M/S ALLEN CAREER INSTITUTE,JAIPUR vs. INCOME TAX OFFICER, WARD-2-1, KOTA

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, ‘’A” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 617/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2013-14 Allen Career Institute cuke The ITO Vs. CP-6, Indra Nagar Ward 2(1) Kotas Kota LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFA 3972 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Mahendra Gargieya, Advocate & Shri Dewang Gargieya, Advocate jktLo dh vksj ls@ Revenue by: Shri A.S. Nehra, Addl. CIT lquokbZ dh rkjh[k@ Date of Hearing : 05/05/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 4 /08/2022 vkns'k@ ORDER PER: SANDEEP GOSAIN, JM This appeal of the assessee is directed against the order of the ld. CIT(A), Kota dated 01-02-2018 for the assessment year 2013-14 raising therein following grounds of appeal. 1. The impugned additions and disallowances made in the order dated 23-03-2016 u/s 143(3) of the Act, bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence, the same kindly be deleted.

2 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA 2. Rs.16,77,000/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of Rs.16,77,000/- made u/s 37(1) on account of scholarship expenses, alleging the same to be contingent liability and which has not become due in the current year. The disallowance so made and confirmed by the ld. CIT(A), is contrary to the provision of law and hence, kindly be deleted in full. 3. Rs.10,00,000/:- The ld. CIT(A) erred in law as well as on the facts of the case in partly confirming the disallowance upto Rs.10,00,000/- [as against Rs.54,44,230/- made by the AO] on account of function & event, reward & prizes, repairs and maintenance and travelling & conveyance account. The disallowance so made and partly confirmed by the ld. CIT(A), is contrary to the provision of law and hence, kindly be deleted in full. 4.. The AO further erred in law as well as on the facts of the case in charging interest u/s 234A, 234B, 234C & 234D of the Act and as also in withdrawing interest u/s 244A of the Act. The appellant totally denies its liability of charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full.

2.1 Ground No. 1 of the assessee is general in nature which does not require any adjudication by us. Hence, the same is dismissed.

3.1 In Ground No 2, disallowance of Scholarship expenses of Rs. 16,77,000/- is agitated by the assessee.

3.2 The facts in brief as noted by the AO are that the assessee has claimed deduction of Rs. 20,64,000/- on account of Scholarships to students. When the AO asked the assessee, in reply to which assessee vide letter dated 23.12.2015 (AO page 14) stated that as per scheme, the Scholarship is given to the students selected

3 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA within first 100 ranks in AIPMT/IIT or to students who got selected in AIIMS. Under the scheme Rs. 1000/- per month for the duration of MBBS/IIT (i.e. 4 Years), totalling to Rs. 48000/- per student was to be given. During this year, 43 students (36 of AIPMT, 7 of AIIMS) were selected for scholarship. Accordingly, the assessee provided for Rs.20,64,000/- [Rs.48,000/-*43] and out of which Rs.3,87,000/- [43 * Rs.9,000/- (Rs.1,000/- per month for July to March i.e 9 months)] was paid during this year. Therefore, the balance of Rs.16,77,000/- was shown as payable at the end of the year, which was paid in subsequent years as & when the concerned student got the cheque en-cashed. However, in cases remained unpaid, the same was written back. The appellant further stated that this is a certain liability and did not depend on happening or not happening of an event and the amount payable is also certain therefore, it is not a contingent liability. However, the AO feeling dissatisfied, stated that this issue cropped up in the earlier years also viz, A.Y. 2010 to 2012-13, wherein similar disallowance was made. Thus, he disallowed the outstanding scholarship of Rs. 16.77 lacs.

3.3 In the first appeal, the ld. CIT(A) also summarily confirmed the disallowance simply stating that similar issue arose in the assessee’s case in the earlier year wherein his predecessor decided this issue against the assessee and thus, following quoting the said decision, he decided the issue this year also against the assessee. Hence this ground.

