COMMISSIONER OF INCOME TAX Vs. GUJARAT CARBON LTD.

JUDGEMENT

(1.) THE Tribunal, Ahmedabad Bench 'A', has referred the following question for the opinion of this Court under Section 256(1) of the IT Act, 1961 (the Act), at the instance of the CIT, Ahmedabad :

(2.) THE assessment year is 1984 -85 and the relevant accounting period is previous year ended on 30th June, 1983. The assessee, a public limited company filed return on 31st July, 1984, disclosing total income of Rs. 20,55,630. The assessment was framed on 27th Feb., 1987, on total income of Rs. 41,16,769. During the course of assessment, the AO disallowed the sums of Rs. 16,121 on account of presentation articles and Rs. 35,226 shown as sales expenses. It appears that the latter sum of Rs. 35,226 included expenses incurred on cigarettes for guests of the company, purchase of handicraft articles and tea packets, etc. According to the AO both the items of expenditure were incurred for entertaining the guests of the company and hence, the expenditure fell within the ambit of provisions of Section 37(2A) of the Act read with Expln. 2 to the said section. The assessee carried the matter in appeal before the CIT(A) who for the reasons stated in his order dt. 23rd Feb., 1988, confirmed the disallowance. The assessee carried the matter in second appeal before the Tribunal who for the reasons stated in its order dt. 29th Aug., 1992, allowed the appeal by holding as follows :

(3.) AS against that Mr. Manish J. Shah, learned advocate appearing on behalf of the respondent -assessee, submitted that insofar as the item of expenditure of Rs. 16,121 was concerned, the same had been incurred on account of presentation articles and in no view of the matter could the same be considered as entertainment expenditure. That such expenditure was incurred for the purpose of developing and maintaining the goodwill of the assessee -company and was not incurred for providing any entertainment. That even if Expln. 2 to Section 37(2A) of the Act was taken into consideration, the nature of expenditure of Rs. 16,121 had to be borne in mind and the expenditure incurred for presentation articles could not be brought within the sweep of the provision howsoever wide the term 'entertainment expenditure' is construed. In support, reliance is placed on the following decisions of this Court :