A Malaysian company, Duyong Emas Sdn. Bhd., incurred entertainment expenses for its employees during an annual dinner event. According to the Inland Revenue Board of Malaysia (LHDN) Public Ruling No. 4/2015 on Entertainment Expenses, certain entertainment expenses are allowable for tax deduction while others may be disallowed if they are not wholly and exclusively incurred in the production of gross income (Inland Revenue Board of Malaysia, 2015).

During a tax audit, LHDN reviewed the company’s entertainment expense records and supporting documents. The audit discovered that part of the expenses claimed included personal entertainment expenses of the company director amounting to RM4,000, which were not related to business purposes.

Under Section 33(1) of the Income Tax Act 1967, only expenses wholly and exclusively incurred in generating business income are deductible. Therefore, the RM4,000 personal expenses were disallowed and added back to the company’s adjusted income (Malaysia, 1967).