H.N. Seth, J. - (1.) THE Income-tax Appellate Tribunal, Allahabad Bench, has, at the instance of the assessee, M/s. Brijraman Das and Sons, Varanasi, stated the case and has referred the following question in respect of assessment year 1970-71, for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the disallowance of Rs. 15,680 was justified under Section 37(2A) of the Income-tax Act, 1961, and further whether the expenses on Ganeshji ki Puja amounting to Rs. 958 could also be disallowed under Section 37(1) of the Act itself ?"
(2.) THE assessee is a registered firm dealing in Banarsi goods under the name and style of M/s. Brijraman Das and Sons at Sakshi Vinayak, Varanasi. THE accounting year of the assessee ended on Diwali Sambat 2026 corresponding to 8th November, 1969. During the previous year relevant for the assessment year 1970-71, the assessee claimed deduction of business expenses amounting to Rs. 94,665. This claim included the expenditure of Rs. 20,680 made up of the following items : JUDGEMENT_509_ITR142_1983Html1.htm The ITO treated the aforementioned expenditures as part of the assessee's expenditure incurred in furtherance of his business activities. He, however, came to the conclusion that these expenditures partook the nature of entertainment expenditure within the meaning of Section 37(2A) of the I.T. Act and as such only a deduction of a sum of Rs. 5,000 could, on that account, be allowed. In the result from out of the aforementioned expenditure, he disallowed a sum of Rs. 15,680 and directed the same to be added to the assessee's income. The assessee then questioned this part of the assessment order by way of appeal before the AAC. The appellate authority, vide its order dated 1st of October, 1971, upheld the order of the ITO adding the sum of Rs. 15,680 to the assessee's income. It observed that there was no warrant for placing a narrow construction on the term "entertainment expenditure" contemplated by Section 37(2A) of the I.T. Act as suggested by the assessee. Considering the true import of the nature of expenditure that could be described as entertainment expenditure, it held that the expenditures on rickshaws, etc., for customers, festival allowance to staff, jalpan, etc., for customers, deepawali sweetmeats and glasses for drinking water to customers could be treated as entertainment expenditure and as such the ITO was justified in concluding that from out of the expenditures on aforementioned five items, only a deduction of Rs. 5,000 could be given as provided in Section 37(2A) of the I.T. Act. So far as the expenditure of Rs. 958 on Ganeshji ki Puja was concerned, it was not an expenditure laid out wholly and exclusively for the purposes of the assessee's business, and as such the same could not be allowed as deduction. The appellate authority, therefore, concluded that the ITO was justified in allowing only a sum of Rs. 5,000 as permissible deduction in expenses from out of the sum of Rs. 20,680 claimed by the assessee under the aforementioned heads and that the addition of Rs. 15,680 to the assessee's income was justified. Thereafter, the assessee went up in appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal affirmed the decision of the AAC and ruled that an amount of Rs. 958 claimed to have been spent by the assessee on Ganeshji ki Puja was not allowable as an expenditure laid out wholly for carrying on its business as provided in Section 37(2A) of the I.T. Act. The remaining expenditure claimed by the assessee were in the nature of entertainment expenditure and as such only a sum of Rs. 5,000 could in respect thereof be allowed under Section 37(2A) of the I.T. Act. Thereafter the assessee made an application to the Income-tax Appellate Tribunal which stated the ease and has referred the aforementioned question of law for the opinion of this court. In so far as the disallowance of the expenditure amounting to Rs. 958 incurred by the assessee for Ganeshji ki Puja is concerned, the assessee had explained that it was a customary expenditure incurred by the Hindus. The ITO did not reject the aforementioned explanation of the assessee. He seems to have accepted that the said expenditure was a business expenditure by the assessee but as in his opinion it fell within the ambit of the expression " entertainment expenses " contemplated by Section 37(2A), a sura of Rs. 5,000 alone could be allowed from out of all the expenses, including the expenses on Ganeshji ki Puja, that could properly be described as entertainment expenses. The AAC also accepted the assessee's explanation that the said expenditure was a customary expenditure by Hindus but concluded that it was in the nature of personal expenditure of the assesses which had not been laid out wholly and exclusively for purposes of business and, as such, no deduction in respect thereof could be allowed treating it as business expenditure. The Appellate Tribunal merely stated that it agreed with tbe AAC that the said amount was not allowable as a deduction under Section 37(1) itself.
