Reference of tax questions on project expenditure, revenue loss and entertainment expense directed after mixed law-and-fact review.

The Delhi HC directed the Tribunal to state the case and refer questions arising from expenditure on the Indonesia project, the character of the loss on the dehumidification plant, and entertainment expenditure. It noted that the Indonesia project issue had already been directed for reference in another assessment year, and the entertainment expenditure issue was also referable consistently with the earlier year. The alleged loss of Rs. 3,20,213 from the dehumidification plant was treated as a mixed question of law and fact and was considered fit for reference, with the question reframed to ask whether it was a revenue loss.

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Issues: Whether the Tribunal should be directed to state the case and refer the questions of law concerning expenditure on the Indonesia project, the nature of the loss on dehumidification plant, and the allowance of expenditure on entertainment.

Analysis: The application under section 256(2) of the Income-tax Act, 1961 was examined question-wise. A similar question relating to expenditure on the Indonesia project had already been directed to be referred for another assessment year. The question relating to the alleged revenue loss of Rs. 3,20,213 arising from the dehumidification plant was treated as involving a mixed question of law and fact and was held fit for reference. The question relating to entertainment expenditure was also held referable in line with the earlier view for the assessment year 1976-77.

Conclusion: The Tribunal was directed to state the case and refer the specified questions of law, with the proposed question on the machinery loss reframed as a question whether the loss of Rs. 3,20,213 was a revenue loss.

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