1998 (11) TMI 146 - AT - Income Tax

Tribunal reduces entertainment expenses disallowance, includes sales tax in turnover for deduction.

The Tribunal partly allowed the appeal, reducing the disallowance of entertainment expenses to Rs. 50,000 and upholding the inclusion of sales-tax in ... Entertainment Expenditure, Deductions, Exporters Issues:1. Disallowance of entertainment expenses.2. Inclusion of sales-tax in total turnover for deduction under section 80HHC.Issue 1: Disallowance of entertainment expenses:The appeal was filed against the disallowance of Rs. 1 lakh by the Commissioner of Income-tax (A) for expenses on beverages provided to visitors. The Assessing Officer estimated the expenditure at Rs. 5 lakhs due to lack of details provided by the assessee. The Commissioner reduced the disallowance to Rs. 1 lakh. The Tribunal referred to a previous year's decision where the disallowance was reduced to Rs. 30,000. The assessee argued that the disallowance for the current year should also be Rs. 30,000 based on past decisions. The Tribunal considered the history of the case and estimated the disallowance at Rs. 50,000 for the current year, directing accordingly.Issue 2: Inclusion of sales-tax in total turnover for deduction under section 80HHC:The assessee claimed a deduction under section 80HHC based on total sales figure net of sales-tax. The Assessing Officer reduced the deduction, including sales-tax in the sales figure. The assessee relied on a Guidance Note by the Institute of Chartered Accountants of India, arguing against the inclusion of sales-tax. However, the Commissioner rejected this argument, citing Supreme Court judgments. The Tribunal analyzed the Guidance Note and Supreme Court decisions, concluding that sales-tax collected by the assessee constitutes business receipts and should be included in total turnover for deduction under section 80HHC. The Tribunal aligned with a similar decision by ITAT, Mumbai Bench 'A' and rejected the grounds of appeal related to this issue.In conclusion, the Tribunal partly allowed the appeal, reducing the disallowance of entertainment expenses to Rs. 50,000 and upholding the inclusion of sales-tax in total turnover for the deduction under section 80HHC.