4 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA 3.4 Before us, the Ld. AR made the following submissions with prayer to delete the disallowance confirmed by the ld. CIT(A): “1. Firstly, we strongly rely upon the detailed written submissions filed before the ld. CIT(A), and those reproduced at pg 7 to 8 of the order of CIT(A). 2. It is submitted that the assessee is one of the most popular coaching institute of the Country, imparting coaching to the students preparing for entrance examinations. With a view to encourage the successful & intelligent students and to provide them with a financial support (which is otherwise, a part of its Advertisement - Promotional Schemes), the assessee has been floating scholarship schemes in the past. As per the scholarship scheme, for selection of the eligible candidates (who got coaching from the assessee’s institute), selection is made of those students, who are amongst the first 100 Ranks in AIPMT/IIT or the students who got selected in AIIMS, total amount of Rs.48,000/- per student is given (i.e Rs. 1000 per month for 4 year being duration of AIPMT/IIT). The assessee used to organize a big level function in the honour of the successful students, they are awarded with certificates along with the cheques. Accordingly, the entire amount of Rs.20,64,000/- [Rs.48,000/-*43 (i.e 36+7)] was provided this year (Ledger Accounts PB 2-7). Also accordingly, 48 pre-dated cheques (PDI) were given to all the 43 students. This year, Rs.3,87,000/- [43* Rs.9,000/- (Rs.1,000/- for 9 months i.e July to March)] was paid, based on the cheques already given to the successful students. Therefore, the balance of Rs.16,77,000/- was shown as payable at the end of the year, which were paid in subsequent years as & when the concerned student got the cheque en-cashed. Kindly refer at a glance chart (PB 1, part of settlement commission order) showing that except Rs. 1,90,000/- entire amount stood paid. However, in cases remained unpaid, the same was written back. The bona fides of the claim u/s 37(1) is not disputed.

5 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA tendered 48 cheques each. In terms of the Scheme, the assessee, of course, by its own admission, was liable to make payment of the scholarship amount to the selected candidates for the period of four years as agreed.

5.1 The authorities below therefore, proceeded on a misconception by considering the subjected expenditure as a provision only whereas, it was a liability in praesenti, as stated above, out of which Rs.3.87 Lacs got en- cashed (paid) this year however, balance of Rs.16,77,000/- remained outstanding in its Balance Sheet (and paid in later years as per chart PB 1). Thus, it was nothing but an outstanding liability which has been wrongly named as a provision or a contingent liability by the authorities below.

5.2 For better appreciation the meaning of the relevant terms are: Outstanding Liability: Expenses relating to current year but actual payment to be incurred in the next financial years is outstanding expenses. Provision: Provision is a present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation. Contingent Liability: It is a possible obligation which may or may not be arise depending on happening or not happening of an uncertain future event.

6 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA 6A. No Loss to Revenue: After the valid creation of liability, if a part of the scholarship cheques is not en-cashed, the related amount shall be/has been written back and in the scheme of income tax, Sec.41(1) fully takes care and such amount is deemed to be an income in the year in which it is credited back. Thus, the liability relating to subjected amount stood ascertained and crystallized in the subjected year itself and is fully allowable.

6B. Accounting entries are not decisive of true nature of transaction. Kindly refer Kedarnath Jute Mfg. Co. Ltd. v/s CIT (1971) 82 ITR 0363 (SC) and Sutlej Cotton Mills Ltd. v/s CIT (1979) 116 ITR 0001 (SC).

