9911796707
TMI Blog1999 (12) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... e, an exporter of brassware goods, for the assessment year 1975-76 claimed a deduction of Rs. 31,864 on account of expenses incurred on foreign customers. The Income Tax Officer disallowed this expenditure holding the same to be in the nature of entertainment expenses. Aggrieved, the assessee had filed an appeal to the Commissioner of Income Tax. The Commissioner, after examining the details of the expenditure, held that the expenses incurred by the assessee could not be termed as petty expense of the type contemplated by the Gujarat CIT v. Patel Bros. and Co. Ltd. (1977) 106 ITR 424 (Guj). He held that out of the total High Court in the case of expenditure of Rs. 31,864 about Rs. 430 included expenditure on alcohol and about Rs. 24,092 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India continued to be admissible for deductions as per limits of section 37(2A). The Finance Act, 1976, omitted the provision with effect from April, 1977. Thus the said section 37(2B) remained in operation for the assessment years 1970-71 to 1976-77. As a result of the omission of section 37(2B) from the assessment year 1977-78, entertainment expenditure incurred in India is also admissible for deduction subject to limits in section 37(2A). The Apex Court in the case of CIT v. Patel Bros and Co. Ltd. (1995) 215 ITR 165 (SC), considered the meaning of "entertainment expenditure" prior to 1-4-1976, under the Income Tax Act. The Apex Court also considered the nature of Explanation 2 to section 37(2A) of the Income Tax Act, 1961. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure', but the enlarged meaning given for the purpose of the Act with effect from 1-4-1976. The object of sub-section (2A) is to disallow any lavish expenditure in the form of business expenditure. This is obvious from the several amendments made in the provision from time to time. It is so understood even in the circular issued by the Board. The object of the provision clearly is to allow deduction of the essential business expenditure incurred due to commercial expediency and according to the trade usage excluding the lavish expenditure. The dispute in the present case relates only to the amount which has been held to be essential business expenditure of this kind incurred in providing ordinary meals as bare necessity. In the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of business and not within entertainment expenses. The nature of an exporter's business where foreign customers visit India for the purposes of business and are staying in a hotel where meetings are also held, is expenditure which is customary and usual in the nature of the said business and trade. The Tribunal has duly considered these factors and. permitted the deduction of the same. In our view, the Tribunal cannot be faulted and has rightly allowed the deduction, especially considering that it would be usual, rather necessary, for an exporter to provide hospitality and living accommodation to its customers. The expenses incurred by the assessee would not be hit by section 37(2B) as entertainment expenses and would be expens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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