Entertainment expenditure includes hospitality in any form, so gift articles and suit lengths were held disallowable.

Section 37(2A) operates as a restriction on the deduction otherwise available under section 37(1) for business expenditure, and Explanation 2 enlarges entertainment expenditure to cover hospitality of every kind provided to any person by food, beverages, or any other manner. On that construction, the cost of gift articles or suit lengths distributed by the assessee was treated as entertainment expenditure and was disallowed. The question was answered in favour of the Revenue and against the assessee.

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Issues: Whether the cost of gift articles or suit lengths distributed by the assessee was liable to disallowance as entertainment expenditure under section 37(2A) read with Explanation 2 of the Income-tax Act, 1961.

Analysis: Section 37(1) permits deduction of business expenditure, but section 37(2A) begins with a non obstante clause and restricts allowance for entertainment expenditure. Explanation 2 to section 37(2A) expands entertainment expenditure to include hospitality of every kind provided to any person, whether by food, beverages, or in any other manner whatsoever. On that construction, distribution of suit lengths, even if connected with business, falls within the enlarged meaning of entertainment expenditure and cannot escape disallowance.

Conclusion: The disallowance was justified and the question was answered in favour of the Revenue and against the assessee.

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