Commissioner of Income Tax vs Siemens India Ltd.

S.K. Desai, J.—In this application, we are concerned with the amounts allegedly spent by the assessees towards the refreshments provided to customers. For the purpose of the application, we have to consider whether the amounts spent were on a lavish scale so as to be categorised as entertainment and, therefore, invite the disallowance. The Tribunal, at the second appellate stage, appears to have asked for details The company could not furnish the necessary details but only furnished to the Tribunal the names of 165 employees who had incurred such expenditure and the quantum on each occasion.

It would appear to us that the Income Tax Officer without proper scrutiny accepted the assessee''s contention that these amounts represented refreshments provided to the customers. It remains a mystery as to why he had done so without checking the vouchers, since some of the amounts were quite substantial. Since the necessary details were not available, the Income Tax Officer could have disallowed the entire claim not being satisfied that the amounts allegedly spent by the Officers were really spent as refreshments provided to the customers. However, accepting the contention of the company that this represented refreshments provided to the customers, he disallowed this item as inadmissible entertainment expenditure in view of the provisions referred to by him in paragraph 5 of his assessment order.

The matter was, thereafter, carried by the assessee to the Commissioner of Income Tax (Appeals) who upheld the disallowance. When the matter was carried further to the Income Tax Appellate Tribunal, it would appear that they, not having the necessary details before them, adopted a rough and ready method by treating part of such expenses as lavish expenditure inviting disallowance and allowing the rest.

As to the course adopted by the Tribunal, another view is possible namely, that the figure of Rs. 500 is on the higher side at least for the assessment year 1973-74 but merely because it would appear to another forum that the figure should have been Rs. 250 or thereabout would not warrant converting a matter of practical approach to a question of law. We are of the view that the entire amount was not liable to disallowance on the footing that it constituted lavish entertainment. The entire amount could have been disallowed if the Income Tax Officer had asked the assessee-company to furnish the details and materials to satisfy him that it was expended for the alleged purpose and if the details had not been available, he could have disallowed the same on that basis. On the basis of disallowance adopted by the Income Tax Officer, the Income Tax Appellate Tribunal appears to have adopted a rough and ready method of allowing part of such expenditure and disallowing a part. Such footing can never be perfect. Nevertheless, no question of law arises requiring us to exercise powers u/s 256(2) of the Income Tax Act.

In this view of the matter, the rule is discharged.

We many express our unhappiness as to the manner in which the Income Tax Officer accepted this large amount as expenses incurred with-out the necessary enquiry and thereafter wholly disallowed it on an untenable footing. This has resulted in a possible loss to the Revenue.