ITAT view upheld: 35% employee food and seminar expenses held outside s. 37(2A) disallowance scope

HC dismissed Revenue's appeal, affirming the ITAT's decision that 35% of the entertainment, seminar and conference expenditure was not hit by s. 37(2A) of the Income-tax Act. It held that the characterization of expenditure on employees' food and beverages, incurred while discharging official duties alongside customers, is a pure question of fact. The Tribunal's estimation that 35% related to employees' consumption was neither arbitrary nor unreasonable, and such expenditure, being on employees at work, falls outside the restrictive ambit of s. 37(2A). No substantial question of law arose, and the assessee's claim was sustained.

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Issues involved: Interpretation of section 37(2A) of the Income-tax Act regarding the deductibility of entertainment, seminar, and conference expenses.

In this judgment, the petitioner sought a reference on whether the Income-tax Appellate Tribunal was correct in holding that 35% of the expenditure on entertainment, seminar, and conference expenses was not subject to section 37(2A) of the Income-tax Act. The Commissioner of Income-tax disallowed the expenditure on the basis that it was not incurred on the factory premises but in hotels. However, the Tribunal found that the expenditure on food and beverages for employees, when incurred in the course of official duties, is excluded from section 37(2A) as per Explanation 2. The Tribunal estimated that 35% of the expense was on the food of employees, which was considered reasonable. The judgment emphasized that expenses incurred on employees' food during official duties are excluded from section 37(2A) and are considered part of their work and duty to entertain company customers. The decision was based on factual findings and the interpretation of the law.

The judgment concluded that the determination of the percentage of expenses related to employees' food was a question of fact and self-evident in the context of the law. The Tribunal's decision was upheld, and the petitioner's request for reference was dismissed.

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