LODHA, J. - (1.) THE Tribunal, Jaipur Bench, Jaipur, has referred the following question for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the expenses on tea, coffee, etc., to the customers were in the nature of entertainment expenses and were liable to be disallowed under s. 27(2B) of the IT Act, 1961." THE assessment year in question is 1973-74 and the previous year for this assessment year ended on 30th June, 1972. During the previous year the assessee-firm derived income from goods transport and from leasing out the assessee's own trucks. THE assessment order was passed by the ITO `A' ward, , Udaipur on 27th March, 1976. A sum of Rs. 14,182 was spent as staff welfare expenditure and Rs. 36,101 as business promotion expenditure. THE expenditure claimed on staff welfare includes the expenditure on tea, nasta and uniform, etc., of the staff and customers and the business promotion expenditure of Rs. 36,101 mainly include expenditure incurred on tea, cold drinks, etc., provided to the employees. THE aforesaid expenditure of Rs. 50,283 (Rs. 14,182+36,101) includes the Diwali expenses of Rs. 4,782. THE ITO disallowed one-third of the total expenditure, i.e., Rs. 16,754. An appeal was taken and the AAC found that the expenditure of Rs. 14,182 on staff welfare and the expenditure of Rs. 36,101 on business promotion (including the Diwali expenses) were in fact identical types of expenditure on supply of tea and refreshment, etc., to the staff and to the customers and that there was no particular basis for debiting the expenses under either of these two heads. THE AAC allowed Rs. 9,200 out of Rs. 50,283 claimed and disallowed the balance of Rs. 41,083 against Rs. 16,761 disallowed by the ITO. Thus, the income of the assessee was enhanced by Rs. 24,322. THE AAC also held that even if the entire expenditure of Rs. 14,182 on staff welfare was allowed and Rs. 34,101 was disallowed on the ground firstly on non-verification for want of details and vouchers and secondly, on the ground that it included expenditure on entertainment to customers as well as partners own personal expenses, the enhancement will be reduced by Rs. 6,982. However, the AAC directed additional disallowance of Rs. 24,322.
(2.) THE assessee preferred an appeal before the Tribunal. THE Tribunal has summarised its findings and conclusions as follows: "In our view, on a most liberal estimate, the assessee should be allowed Rs. 7,500 out of Diwali expenses and miscellaneous expenses on gifts, etc., which we have estimated at Rs. 20,000 and another Rs. 12,500 on supply of tea, refreshment, etc., to the employees as well as on supply of medicines and uniforms to the employees. THE balance of Rs. 30,283 will be disallowed out of which again on estimate, we hold that Rs. 10,000 represents expenditure for customers which according to us is inadmissible in terms of s. 37(2B) of the IT Act, 1961 in view of Allahabad High Court decision in the case of Brijraman Das & Sons vs. CIT (1982) 31 CTR (All) 224 : (1983) 142 ITR 509 referred to supra and kerala High Court decision in CIT vs. Veeriah Reddiar 1976 CTR (Ker) 341 (FB) : (1977) 106 ITR 610 (Ker)(FB). THE total disallowance would thus be Rs. 30,283 against Rs. 16,754 by the ITO and Rs. 41,083 directed by the AAC." An application under s. 256(1) of the IT Act, 1961 (`the Act') was made by the assessee for a direction to refer five questions which according to it were the questions of law for the opinion of this Court. THE Tribunal has, however referred the aforesaid question for our opinion. We have heard Mr. Vineet Kothari for the assessee and Mr. J.L. Daga for the Revenue. We have examined the question relating to entertain expenses as envisaged by s. 37(2B) of the Act in (Devichand Bastimal & Bhanwarlal Manakchand vs. CIT (DB IT Ref. No. 9 & 42 of 1977 decided on 24th April, 1985). After considering the authorities bearing on the question we prefer to follow the view taken by the Gujarat High Court in CIT vs. Patel Bros. & Co. Ltd. (1977) 106 ITR 424 (Guj) and by the Bombay High Court in CIT vs. Shah Nagsi (1978) CTR (Bom) 305 : (1979) 116 ITR 292 (Bom) and other High Courts taking the similar view that expenses of tea. coffee etc., to the customers spent by the assessee are not hit by the provisions of s. 37(2B) as they do not constitute entertainment expenses. For the reasons given in Devichand Bastimal's case (supra) and Bhanwarlal Manakchand's case (supra), we are of the opinion that the Tribunal was not justified in law in holding that the expenses on tea, coffee, etc., to the customers were in the nature of entertainment expenses and were liable to be disallowed under s. 37(2B). The question referred to us is, therefore, answered in the negative, i.e., in favour of the assessee and against the Revenue.
(3.) THE parties are left to bear their own costs of this reference. Let the answer be returned to the Tribunal in accordance with s. 260(2) of the Act.;