370. Calculation of percentage limits of entertainment expenditure under section 37(2A) – Modification to para 24.2 of Circular No. 202, dated 5-7-1976

1. Attention is invited to para 24.2 of the Explanatory Notes on the provisions relating to direct taxes in the Finance Act, 1976.  The second sentence in the said paragraph reads as under :

“The percentage limits will, however, be calculated with reference to the quantum of profits and gains of the business or profession as reduced by not only development rebate, development allowance and entertainment expenditure but also by investment allowance under the new section 32A.”

2. As this is not in accordance with the provisions of section 37(2A), the aforesaid sentence may be substituted by the following :

“The percentage limits will, however, be calculated with reference to the quantum of profits and gains of the business or profession as computed before allowing the deduction not only in respect of development rebate, development allowance and entertainment expenditure, but also in respect of investment allowance admissible under the new section 32A.”

3. This modification may be brought to the notice of Income-tax Officers working in your charge.

Circular : No. 247 [F. No. 131(6)/76-TPL(Pt.)], dated 21-10-1978.

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