(3.) IN our opinion, both the AAC and the INcome-tax Appellate Tribunal misconstrued the explanation given by the assessee and were wrong in holding that the expenditure incurred by the assessee on Ganeshji ki Puja was a personal expenditure. The statement of the assessee that expenditure on Ganeshji ki Puja was in the nature of customary expenditure incurred by the Hindus, in the context, obviously meant that it was customary for the Hindu traders, like it, to perform Ganeshji ki Puja in connection with their trade and as such the expenditure laid out in connection therewith was a trade expenditure. It is well known thai the Hindu traders who keep their account from Diwali to Diwali, perform Ganeshji ki Puja in their business premises while opening new accounts. la these circumstances, it would not be correct to say that the expenditure incurred by the assessee over Ganeshji ki Puja was not connected with its trade and was its personal expenditure like the expenditure incurred by its partner in performing other worship at his own house for personal solace. As would be evident from Chaturvedi and Pithisaria's INcome Tax Law, 2nd edn., vol, 1, p. 828, the Board of Direct Taxes Issued a Circular No. 17 of 1943, dated 6th of May, 1943, which ran thus: "It his been represented to the Board that customary payments in respect of Deepawali (or Diwali) and Mahurat (i.e., the auspicious day of starting new accounts) which long usage and custom have made it obligatory for a business to incur, should be allowed as a deduction in computing the income under Sections 10 and 12 of the INcome-tax Act. The Board understands that such expenses are generally of the nature of advertisement with a view to securing new business and that though varying according to the nature and extent of the business, the maximum expenditure is about Rs. 200 on Diwali or Mahurat. The Board consider that since these expenses are not of a personal, social or religious nature but are in the interest of the business, and are laid out or expended wholly and exclusively for the purposes of the business, they should be allowed as business expenditure provided that the expenditure in question does not exceed the maximum amounts specified above." The Board thereafter by means of a letter dated 30th of October, 1968, clarified the question further by stating that as the expenses incurred on the occasion of Diwali and Mahurat are in the nature of business expenditure, it had been decided not to lay down any monetary limits for the purpose of their allowance in the income-tax assessments subject to the ITO being satisfied that the expenses were admissible as a deduction under the law and were not expenses of a personal, social or religious nature. It is thus obvious that Ganeshji ki Puja expenses which are incurred by Hindu traders in a customary way at the time of Mahurat or opening of their account books on the auspicious occasion of Diwali are to be treated as expenditures laid out wholly and exclusively for the purposes of the assessee's business. As pointed out by the Board such expenses are incurred in the interest of the business. We are accordingly of the opinion that both the AAC and the Income-tax Appellate Tribunal went wrong in holding that the sum of Rs. 958 spent by the assessee on Ganeshji ki Puja in the assessment year in question was an expenditure of a nature unconnected with te petitioner's business. Correctly interpreting the explanation given by the assessee, the said expenditure had to be considered as an expenditure incurred wholly and exclusively for the purposes of the assessee's business and as such it was an expenditure which was allowable under Section 37(1) of the I.T. Act. It may, at this stage, be pointed out that neither the AAC nor the Income-tax Appellate Tribunal have considered this part of the expenditure as an expenditure partaking the nature of an entertainment expenditure as contemplated by Section 37(2A) of the I.T. Act and no question of considering whether any part of this expenditure, in conjunction with other expenditure which may be described as entertainment expenditure, being disallowed under Section 37(2A), arises.;