N.M.KASLIWAL, J. - (1.) THE Tribunal, Jaipur Bench, Jaipur, has referred the following question of law for the opinion of this Court : " Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenses Rs. 5,231 incurred in maintaining kitchen for providing meals to its trade constituents and Rs. 2,383 incurred on providing tea, cold drinks etc. to its customers is not expenditure in the nature of entertainment expenditure within the meaning of S. 37(2B) of the IT Act, 1961 and is allowable as deduction in computing the total income for asst. year 1973 -74. ? "
(2.) BRIEF facts of the case are that the ITO by order dated March 3, 1975, held the two items of Rs. 5,231 and Rs. 2,383 as disallowable items. The assessee filed an appeal before the AAC of IT, Jaipur Range. As regards the item of Rs. 5,231, the AAC held that the said amount was claimed as kitchen expenses. Learned counsel for the assessee had argued before the AAC that the kitchen was being run for customers who came to purchase goods and also employees coming to Karauli for giving accounts, for taking salary, etc., and those employees when at Karauli were given meals prepared in the said kitchen. Learned AAC did not agree with the above contention of the learned counsel for the assessee. It was held by the AAC that so far as the employee part of the contention was concerned, the same had to be rejected for want of evidence. Learned AAC further observed that it appeared that this plea had been taken by the learned counsel for the assessee only to make the claim admissible under the eye of law. As regards the claim regarding serving of food to customers, no evidence had been produced in this connection. There was nothing on record to show that the customers who came to purchase stones were required to stay overnight at Karauli, Learned AAC thus observed that under these circumstances, it cannot be said that the expenses were incurred wholly for the purpose of business. There was reason to believe that these expenses were incurred for entertaining the customers which was prohibited under the law. It was thus held that the disallowance made by the ITO was correct. As regards the item of Rs. 2,383 claimed as expenses on tea, etc., learned AAC rejected the contention of learned counsel for the assessee on the ground that in the books itself the head of expenditure had been designated as "mehmani" which means entertainment of customers and others. The AAC as such held that the order passed by the ITO in this regard was also correct.
(3.) THE assessee, aggrieved against the order of the AAC, filed a second appeal before the Tribunal. Learned Tribunal in its order dated November 9, 1976, held that the assessee had to maintain the kitchen for the convenience of the customers. These expenses had been actuated by business needs. The expenses of Rs. 5,231 cannot partake of the nature of entertainment expenses. The appeal of the assessee in respect of Rs. 5,231 was allowed and the orders of the ITO and the AAC in this regard were set aside.;