Customary expenditure incurred by Hindu traders in connection with their trade, such as Ganeshji ki Puja, is allowable as business expenditure under Section 37(1) of the Income-tax Act, 1961. Expenditure incurred by the assessee in connection with the entertainment of its customers and constituents, such as providing refreshments, etc., to them, qualifies as entertainment expenditure under Section 37(2A) of the Act.

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 :

Rs.

(1) Ganeshji ki Puja 958

(2) Rickshaw, etc., for customers (Rs. 4,620) :only 1/4th taken 1,155

in view of the assessee's explanation

(3) Festival allowance to staff 1,276

(4) Entertainment of jalpan, etc., to customers 17,118

(5) Deepawali sweetmeats 135

(6) Glasses for drinking water to customers 38

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Total 20,680

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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 exp