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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI A.T.VARKEY, JM & DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the Revenue, pertaining to the Assessment Year 2009-2010, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-XII, Kolkata, in Appeal No.294/XII/12/11-12, dated 31.03.2014, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (in short the ‘Act’), dated 29.12.2011.
Brief facts of the case qua the assessee are that the assessee filed its return of income on 19.09.2009 for the assessment year 2009-10. The return was duly processed u/s 143(1) on 11.03.2011 as total income of Rs.12,37,55,810/-. The case was selected for scrutiny and notices u/s. 143(2) & 142(1) were issued and served on the assessee. On verification of the details filed during the course of assessment proceedings, AO observed from the profit & loss a/c that the assessee has debited a sum assessee stated that Rs.51,67,107/- is the scholarship expense claimed which is nothing but the foreign education of children of the Directors. The AO stated that this expense is not wholly and exclusively for the purpose of business. If any common person comes to the company, requests the company to meet the expense of his or her foreign studies and assuring it that he or she will make an agreement after completing the foreign studies, they will join the company. Then in no circumstances, the Directors will accept such request of any common prudent & intelligent person. But, for being their children, this expense would not have been incurred. The Director are rich persons, and therefore, they should meet the expense of their children's higher studies out of their own income.
They have forgotten that the company is a separate legal entity different from the Directors and their family. Therefore, the expense of scholarship of Rs.51 ,67,107/- incurred for foreign education of their children is not an allowable expense and it is not wholly and exclusively for the purpose of business activity. Also, their degrees are in Management which is a common field of education and is not related with the Ayurvedic manufacturing activity of the assessee. As the said expenses are personal in nature, the same is disallowed in full and added with the total income of the assessee company.
Aggrieved from the order of the AO, assessee filed an appeal before the CIT(A), who has deleted the additions made by the AO observing the followings :-
3 M/s Shree Baidyanath Ayurved Bhawan Pvt. Ltd. “5.2.3 Decision I have carefully considered the submissions put forth on behalf of the appellant along with the supporting details/documents furnished, and the judgment of the case law relied upon, perused the facts of the case and the findings of the AO in the ………. x x x x x director gives a bond that she will work for the company for some a specified period after the completion of her education. I have considered the finding of the A.O. and the written submission filed along with case laws by the A.R. I think the ratio decided by the Mumbai Tribunal in the case of Advani & Co. Ltd. (supra) is very much applicable in this case. Thus. assessee's appeal on ground no. 3 is allowed. In the light of the above discussion, after considering the submission of the appellant and following the decision of my predecessor, I do not find any reason to differ from the view taken by my predecessor on the issue as the ratio decided by the Mumbai Tribunal in the case of Advani Co. Vs. JClT (supra) is squarely applicable in the appellant's case. Hence, the appeal of the appellant on this ground is allowed.”
Not being satisfied with the order of ld. CIT(A), the Revenue is in appeal before us and has taken the following grounds of appeal :-
1. "That is the facts and in law of the case the Ld. CIT(A) erred in deleting the addition of A.O. The A.O. disallowed a sum of Rs. 51,67,107/- incurred towards scholarship expense of Shri Ameve Sharma, Shri Rishiraj Sharma and Shri Yaduraj Joshi, being not related to business of the assessee and the expense made were not wholly and exclusively for the purpose of business."
4.1. The ld DR for the Revenue has submitted before us that a sum of Rs. 51,67,107/- incurred towards scholarship expense of Shri Ameve Sharma, Shri Rishiraj Sharma and Shri Yaduraj Joshi, being not related to business of the assessee and the expense made were not wholly and exclusively for the purpose of business. In addition to this, the Ld. DR for the Revenue has primarily relied on the findings of the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity.
4.2. Ld AR for the assesse has submitted before us that assesse incurred these scholarship expenses for the purpose of business. The persons for which the company incurred scholarship expenses, had worked for the company and they also worked for the company for some specified period after the completion of their education. The assesse company got the benefit of their expertise knowledge. Therefore, we are of the view that the ratio decided by the Mumbai Tribunal in the case of Advani & Co. Ltd. dated 30.09.2004 is very much applicable in this case. In addition to this, the Ld. AR also relied on the decision of Hon’ble Calcutta High Court in the case of M/s Gournitye Tea & Industries, ITA No.249 of 2005, order dated 24-06-2010, wherein it has been held as under :-
“Simply because a trainee happen to be the son of the President one cannot jump to the conclusion that appointment itself is an appointment smacks of nepotism. It is settled position of law the company particularly being a limited one and a separate juristic entity any director, shareholder or any officer for that matter (are) is completely different entity and their interest cannot be equated with the interest of the company. It appears that subsequently on fact that said S. Kalyani after completion of the higher study for five years joined the company and he was appointed as President of the Company on settled remuneration and perquisite with effect from 15 May 2004 and since then he had and still has been functioning as such. Under these circumstances it cannot be said anything else except business expenditure incurred on account of the higher study during his traineeship and it was relatable and is still related to the expenses of the company's business as such deduction can safely be allowed under Section 37(1) of the said Act.”
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 proposition canvassed by ld. AR for the assessee are supported by 5 M/s Shree Baidyanath Ayurved Bhawan Pvt. Ltd. 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). 4.5 In the result, appeal filed by the Revenue is dismissed Order pronounced in the open court on this 23/022017.
Sd/- Sd/- ( A.T.VARKEY ) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 23/02/2017 �काश �म�ा/Prakash Mishra,�न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant- DCIT, Circle-12, Kolkata 2. ��यथ� / The Respondent.- M/s Shree Baidyanath Ayurved Bhawan Pvt. Ltd. 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,