Entertainment expense treatment for customary refreshments was rejected, with the assessee-friendly interpretation preferred.

Tea, cold drinks and similar refreshments supplied to customers and employees were held to be customary rather than lavish, so they did not fall within entertainment expenses under section 37(2B) of the Income-tax Act, 1961. Where two interpretations were possible, the construction favourable to the assessee was preferred, and the disallowance was not sustained.

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Issues: Whether expenses incurred on tea, cold drinks and similar refreshments supplied to customers and employees were entertainment expenses disallowable under section 37(2B) of the Income-tax Act, 1961.

Analysis: The expenses were found to be of a customary nature and not lavish. Competing views existed on whether such refreshments fell within entertainment expenses, but the interpretation favourable to the assessee was preferred where two constructions were possible.

Conclusion: The expenditure was not treated as entertainment expenses and the disallowance was not sustained.

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