1. ' KASLIWAL, J.--The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question of law for the opinion of the Court.
2. "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenses of 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 Section 37 (2B) of the Income-tax Act, 1961 and is allowable, as deduction in computing the total income for assessment year 1973-74?"
3. ' Brief facts of the case are that the Income-tax Officer 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 Appellate Assistant Commissioner of Income-tax, Jaipur Range. As regards the item of Rs,5,231, the Appellate Assistant Commissioner held that the said amount was claimed as kitchen expenses.
4. Learned counsel for the assessee had argued before the Appellate Assistant Commissioner 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 Appellate Assistant Commissioner did not agree with the above contention of the learned counsel for the assessee. It was held by the Appellate Assistant Commissioned that so far as the employee part of the contention was concerned, the same had to be rejected for want of evidence. Learned Appellate Assistant Commissioner 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.
5. There was nothing on record to show that the Customers who came to purchase stones were required to stay overnight at Karauli. Learned Appellate Assistant Commissioner 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 Income Tax Officer was correct.
6. ' As regards the item of Rs,2,383, claimed as expenses on tea, etc., learned Appellate Assistant Commissioner 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 Appellate Assistant Commissioner as such held that the order passed by the Income Tax Officer in this regard was also correct.
7. ' The assessee, aggrieved against the order of the Appellate Assistant Commissioner, filed a second appeal before the Income Tax Appellate 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 Income-tax Officer and the Appellate Assistant Commissioner in this regard were set aside.
8. ' As regards the amount of Rs,2,383, learned members of the Tribunal observed that the Income Tax Officer as well as the Appellate Assistant Commissioner disallowed the expenses as entertainment expenses under the head "mehmani account." Learned Tribunal in this regard held that no doubt the assessee had two accounts, one under the head "kitchen expenses" and the other under the head "mehmani expenses". Under the head "mehmani account" the expenses on tea and cold drinks were debited. These expenses were also of admissible nature as the same had been actuated by business needs. Such expenses were thus held to be admissible expenses. We have heard Mr. Surolia, on behalf of the Department. So far as the item of Rs,5,231 is concerned, the Appellate Assistant Commissioner had held that no evidence had been produced by the assessee nor was there anything on record to show that the customers who came to purchase stones were required to stay overnight at Karauli. Thus, the Appellate Assistant Commissioner had taken the above view on account of the reason that no evidence had been laid by the assessee nor was there any material on record to accept the contention of the assessee that such amount was actually incurred in the manner as stated by the assessee.
9. The Tribunal has not referred to any evidence on record in order to take the view that the amount of Rs,5,231 was spent by the assessee as business A expenses. The Tribunal did not make any mention of any evidence to show that such amount was at all spent by the assessee even for entertainment expenditure or otherwise. The Tribunal as such committed a serious error of law in setting aside the order of the Appellate Assistant Commissioner without any material or evidence on record. In the facts and circumstances of this case, there was no material on record to hold as was done by the Tribunal that the amount of Rs,5,231 was incurred on maintaining a kitchen for providing meals to its trade constituents.
10. Now, so far as the item of Rs,2,383 is concerned, the Appellate Assistant Commissioner has upheld the order of the Income-tax Officer simply on the ground that such item was shown under the head of expenditure ,"mehmani". Thus, even the Appellate Assistant Commissioner had not held that such amount by way of tea and cold drinks was not spent by the assessee but the same was treated as entertainment expenditure simply on the ground that it was designated as mehmani by the assessee in its own hooks. Learned Tribunal, on the other hand, held that these expenses had been actuated by business needs and as such were admissible expenses. A contention was raised before the Tribunal that the expenses were not incurred on a lavish or extravagant scale and the same were actuated on account of the business needs of the assessee. The Tribunal accepted the above contention of the assessee and we find no error of law committed by the Tribunal in taking the said view.
11. ' In the result, the question of law referred to above is answered in following manner: ' On the facts and in the circumstances of the case, the Tribunal was not right in law in holding that the expenses of Rs,5,231 were incurred in maintaining kitchen for providing meals to its trade constituents. Thus, so far as this item is concerned, the answer is given in the negative and in favour of the Revenue. So far as the item of Rs,2,383 is concerned, it is held that on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs,2,383 was incurred in providing tea, cold drinks etc. To its customers and was not expenditure within the meaning of Section 37 (2B) of the Income Tax Act, 1961. This part of the question is, therefore, answered in the affirmative and against the Revenue."