7.1 Supporting Case Law: 7.1.1 In the case of Bharat Earth Movers v/s CIT (2000) 162 CTR 325/245 ITR 428 (SC), it was held that (DPB 81-85) “The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.—Metal Box Co. of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC) and Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC) : TC 16R.197 applied.” 7.1.2 In the case of CIT vs. Indian Transformers Ltd. (2004) 192 CTR 0216/270 ITR 0259 (KerHC) (DPB 86-95) Business expenditure—Allowability—Provision for warranty—Both the appellate authorities came to the conclusion that the provision created was towards a definite liability which had accrued at the time of supply of transformers by the assessee—Two instances of defects came to the notice of the assessee where in one case all the ten transformers supplied by assessee failed within one year of purchase—Also, Tribunal found that the actual expense incurred in one year was Rs. 7,98,958, as against the provision of Rs. 3,50,000—Thus, the Tribunal found as a fact that the liability towards

7 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA after sales services is an ascertained liability—No illegality in said finding— Provision is made on a reasonable basis—Hence, the provision cannot be treated as a contingent liability—Same allowable as deduction 7.1.3 In the case of CIT vs. Vinitec Corporation (P) Ltd. (2005) 196 CTR 0369/ 278 ITR 0337 (DelHC) (DPB 96-102) Business expenditure—Allowability—Provision for warranty—Warranty clause is a part of sale transaction and, therefore, liability for warranty expenses is a committed liability at the very initial stage of sale—Figures of past years exhibit a direct nexus between the claim for provision made by the assessee and the obligation arising under the warranty clause—It is a liability which has arisen in the relevant year though its actual quantification and discharge is deferred to a future date—There is nothing on record which can even remotely suggest that the change in accounting system effected by assessee was motivated or improper—It has been accepted as bona fide even by the AO and the CIT(A)—Thus, assessee was entitled to deduction of provision made by it—No substantial question of law arises 7.1.4 The difficulty in the estimation of value would not convert an accrued liability into a conditional one - Calcutta Co. Ltd. v/s CIT (1959) 37 ITR 1 (SC).

7.1.5 In the case of an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. Just as actual receipts as well as those accrued due are brought in for income - tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business - Metal Box Co. of India Ltd. v/s Their Workmen (1969) 73 ITR 53 (SC). 8. No disallowance made in past: 8.1 It is pertinent to note that although the appellant has been making similar claims in the past based on the similarly floated schemes for the

8 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA encouragement of the students in similar manner & method. Details of some years is an under: Scholarship to students :

Asst. Year Amount(Rs.) 2006-07 8,16,000/- 2007-08 16,80,000/- 20008-09 17,76,000/- 2009-10 20,16,000/-

No disallowance were made in the earlier years. Even the assessments of some of the years were completed under scrutiny u/s 143(3) (i.e. A.Y.2002-03 & onwards) yet however, no similar disallowance had been made in the past. 8.2 In the case of CIT v/s Excel Industries Ltd. (2013) 358 ITR 295 (SC), it was held that

“Secondly, as noted by the Tribunal, a consistent view had been taken in favour of the assessee, starting with the AY 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there was no reason to take a different view unless there are very convincing reasons, none of which had been pointed out by the Revenue. In Radhasoami Satsang Saomi Bagh v. Commissioner of Income Tax, [1992] 193 ITR 321 (SC) Court did not think it appropriate to allow the reconsideration of an issue for a subsequent AY if the same "fundamental aspect" permeates in different AYs. It appears from the record that in several AYs, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some AYs the matter was taken up in appeal before the High Court but without any success. That being so, the Revenue could not be allowed to flip-flop on the issue further.”

9 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA 8.3 Sardar Kehar Singh v/s CIT (1991) 92 CTR 88/195 ITR 769 (Raj)

8.4 Although specific submissions were made before the ld. CIT(A) and his attention was drawn to this fact yet however, he completely remained silent.

It is contended before us that against the addition so made, appeal is pending before the Hon’ble ITAT. We were given to understand that the Applicant – firm has a well laid-out scheme of scholarship wherein the first 100 rank – holders are provided scholarship of Rs.1000/– p.m. for 4 years. Thus, the liability crystallises on the day of declaration of scholarship. In the subsequent years, the liability, on a sample test checking, has been seen to have been regularly discharged. Thus, the liability is not in on a certain/contingent liability. Considering the same, No adverse inference on this issue is called for.”

