COMMISSIONER OF INCOME TAX Vs. ORIENT PROSPECTING COMPANY

JUDGEMENT

(1.) AT the instance of the Revenue, the Tribunal, Ahemdabad Bench 'A', has referred the following three questions for our opinion under S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"):

(2.) OUT of three questions referred to us, the first question is directly covered by a decision of this Court in CIT vs. Patel Brothers & Co. (1977) 106 ITR 424 (Guj). We, therefore, do not consider it necessary to set out the relevant facts so far as this question is concerned. Following the above decision, this question will have to be answered in the affirmative and against the Revenue.

(3.) BEING aggrieved by the assessment order, the assessee firm carried the matter in appeal before the AAC wherein the assessee firm challenged the disallowance of entire interest paid by the assessee firm to its partners and messing and tea expenses of Rs. 12,971. The AAC allowed both the claims made by the assessee firm. The AAC upheld the assessee firm's contention that the interest paid by the partners should have been adjusted before disallowing interest paid by the assessee firm to its partners under S. 40(b) of the Act. He also held that expenses of Rs. 12,971 described as messing and tea expenses could not have been disallowed as entertainment expenses under S. 37(2B) of the Act.