1997 (1) TMI 30

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....to the provisions of section 37(2A) of the Income-tax Act, 1961, the Tribunal was right in holding that the sum of Rs. 3,01,945 not being the entertainment expenditure is an admissible deduction ?" The assessee in the course of assessment proceedings for the assessment year 1976-77 claimed a sum of Rs. 3,01,946 as a business expenditure, and the same was disallowed on the ground that it was an entertainment expenditure. On appeal preferred by the assessee before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) noticed the fact that the assessee-company had 150 branches, four regional offices and one head office, apart from its foreign branches. The Commissioner of Income-tax (Appeals) also found that con....

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.... employees in office, factory or other place of their work. Learned counsel also brought to our notice a decision of the Supreme Court in Patel Brothers' case [1995] 215 ITR 165, wherein the Supreme Court has upheld the view of this court in Karuppuswamy's case [1979] 120 ITR 140 in so far as four assessment years prior to amendment of law were concerned and held that after the amendment, the expenditure has to be allowed only in terms of Explanation 2 to section 37(2A) of the Act. He also brought to our notice a decision of this court in English Electric Company of India Ltd. v. CIT [1996] 218 ITR 478, wherein this court has held that the allowance of the entertainment expenditure is subject to the ceiling prescribed under the Act. Mr. ....

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....ertainment expenditure within the meaning of section 37(2A) of the Act. The introduction of Explanation 2 made retrospectively with effect from April 1, 1976, gives a clear indication that the Legislature had introduced the Explanation with a view to curb certain categories of avoidable or ostentatious expenditure by the assessee carrying on business or profession. The object of sub-section (2A) is to disallow any lavish expenditure in the form of business expenditure. Hence, the view of the Commissioner of Income-tax (Appeals) that the expenditure cannot be regarded as lavish expenditure or the view of the Tribunal that it should be allowed on the basis of Karuppuswamy's case [1979] 120 ITR 140 (Mad) cannot be correct, after Explanation 2 ....