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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
O R D E R
PER Waseem Ahmed, Accountant Member:
- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-4, Kolkata dated 15.07.2016. Assessment was framed by JCIT, Range-12, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 20.03.2015 for assessment year 2012-13. Shri Arindam Bhattacherjee, Ld. Departmental Representative appeared on behalf of Revenue and Shri S.M. Surana Ld. Advocate appeared on behalf of assessee.
Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹48,63,719/- on account of expense incurred for development of future managerial staff.
ACIT, Cir-12(2), Kol. Vs. M/s Shree Baidyanath Ayurved Bhawan, Pvt. Ltd. Page 2 3. Briefly stated facts are that assessee is a private limited company and engaged in business of manufacturing & marketing of pharmaceuticals products, Ayurvedic and herbal medicines. The assessee during the year has claimed an expense of ₹48,63,719/- in its profit and loss account on account of cost of scholarship expense. On question by the AO about the nexus of such expenditure with the business, the assessee submitted as under:- “Note-29 of Audited Accounts under Miscellaneous Expenses contains Rs.48,63,719.14 incurred on account of Scholarship Expenses. Shree Baidyanath Ayurved Bhawan Pvt. Ltd. is a private limited company and is being run by active involvement of family members over a period of generations. The company incurs expenditure on educating the next generation members so that, when they takeover, they will take the company in same growth path. If not, the company might suffer and not cope with the then race. That is why we have a presence in the market for more than 100 years vice versa there are so many companies in the market which vanishes over a period of time due to change of techniques. More so these next generation members will be future directors of the company. As a matter of policy the company prefers educating the executives who will be seriously involved in the business of the company. If at all comparison is to be made between the general employees and relative employees it is obvious the relative employees are expected to put more effort than normal employees. Due to the endeavour and expenditures on Scholarship, operations and business are performed with ease. Further, the company undertakes from these relatives who pursues foreign education, will serve the company for a minimum period of 5 to 10 years when they complete their education. The company is a closely held private limited company and it is most desirable that senior executives post and presence be manned by members belonging to enterpreneur’s family who are qualified ad fit for the post. Thus in the financial year 2011-12 relating to the assessment year 2012-13 presently under assessment review, a sum of Rs.48,63,719.14 has been expended on Scholarship who are relatives of the directors. Breakup of expenditure are Rs.34,41,628/- has been for Mr Rishi Raj Sharma and Rs.14,22,091.14 for Ms Vedika Sharma. Further Mr. Rishi Raj Sharma have completed his studies and have joined the company at Naini Branch as Business Analyst. Presently his remuneration is Rs.20,000/- pm which is much below the market rate of the professionals had the company hired outsiders. Ms. Vedika Sharma is pursuing with her studies.”
ACIT, Cir-12(2), Kol. Vs. M/s Shree Baidyanath Ayurved Bhawan, Pvt. Ltd. Page 3 However, AO observed that there is no provision under the Act for allowing the deduction of the expenses for the development of future managerial staff. Therefore, these expenses cannot be held as incurred wholly and exclusively for the purpose of business. As such, AO was of the view that these expenses are in the nature of personal expenses of the directors/ promoters and their relatives. Therefore the same cannot be allowed as deduction. Accordingly, AO added the sum of ₹48,63,719/- to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by the AO by observing as under:- “4. Ground No.2 This ground pertains to the disallowance of scholarship expense incurred by the assessee in an amount of ₹48,63,719/-. The AO had disallowed the expenditure as narrated in the assessment order for the reason that the said expenditure had not been incurred for the purpose of business but rather for personal purpose. On this matter, I have already given my findings and decision in the appellant’s own case for the AY 2011-12 in dated 20.07.2015 wherein the similar matter had already been decided in favour of the appellant as discussed therein. Therefore, following the principles of consistency the AO is directed to allow the claim of the appellant in this regard for this year as well. This ground stands allowed accordingly.” The Revenue, being aggrieved by this order of Ld. CIT(A) is in appeal before us.
Before us Ld. DR for the Revenue submitted that it is not clear whether the persons on whom the scholarships expenses were incurred have joined the services with the assessee. The order of Ld. CIT(A) is very cryptic and he has just relied on the order of his predecessor in assessee’s own case pertaining to Assessment Year 2011-12. There can be factual difference between the AYs 2011-12 and 2012-13 therefore, the addition cannot be deleted merely relying on the order of earlier year. The basis of deleting the addition made by the Assessing Officer in the earlier Assessment Year by Ld. CIT(A) may be different with the facts of the current year. Therefore Ld. CIT(A)
ACIT, Cir-12(2), Kol. Vs. M/s Shree Baidyanath Ayurved Bhawan, Pvt. Ltd. Page 4 should be directed to re-examine the issue. He also submitted that the order of Ld. CIT(A) is silent about the services rendered by such persons. He vehemently relied on the order of AO. On the other hand, Ld. AR for the assessee submitted that the Revenue against the order of Ld. CIT(A) for AY 2011-12 filed an appeal before Tribunal, however, the Hon'ble Tribunal was pleased to delete the addition made by AO in assessee’s own case in pertaining to AY 2011-12 dated 17.10.2017. Ld. AR relied on the order of Ld. CIT(A).
We have heard the rival contentions of both sides and perused the materials available on record. At the outset, we find that Co-ordinate Bench of this Tribunal in assessee’s own case in (supra) having identical facts & circumstances has decided the impugned issue in favour of assessee and against the Revenue. The relevant extract of this order is reproduced below:- “2.4 We have heard the rival submission.ss we find that the iss9ue under dispute is squarely covered in favour of the assessee in its own case by the order of this Tribunal for the Asst Year 2010-11 in ITA No.90/Kol/2015 dated 23.8.2017 wherein it was held as under:- ‘2. After hearing the rival contentions we find that the Tribunal in assessee’s own case in I.T.A No.1314/Kol/2014 for AY 2009-10 order dated 23.02.2017 had considered the very same issue in the earlier assessment year at para 4.3 held as follows: “4.3 Having heard the rival submissions, perused the material on record, we are of the view that there is merit in the submissions of the assessee, as the propositions canvassed by Ld. AR for the assessee are supported by the judgment cited by him and facts narrated by him above. As Ld. AR for the assessee has pointed out that after completion of the higher study they joined the company and served the company therefore the expenditure is for the purpose of business. Hence, considering the factual position, we are of the view that the order passed by the Ld. CIT(A) is a reasoned order and does not require interference. Therefore, we confirm the order of Ld. CIT(A).” Respectfully following the aforesaid decision of this Tribunal in assessee’s own case, we find no justifiable reason to interfere with the