10 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA In any case, if it is not held allowable this year, the same has to be allowed in the year of payment, else it will amount to double taxation. The impugned disallowance kindly be deleted in full.” 3.5 On the other hand, the ld. DR strongly relied upon the findings recorded by the authorities below and justified the additions made and confirmed by the ld. CIT(A) and prayed to upheld the addition/disallowance. 3.6 We have heard the rival contentions and pursued the material available on record. Undisputedly, the facts and circumstances of the case are similar to the one which we have examined in detail in Ground no. 5 taken by the assessee in its appeal for A.Y. 2010-11 in ITA no. 246/JP/2015 where in the similar disallowance was made, agitated and was deleted vide our order dated 4-08-2022. Hence, our findings and directions contained in our order, shall apply mutatis mutandis in Grounds of appeal No. 5 this year as well. Thus, Grounds No. 2 of the assessee’s appeal is allowed.

4.1 In Ground No 3 Ad-hoc Disallowance made of Rs. 10,00,000/- out of various expenses incurred on account of function & event, reward & prizes, repairs & maintenance and traveling & conveyance expenses, is agitated by the assessee.

4.2 During the year, the assessee claimed following expenses in his P&L A/c:

Particulars Amount Function & event expense Rs. 44,64,966/- Reward & prizes expense Rs. 78,71,004/-

11 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA Repairs & maintenance expense Rs. 3,66,83,339/- Travelling and Conveyance expense Rs. 54,23,000/- Total Rs. 5,44,42,309/-

4.3 The AO observed that that the expenses incurred is in excess when compared to last year and thus, asked the assessee why 10% of the above expenses may not be disallowed. The assessee, in response, filed a detailed submission, however the AO feeling dissatisfied for no specific reason, disallowed 10% of the above expenses, thereby making an addition of Rs. 54,44,230/-.

4.4 In the first appeal, the ld. CIT(A) also summarily confirmed the disallowance however, restricting the same to Rs. 10,00,000/-.

4.5 During the course of hearing, the ld. AR of the assessee submitted the following arguments.

“1. Firstly, we strongly rely upon the detailed written submissions filed before the ld. CIT(A). The same is reproduced below for your convenience: “Justification of Function Expenses Rs. 44,64,966/-

The appellant organized prize distribution function and annual function for the students of the institute. This is a part of institute continuous spiritual and motivational activities. Apart from this orientation function, Independence day, Republic day function, deepawali function expenses for students is also included in the above expenses. This is totally for business purpose only. There is no personal element. The payments are made by account payee cheques or through bank only after deducting TDS, where necessary.

12 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA The main reason for increase in expenses is increase in number of enrolled students from 35694 to 45362. In financial year 2012-13 (A.Y. 2013-14) there was a separate prize distribution function for IIT selected students, while in last financial year 2011-12 (A.Y. 2013-14) there was a combined function for IIT & Pre-Medical selected students because number of students selected in IIT increased from 218 to 1008. The addition made in function expenses in Assessment order was deleted by the CIT (Appeals), Kota for A.Y. 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13. The department filed appeal for A.Y. 2008-09 to ITAT, but this issue was not the ground. In view of the above, the disallowances made by ld. A.O. are to be deleted. Kindly refer detailed Ledger A/C (PB 8-18). Justification of Rewards & Prize Rs. 78,71,004/-

As number of enrolled students increased from 35694 to 45362 during the year as compare to last year, number of students selected in IIT increased from 218 to 1008 and number of students selected in Pre-Medical increased from 1012 to 1251, the expenses was increased from last year. The expenses are made against proper bills/ vouchers after deducting TDS and payment was made account payee cheque or through bank only. The case of assesse was remains always in scrutiny since A.Y. 2000-01, but no such addition was made in the previous assessment years.” Kindly refer detailed Ledger A/C (PB 19-29). Justification of Repairs & Maintenance 3,66,83,339/-

The expense are made against proper invoice / bills / vouchers and payment to supplier / contractor was made account payee cheque or through bank only and after deducting TDS, wherever applicable. All the expenses are incurred for the business purpose only. The main reason for increase in repairs and maintenance account is increase in business premises from 11 to 24. In the current year the assesse started its activities at Ahemdabad and Chandigarh city at multiple locations and buildings, therefore expenses on repairs and maintenance has been increased. Kindly refer detailed Ledger A/C (PB 30 - 47).

