Customer hospitality expenses as ordinary business courtesy were not treated as entertainment expenditure under tax law.

Expenditure on tea, cold drinks and similar refreshments for visiting customers was treated as ordinary business hospitality rather than entertainment expenditure under the Income-tax Act. The expenses were incurred in the course of business as a matter of customary courtesy, and were not shown to be lavish, wasteful or extravagant in relation to turnover; accordingly, the statutory restriction did not apply and the disallowance was unsustainable.

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Issues: Whether the expenditure incurred on tea, cold drinks and similar items for visiting customers constituted entertainment expenditure disallowable under Section 37(2B) of the Income-tax Act, 1961.

Analysis: The expenditure was found to be incurred in the course of business for providing refreshments to customers as a matter of business necessity and ordinary courtesy. The amount was not shown to be lavish, wasteful or extravagant having regard to the assessee's turnover. The issue stood covered by the later Supreme Court approval of the view that such customary customer hospitality did not amount to entertainment expenditure within the statutory restriction.

Conclusion: The disallowance was not sustainable and the expenditure was allowable; the finding was in favour of the assessee.

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