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Income Tax Appellate Tribunal, KOLKATA BENCH A”, KOLKATA
Before: SH. P.M.JAGTAP & SH. S.S.VISWANETHRA RAVI
ITA No.971/KOL/2016 [Assessment Year: 2010-11]
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH "A”, KOLKATA BEFORE SH. P.M.JAGTAP, VICE PRESIDENT AND SH. S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA No.971/KOL/2016 [Assessment Year: 2010-11] vs Singhi & Co., ACIT, 1B, Old Post Office Street, Circle-54, 54/1, Rafi Kolkata-700001. Ahmed Kidwai Road, PAN-AASFS9578D Kolkata-700016. (Appellant) (Respondent) Appellant by Sh.Akkal Dudhwewala, FCA Respondent by Sh. Pradip Majumden, Addl. CIT. Sr.DR Date of Hearing 03.09.2018 Date of Pronouncement 28.11.2018 ORDER PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER
This appeal filed by the assessee against the order dated 02.03.2016 passed by CIT(A)-6, Kolkata for AY 2010-11.
Brief facts of the case are that the assessee is a Chartered Accountant Firm and conducts its business under the name and style of M/s Singhi & Company.
Ground No.1 is relating to confirmation of addition made on account of disallowance of deduction claimed on payment of Rs.21,000/- towards membership fee to Jain Vishva Bharati.
Heard both sides and perused the material available on record. Before the AO, it was contended that the partners of the assessee takes part in the religious and philosophical services provided by the Jain
ITA No.971/KOL/2016 [Assessment Year: 2010-11] Vishva Bharati and the membership fee paid thereon should be allowed as deduction as it was incurred for the benefit of business of the assessee. The AO rejected the said submission and held the membership fee was incurred for the purpose other than business or profession of the assessee and disallowed the same by adding to the total income of the assessee. It is noticed from the written submissions as filed before the CIT(A) wherein it was contended that the payment of membership fee to Jain Vishva Bharati helps the assessee to get bright and meritorious students from the said institution to do their internship which in turn help the assessee to carry on day to day business.
The CIT(A) held the submissions are general in nature and futile exercise in trying to build a link between the assessee and the said institution. Before us, the same submissions as contended before the CIT(A) were advanced. We find no details showing in support of its calculation that the bright or meritorious students pursued Articleship and payment of membership fee was really patronized, the services of the assessee were filed and in the absence of such details, in our opinion, the assessee is not entitled to claim the deduction in computing the total income. We agree with the findings of lower authorities that the said expenditure is not incurred for the business or profession of the assessee and submission made in support of such arguments are vague and general in nature. Therefore, we find no infirmity in the order of CIT(A). Ground No.1 raised by the assessee is dismissed.
Ground No.2 is relating to confirmation of disallowance of expenditure incurred on account of acquiring educational qualification by one of the partners of the assessee.
Heard both sides and perused the material available on record. The assessee claimed deduction of Rs.9,87,307/- which the expenditure incurred for acquiring MBA degree in Madrid, Spain for its existing
ITA No.971/KOL/2016 [Assessment Year: 2010-11] partner Sh. Anurag Singhi. It was explained before the AO that the assessee entered into a contract with Sh. Anurag Singhi to sponsor the said programme cost and he shall continue with the assessee for three years after completion of his MBA. Further, it was stated that the assessee has taken advantage of such knowledge from SH. Anurag Singhi and research in developing its business. The AO raised a doubt how Sh. Anurag Singhi withdraw salary during the alleged period of pursuing MBA in Spain. According to him, the expenditure incurred for the said educational programme is personal in nature and also a capital expenditure in the hands of Sh.Anurag Singhi. The AO rejected the claim of assessee and added the same to the total income of the assessee.
The CIT(A) confirmed the addition by placing reliance on the decision of Hon’ble High Court of Karnataka in the case of Mac Explotee P.Ltd. reported in (2006) 286 ITR 378 (Karnataka) which agreed with the finding of the Hon’ble High Court of Madras in the case of R.K.K.R. Steels P.Ltd. reported in 258 ITR 306 which held the expenditure permissible for deduction is expenditure i.e. wholly and exclusively laid out for the purpose of business. The expenditure which a father incurs out of his natural love and affection for his children in meeting the cost of their education can not become a business expenditure merely because he is also the owner or a Director of a business in which the son/daughter subsequently takes part.
