Business expenditure, section 69C limits, and actual-payment deduction under section 43B were all recognised on these facts.

Club membership fees used by company representatives to entertain present and prospective customers were treated as business expenditure incurred for commercial expediency and therefore allowable. Recorded purchases paid through account payee cheques could not be disallowed under section 69C merely because their genuineness was questioned; the provision applies to unexplained expenditure, not accounted expenditure alleged to be non-genuine. Service tax paid during the year on voluntary compliance was deductible under section 43B because the statutory requirement of actual payment was satisfied.

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Issues: (i) Whether club membership fees incurred in the name of the assessee company and used for entertaining customers constituted allowable business expenditure. (ii) Whether the addition made in respect of purchases treated as unverifiable could be sustained under section 69C of the Income-tax Act, 1961. (iii) Whether the amount deposited towards service tax under voluntary compliance was allowable as a deduction under section 43B of the Income-tax Act, 1961.

Issue (i): Whether club membership fees incurred in the name of the assessee company and used for entertaining customers constituted allowable business expenditure.

Analysis: The membership stood in the company's name and was used by its representatives for entertaining present and prospective customers. The expenditure was therefore incurred in the course of business and represented commercial expediency.

Conclusion: The disallowance was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether the addition made in respect of purchases treated as unverifiable could be sustained under section 69C of the Income-tax Act, 1961.

Analysis: The purchases were recorded in the books, payments were made by account payee cheques, the books were not rejected, and the controversy related to verifiability of the purchase transaction rather than unexplained source of expenditure. Section 69C applies where expenditure is incurred and its source remains unexplained, not where accounted expenditure is merely alleged to be non-genuine.

Conclusion: The addition under section 69C could not be sustained and was deleted in favour of the assessee.

Issue (iii): Whether the amount deposited towards service tax under voluntary compliance was allowable as a deduction under section 43B of the Income-tax Act, 1961.

Analysis: The service tax was actually remitted during the year to the Central Government, and there was no case of double deduction or prior allowance on accrual basis. The statutory condition for allowance on actual payment was satisfied.

Conclusion: The amount was allowable as a deduction and the addition was deleted in favour of the assessee.

Final Conclusion: The assessee succeeded on all substantive grounds, and the assessment additions were set aside.

Ratio Decidendi: Expenditure already recorded in the books and paid through banking channels cannot be brought to tax under section 69C merely on a challenge to its genuineness, and payments of statutory dues are deductible on actual payment where section 43B applies.

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