1985 (6) TMI 71 - AT - Income Tax

Assessment Year, Entertainment Expenditure, Expenditure Incurred, Mistake Apparent From Record, Original Assessment

Summary

Issues:
Rectification of assessment order disallowing entertainment expenditure under section 37(2A) of the Income-tax Act, 1961 based on retrospective legislative amendment.

Analysis:
The judgment involves an appeal by the assessee against the rectification of the assessment order disallowing certain expenditure under section 37(2A) of the Income-tax Act, 1961. The original assessment disallowed only a portion of the expenditure, but the ITO rectified the order disallowing a larger amount based on a retrospective legislative amendment introduced by the Finance Act, 1983. The amendment included Explanation 2, broadening the scope of entertainment expenditure to cover hospitality expenses provided by the assessee to any person. The ITO rectified the assessment under section 154 of the Act, leading to the appeal.

The Commissioner (Appeals) upheld the rectification order, stating that it was valid in law following the retrospective legislative amendment. The assessee contended that the rectification was debatable and not valid in law, citing a Supreme Court decision which was deemed irrelevant by the tribunal. The tribunal differentiated the case at hand from the Supreme Court decision, emphasizing the impact of the retrospective amendment validating the earlier order.

The assessee further argued that the rectification could not be based on a deemed mistake due to the retrospective amendment. However, the tribunal disagreed, citing precedents where rectification was allowed when the assessing officer misunderstood or misapplied provisions. The tribunal referenced cases where rectification was permitted based on misinterpretation of statutory provisions, supporting the ITO's authority to rectify the assessment order.

Additionally, the assessee contended that the application of the statutory provision could not be retrospective, but the tribunal dismissed this argument, emphasizing the necessity of rectification based on a retrospective amendment. The tribunal also addressed the definition of 'hospitality' in Explanation 2, concluding that any form of hospitality provided to individuals, such as club bills and liquor, constitutes entertainment expenditure. The tribunal upheld the rectification order, dismissing the appeal.

Therefore, the tribunal affirmed the rectification of the assessment order disallowing entertainment expenditure under section 37(2A) based on the retrospective legislative amendment, emphasizing the broad interpretation of hospitality as entertainment expenditure. The appeal was dismissed, and the rectification was deemed valid in law.