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TMI Blog1992 (7) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... ounted for in its head office and three branch offices. When the I.T.O. called for information about the same, the assessee by letter dated 15-3-1985 informed him that the miscellaneous expenditure incurred included maintenance, cleaning, stationery, labour welfare expenses, medical expenses for staff, purchase of newspaper etc. In the Madras office Rs. 9,632.45 specifically represented expenditure incurred for offering coffee, tea etc. to visitors. In the other three branches, no such specific information was available. The I.T.O., therefore, considered for disallowance the sum of Rs. 9,632 in the Madras office and estimated an amount of Rs. 2000 out of Rs. 17,735 for Hyderabad branch, Rs. 1,500 out of Rs. 13,995 for Bangalore branch and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was to educate the dealers about the products dealt with by the assessee so as to promote the sales and consequently the expenditure would fail within the scope of sales promotion expenses u/s 37(3B). In the alternative, it was submitted that it should be treated as payment to a hotel under sub-section (3B) and consequently it cannot be considered for disallowance under sub-section (2A). Reliance was placed on the decision in the case of CIT v. Eskaps (I) (P.) Ltd. [1991] 191 ITR 674 (Cal.). It was also pointed out that sub-section (3C) had been omitted which indicated that sub-section (3B) prevailed over sub-section (2A) after that omission. 5. On the other hand, it was contended on behalf of the revenue that the bills were for paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, this expenditure was really for sales promotion. The Calcutta High Court has observed in the case of Eskaps (I) (P.) Ltd. that where a dinner party was for promotion of business and not for social hospitality, it was essentially for the purpose of business and cannot be disallowed as entertainment expenditure. That case related to sub-section (2B) as it stood before 1-4-1977 under which no allowance was to be made in respect of the expenditure in the nature of entertainment expenditure incurred by the assessee. No doubt, that section has been replaced by sub-section (2A) which also provides for disallowance of expenditure in the nature of entertainment expenditure and Explanation 2 has been added to remove all doubts by stating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities ; (c) expenditure on running and maintenance of aircraft and motor cars shall include,-- (i) expenditure incurred on chartering any aircraft and expenditure on hire charges for engaging cars plied for hire ; (ii) conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also. (3C) Nothing contained in sub-section (3A) shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause (2) of section 80B, or a person (other than a company), who is resident in India in respect of expenditure incurred wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure' and 'guest house' to remove doubts about the correct import of these expressions. " The Memorandum explained these provisions as follows :-- " ii. Partial disallowance of certain expenses : It is proposed to make a provision in the Income-tax Act for disallowance in the computation of profits and gains from business or profession, of 20 per cent of expenditure under specified heads to the extent such expenditure has not been disallowed under the other provisions of the Income-tax Act. The items of expenditure in respect of which such disallowance will be made are expenditure on advertisement, publicity, sales promotion ; travel by rail, motor car, ship, powered craft or aircraft ; running and maintenance of aircraft and moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the provision of lunch and dinner was neither contractual nor customary. The main purpose was the conference and in order to retain the presence of the dealers throughout the conference, the assessee had perforce to provide lunch and dinner. In our opinion, Explanation 2 will not cover such a situation. 9. It was argued by the revenue that since an element of hospitality is present, even when an assessee provides boarding and lodging expenses for business guest, the same element of hospitality will be present if lunch and dinner is provided at a conference. The decision of the Karnataka High Court in the case of Mysodet (P.) Ltd. on which the revenue relied does not advance the case of the revenue because the provision of boarding and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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