Before us, Ld.AR relied upon the decision of Hon’ble High Court of Allahabad in the case of CIT vs U.P.Asbestos Ltd. [2014] 52 taxmann.com 452 (Allahabad), in the case of CIT vs Naidunia News & Networking P.Ltd. [2012] 23 taxmann.com 422 (Madhya Pradesh) and in the case of Sakal Papers P.Ltd. Vs CIT [1978] 114 ITR 256 (Bom.). We find no evidence whatsoever filed before us or before the authorities below except contract
ITA No.971/KOL/2016 [Assessment Year: 2010-11] dated 05.10.2008 for education cost, partnership agreement dated 01.12.2007 and supplementary partnership dated 01.04.2009 at pages 09 to 19 of the Paper Book respectively. But, no such evidence was filed to show that Sh. Anurag Singhi pursued MBA , joined assessee thereafter, and business of the assessee increased due to having a degree in management course. The business network developed by Sh. Anurag Singhi by becoming a MBA from I.E. Business School and the additional business generated in the areas of Finance and Business Advisory Focused services. In the absence of which, we are unable to give credence to the submissions made before the two lower authorities and also before us.
Regarding the decision of Hon’ble High Court of Allahabad in the case of CIT vs U.P.Asbestos Ltd.(supra), the facts therein are that the assessee is a company engaged in the manufacture and sale of Asbestos sheet and allied products, wherein a son of a Managing Director pursued higher education and training in USA in pursuance to an agreement that after coming back from USA, the son of the said Director would join the company as Director. The AO held the expenditure incurred on the study and training is not a business expenditure. The CIT(A) confirmed the view of the AO, the Tribunal held against the CIT(A). The Hon’ble High Court confirmed the view of the Tribunal. We find the facts of the present case are distinguishable to the facts of the case before the Hon’ble High Court of Allahabad. It is noted, before the Hon’ble High Court of Allahabad, the son of a Director had gone abroad for higher education and training in the relevant subject within which the company is engaged. Whereas is in the present case, the said Sh. Anurag Singhi acquired additional qualification for development, business network and to generate additional business in the areas of Finance and Business and Advisory Focused services. As discussed above, there is no such details were filed in support of its contention. Therefore, in our opinion, the
ITA No.971/KOL/2016 [Assessment Year: 2010-11] facts and circumstances of present case are different from facts of the case before the Hon’bel High Court of Allahabad.
Coming to the decision of Hon’ble High Court of Madhya Pradesh in the case of CIT vs Naidunia News & Networking P.Ltd.(supra), the assessee therein is a company engaged in the business of printing and distribution of newspapers and magazines. The assessee’s claim in respect of the expenses made on foreign traveling and education of Sh. Siddharth Chhajlani was disallowed. The same was confirmed by the CIT(A). The Tribunal has allowed the claim of the assessee finding that Sh. Siddharth Chhajlani was an employee of the assessee working as Assistant Manager (Printing) and he was sent by the assessee to have advanced knowledge of latest printing technology which was directly related with the business of the assessee. On perusal of the said decision, we find that the said employee has been sent to acquire advanced knowledge of latest printing technology which was directly relate to the business of the assessee therein. As discussed in the afore- mentioned paragraphs relating to present case, the assessee itself admitted that Sh. Anurag Singhi has been sent for acquisition of additional knowledge to develop additional business generated in the areas of Finance and Business Advisory Focused services. Therefore, in our opinion, the MBA degree acquired by Sh. Anurag Singhi is not directly related to assessee’s business and it is only an additional knowledge. Thus, the AO is right in finding it as capital asset as confirmed by the CIT(A). Therefore, the decision has placed reliance by the Ld.AR is not applicable to the facts and circumstances of the present case.
Further, the decision of Hon’ble High Court of Bombay in the case of Sakal Papers Pvt.Ltd. (supra). The assessee therein is a Private Limited Company having engaged in publishing a leading Marathi
ITA No.971/KOL/2016 [Assessment Year: 2010-11] Newspaper in Poona. The said company was closely held company by two shareholders i.e. parents of Miss Leela Parulekar who was an apprentice and holds a degree in Master of Arts in Poona University with English & French as special subjects. In pursuance of resolution passed by the assessee that Miss Leela Parulekar attended the Graduates’ School of Journalism at Columbia University in New York and obtained a degree and thereafter, spent three months practical training in printing and lithography. On returning from USA, Miss Parulekar joined the Editorial Department of the assessee. The AO disallowed the said expenditure incurred by holding as it was not incurred for the assessee’s business but was only an amenity granted to a relation of the Directors. The First Appellate Authority agreed with the view taken by the AO and held the expenditure as capital expenses by placing reliance the decision of Hon’ble High Court of Madras. The Tribunal held the factum of relationship itself will confer assurance on any scrutinizing mind that as far as possible the result of the training utilized for the benefit of the assessee. We find that Miss Parulekar was in the Editorial Department of the said company and in pursuance of resolution acquired a degree of Master of Journalism in the same field and spent three months practical training in printing and lithography itself shows that she acquired a degree in the same field and undertaken specific practical training in her own Department. Whereas in the present case as discussed above, the said Sh. Anurag Singhi acquired additional knowledge which is not relevant or directly related to business of the assessee. Therefore, the facts before the Hon’ble High Court of Bombay are different from the facts of the present case and are distinguishable. Therefore, we find no infirmity in the order of CIT(A) and his finding at para No.6.3 are justified. Further, as discussed above, no evidence whatsoever brought on record to show that the assessee really pursued degree and such
ITA No.971/KOL/2016 [Assessment Year: 2010-11] degree really benefited the assessee. Thus, Ground No.2 raised by the assessee is dismissed.
