeep Expenses The second issue involved the disallowance of Rs. 42,478, being 20% of the motor car lease rental of Rs. 2,12,393. The Assessing Officer disallowed this amount, considering it as personal use. The Ld. CIT(A) upheld this disallowance, stating that the lease rental included expenses for cars used by the assessee's mother and wife. The assessee contended that the motor car was used exclusively for professional purposes and that there were separate cars for his mother and wife. The Tribunal found that the motor car upkeep expenses were not included in the lease rental and that the assessee had already added back personal use expenses. In the absence of any contrary evidence from the revenue, the Tribunal directed the deletion of the disallowance of Rs. 42,478. Issue 3: Disallowance of Donation and Subscription Expenses The third issue was the disallowance of Rs. 2,500 under the head 'Donation and Subscription'. The Assessing Officer disallowed payments made to India International Centre and Khaitan Co. Recreation Club, while allowing payments to the Bar Library Club and Counsels' Club Association. The assessee argued that these payments were for furtherance of professional activities and should be allowed under section 37 of the Income-tax Act. The Tribunal noted that the revenue did not contest the professional nature of these payments. Relying on judicial precedents, including Sri Venkata Satyanarayana Rice Mill Contractors Co. and Mysore Kirloskar Ltd., the Tribunal held that the expenses were allowable as revenue expenditure and directed the deletion of the disallowance of Rs. 2,500. Conclusion The appeal was partly allowed, with the Tribunal reducing the disallowance of entertainment expenses to Rs. 25,000, deleting the disallowance of motor car upkeep expenses of Rs. 42,478, and allowing the donation and subscription expenses of Rs. 2,500.
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