13 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA Justification of Travelling & Conveyance 54,23,106/-

This is the year in which Allen first time started its branches after completion of 25 years of its incorporation. The assessee started its branches at Ahemdabad and Chandigarh Centre, so there being the first year of business at Ahmedabad and Chandigarh partners and employees have been frequently travelled over there for promotion of branches, therefore expenses in travelling increased. In the last year, there was no branch of the assesse firm. The case of assesse was remains always in scrutiny since A.Y. 2000-01, but no such addition was made in the previous assessment years. We also submit that firstly all payments were made by account payee cheque or through banking channel only. Secondly ld. A.O. had completely ignored and overlooked the facts, growth of business, audited financial statement and books of accounts of the appellant. Thirdly ld. A.O. passed the assessment order without mentioning any single instance of personal expenditure and any logical evidence of rational of 1/10th of the expenditure. Fourthly no addition on adhoc basis was made out of Rewards & Prize, Repairs & Maintenance and Travelling & Conveyance expenses or other expenses in the earlier scrutiny years.” Kindly refer detailed Ledger A/C (PB 48 - 53).” 2. Past History:- The assessee has been claiming the above addition since A.Y. 2000-01 but no such addition was made ever in any previous assessment year. The Table below shows claim of such expenses by the assessee in preceding 2 years in comparison to this year:

Head of expenses A.Y. 2011-12 A.Y. 2012-13 A.Y. 2013-14 Function and event 3347796 3037973 4464966 expenses Reward and Prizes to 11903686 4900362 7871004 student Repair and maintenance 12420789 17131429 36683339 expenses

14 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA Travelling and 28072176 26366863 54442415 conveyance

The impugned disallowance kindly be deleted in full. 3. Businessman is the best judge. It is settled that a businessman is the best judge to take care of its own interest and to take decision and the AO is not supposed to intervene therein nor he can replace the assessee. Here, whatever decisions were taken by the assessee, has to be understood as taken out of commercial expediency. Kindly refer T.T. (P) Ltd. v/s CIT (1980) 121 ITR 551 (Kar), CIT V/s Udhoji Shri Krishandas (1983) 139 ITR 827 (MP), JK Woollen Manufacturers 72 ITR 612 (SC)’’

4.6 On the other hand, the ld. DR strongly relied upon the findings recorded by the authorities below and justified the additions made and confirmed by the ld. CIT(A) and prayed to uphold the addition/disallowance.

4.7 We have carefully considered the finding recorded in the impugned orders, the rival contentions raised by both the parties as also the material placed on record and have also gone through the judicial pronouncements cited by the parties. The various contentions raised by the ld. AR, could not be reverted by the ld. DR. The law is well settled that the businessman is the best judge. In the past also similar claims were made but no disallowance is reported but otherwise also we are fully convinced with the justification provided. The authorities below therefore wrongly made the addition, which is hereby deleted. This ground of appeal is allowed

15 ITA NO. 617/JP/2018 - ALLEN CAREER INSTITUTE, ITO, WARD 2(1), KOTA 5.1 Ground No. 4 of the assessee is relating to charging of interest u/s 234A, 234B, 234C & 234D and withdrawal of interest u/s 244A of the Act. The levy and withdrawal of interest being consequential in nature, the AO is directed to act accordingly.

6.0 In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 4/08/2022.

Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼lanhi xkslkbZ½ (Rathod Kamlesh Jayantbhai) (Sandeep Gosain) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 04 /08/2022 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- M/s. Alllen Career Institute, Kota 2. izR;FkhZ@ The Respondent- ITO, Ward 2(1), Kota 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 617/JP/2018) vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेजज. त्महपेजतंत