Ground No.3.1 raised by the assessee challenging the action of the CIT(A) in confirming the view of AO in considering the income from properties as income from other sources against the claim of the assessee is from house property.
Heard both parties and perused the material available on record. It is noted from the record that the assessee has two properties, one in Delhi and one in Mumbai. According to the AO, the assessee has shown the income from both properties as income from other sources in the year 2009-10, for AY 2008-09 as business income and as house property in the year under consideration. The AO did consider the income as income from house property as it was not owned by the assessee and used for the purpose of business or profession of the assessee. The CIT(A) confirmed the view taken by the AO. Before us, Ld.AR placed reliance in the case of Raj Daddarkar & Associates of Hon’ble Supreme Court in Civil Appeal Nos.-6455-6460 of 2017 and prayed to remand the file to the AO for his fresh consideration in terms of the finding of the Hon’ble Supreme Court in the case of Raj Daddarkar & Associates (supra).
Ld.DR reported no objection. In view of the same, we remand the matter to the file of the AO for his fresh adjudication. The assessee is liberty to file evidence, if any, in support of his contention. Thus, Ground No.3.1 is allowed for statistical purposes.
Ground No.3.2 is relating to challenging the action of the CIT(A) in not allowing the depreciation as per the provision of the Act relating to the above said properties. In view of the decision rendered in Ground No.3.1 above, we are of the view that the issue raised in Ground No.3.2 is
ITA No.971/KOL/2016 [Assessment Year: 2010-11] relating to the issue raised in Ground No.3.1. Therefore, we deem it proper to remand the matter to the AO for his fresh adjudication.
Ground No.4 is relating to confirmation of disallowance as per provisions of section 40(a)(i) of the Act on account of annual support payment and registration fee.
Heard both parties and perused the material available on record. The assessee debited an amount of Rs.2,08,234/- as payment to Horwath International. The assessee explained the said payment was the share of said party earned from the clients refereed by them to assessee. It was claimed before the CIT(A) that an amount of Rs.21,630/- towards registration fee for attending APRO and Rs.1,52,522/- as annual meeting fees in Beijing also been paid only for referral services.
Before us, Ld.AR filed two documents at pages 48 & 49 of the Paper Book and placed reliance in the case of Malayala Manorma Company Ltd. of Hon’ble High Court of Kerala reported in 44 taxmann.com 423. On perusal of the decision of Hon’ble High Court of Kerala, we find facts of the present case are similar and identical to the facts in the case of Malayala Manorma Company Ltd. (supra) which held section 9(1)(i) of the Act does not apply to non-resident body which has not permanent establishment in India. Further, held assessee therein is only a member and by giving advertisement, membership fee or other donation, the section 195(1) of the Act does not apply in the case of payments made to non-resident body and has no permanent establishment in India. The addition made u/s 40(a)(i) is not maintaible.. Therefore, the order of the CIT(A) is not justified and it is set aside. Thus, Ground No.4 raised by the assessee is allowed.
ITA No.971/KOL/2016 [Assessment Year: 2010-11] 20. Ground No.5 raised by the assessee challenging the action of the CIT(A) in confirming the addition of the AO. We find from the record that the CIT(A) remanded the matter for verification to grant due credit for prepaid taxes. In our opinion, the CIT(A) does not have power to remand the matter to the file of the AO, therefore, since the CIT(A) directed the AO to give full credit after verification in respect of prepaid taxed, . taking into consideration the facts and circumstances of the case, we regularize the finding of the CIT(A) in directing the AO to due credit for prepaid taxes. Thus, Ground No.5 raised by the assessee is allowed for statistical purposes.
Ground No.6 is relating to confirmation of levying interest u/s 234B & 234C of the Act. We find that the CIT(A) is directed the AO to conduct verification of relevant facts including the date of filing of return involving the calculation of interest u/s 234A, 234B & 234C of the Act. As discussed above, though the CIT(A) is not having jurisdiction to remand the matter to the file of the AO, we regularize the same having exercise power u/s 254 of the Act.
In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 28.11.2018.
Sd/- Sd/- (P.M.JAGTAP) (S.S.VISWANETHRA RAVI) VICE PRESIDENT JUDICIAL MEMBER Date:- 28.11.2018 *Amit Kumar*
ITA No.971/KOL/2016 [Assessment Year: 2010-11]