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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
ORDER Per N.V.Vasudevan, JM This is an appeal by the Revenue against the order dated 31.03.2016 of C.I.T.(A)-16, Kolkata relating to A.Y.2010-11.
Ground No.1 raised by the revenue reads as follows :- “1. That on the facts and in the cirsmstances of the case, Ld. CIT(A) has erred in deleting disallowance of expenses of Rs. 29,76,096/- towards foreign study of the son of a director. “
The facts of the case as far as ground no.1 is concerned are that the assessee is a company which is engaged in the business of manufacturing of hinges, Tower bolts and aluminium fittings. The assessee met the tuitions fees, boarding and lodging and travelling expenses to USA of Shri Akshay Almal, son of one of the Director of the assessee. The assessee incurred a sum of Rs.29,76,096/- in this regard and claimed the same as an expenditure incurred for the purpose of the business of the assessee and as a deduction in computing income from business. Shri Akshay Almal joined the services of the assessee company on 16.06.2009 and on 01.07.2009 he left for USA for higher
2 M/s Almal Industries Pvt. Ltd. A.Yr.2010-11 studies. It is not in dispute that there is an agreement between the assessee and Shri Akshay Almal whereby Mr. Akshay Almal agreed to serve the assessee after completion of his higher studies. Copy of the said agreement is placed at page nos. 6 to 10 of the assessee’s paper book. It is also not disputed that after completion of the studies abroad Shri Akshay Almal joined the services of the assessee company on 01.04.2015.
On the above facts the AO took the view that expenditure in question cannot be allowed as a deduction because it was not for the purpose of the business of the assessee. However, CIT(A) agreed with the submissions of the assessee that expenditure in question was allowable as a deduction. The CIT(A) placed reliance on the decision of the Hon’ble Calcutta High Court in the case of Hiundustan Aluminium Corporation vs CIT 159 ITR 673 (Cal) wherein on identical facts the claim for deduction as a business expenditure was held by the Hon’ble Calcutta High Court to be allowable as deduction. Following the aforesaid decision the CIT(A) directed the AO to delete the addition made.
Aggrieved by the order of CIT(A) the revenue has raised ground no.1 before the Tribunal. The ld. DR relied on the order of the AO. The ld. Counsel for the assessee relied on the order of the CIT(A).
We have considered the rival submissions. As we have already stated that the facts are not in dispute. Several decisions have been rendered on identical facts wherein a view has been taken that expenditure of a similar nature have to be regarded as incurred for the purpose of the business of the assessee. Apart from the decision referred to by the CIT(A) in his order, the decisions of ITAT, Mumbai in the case of J.B.Advani & Co.Ltd vs JCIT (2005) 92 TTJ 175 also support the conclusions arrived at by the CIT(A). It has been held by Mumbai Bench of Tribunal in the case of J.B.Advani & Company Ltd (supra) that where daughter of the Director of the assessee company who 2
3 M/s Almal Industries Pvt. Ltd. A.Yr.2010-11 was also an employee of the assessee company and continued to work for the assessee company pursuant to the agreement before leaving India, was sent abroad for higher studies in business administration, expenses on such education. was treated as business expenditure. It has been held by Karnataka High Court in the case of CIT vs. Ras Information Technologies (P) Ltd (2011) 50 DTR 93 that where son of the Managing Director was sent for higher studies by the assessee company, expenses incurred in connection therewith was found allowable when the court found that the study undertaken had nexus with the business and where the son entered into the agreement with the assessee company under which he agreed to work for the company on the completion of his course. It has been held by Allahabad High Court in the case of CIT vs. U.P Asbestos Ltd (2012) 79 DTR 105 that expenditure incurred by the assessee company on foreign education and travelling expenses of the son of the Managing Director of the assessee company who had joined the company after coming back from USA, cannot be treated as expenditure of personal nature as the company has been benefited by his higher education and training. It has been held by Karnataka High Court in Krishna Fabrication vs. JCIT (2012) 343 ITR 126 that expenditure on the education of the children Managing Director of the assessee company cannot be disallowed merely for the reason that they were children of Managing Director . Hon 'ble High Court in this case however remanded the matter for examining the business connection of the expenditure.
7 . In the light of the aforesaid precedents on identical facts, we are of the view that there is no merit in ground no.1 raised by the revenue and the same is dismissed.
Ground no.2 raised by the revenue reads as follows :- “2. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the disallowance of Rs. 3,74,095/- made on account of business promotion, staff welfare, travelling & conveyance and other expenses.”
4 M/s Almal Industries Pvt. Ltd. A.Yr.2010-11 9. As far as ground no.2 raised by the revenue is concerned the AO made an addition of Rs.3,74,095/- to the total income of the assessee by making observations that some of the expenses of business promotion, travelling and conveyance etc. were evidenced by self made vouchers. The following were the observations of the AO in this regard :- “During the year under consideration, the assessee company debited the following expenditures : 1. Business promotion Rs.5,87,119/- 2. Staff Weolfare Expenses Rs.2,68,376/- 3. Travelling & Conveyance Rs.18,87,615/- 4. Repairs to Others Rs.9,97,842/- Rs.37,40,952/-
During the course of assessment proceedings, the Authorised Representative of the assessee was asked to produce supporting evidences along with the relevant bills and vouchers. On examination of the supporting papers, it is revealed that the said expenditures are on the basis of self-made vouchers and excessive in nature. Hence, 10% of the said expenditures i.e. 3,74,095/- is disallowed and added back with the total expenditure.”
Before CIT(A) it was submitted that books of accounts of the assessee were audited and all supporting vouchers were produced by the assessee to substantiate the claim for deduction of expenditure. It was also submitted that the AO had not pointed out which are the vouchers were self made vouchers.
The CIT(A) considering the above submissions deleted the addition made by the AO with the following observations :- “5. Ground No.7 is on account of estimated disallowance totaling to Rs.3,74,095/-. No addition can be made on estimate. If the A.O. found any discrepancy then he should have made specific addition. Therefore, addition of Rs.3,74,095/- made on estimate is deleted and the ground of the assessee is allowed.”
Aggrieved by the order of the CIT(A) the revenue has raised ground no.2 before the Tribunal. 4
5 M/s Almal Industries Pvt. Ltd. A.Yr.2010-11 13. We have considered the submissions of the ld. DR, who relied on the order of the AO. We are of the view that the order of AO does not spell out as to what is the quantum of expenses which were supported only by self made vouchers. The AO has also not spelt out how he came to the conclusion that the expenditure under various heads mentioned in the order of assessment were excessive. In such circumstances the CIT(A) was justified in deleting the addition made by the AO on the ground that no specific discrepancy were pointed out by the AO. We find no grounds to interfere with the order of CIT(A). Ground No.2 raised by the revenue is accordingly dismissed.
In the result the appeal by the revenue is dismissed.
Order pronounced in the Court on 02.02.2018.