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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
Before: SHRI S.V. MEHROTRA : & SHRI C.M. GARG :
The appeal, by the department and the cross objection by the assessee have been preferred against CIT(A)’s order dated 3.2.2012 relating to A.Y. 2007-08.
2 ITA 2270/Del/2012 & CO 312/Del/2012 Both these matters were heard together and are being disposed of by a consolidated order for the sake of convenience.
Brief facts of the case are that assessee had filed return of income declaring total income of Rs. 1,44,122/-. During the year under consideration, the assessee firm had been engaged in dealing in retail sales of readymade garments/ other consumable goods. The assessment was completed at a total income of Rs. 18,15,558/- after making disallowance of Rs. 10,19,836/- claimed as professional upgradation/ education expenses and Rs. 1,83,580/- in regard to salary paid to the partner Shri Salil Gogia and further disallowance of Rs. 4,68,000/- was made on account of foreign travelling expenses claimed in P&L A/c.
Ld. CIT(A) allowed the assessee’s appeal. Being aggrieved, the department is in appeal before us and has taken following grounds of appeal:
1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.10,19,836/- on account of professional expenses of the partner Sh. Salil Gogia.
2. On the facts and in the circumstances of the case the Ld CIT(A) has erred in deleting the addition of Rs.1,83,580/-/ on account of remuneration paid to the partner Sh. Salil Gogia. 3. On the facts and in the circumstances of the case the Ld CIT(A) has erred in deleting the addition of Rs.4,68,OOO/ on account of foreign travelling being not related to business.
3 ITA 2270/Del/2012 & CO 312/Del/2012 4. The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of hearing of the appeal.
4. Brief facts apropos ground nos. 1 & 2 are that assessee had debited an amount of Rs. 10,19,836/- on account of “Professional Upgradation/ Education Expenses in the field of Retail Management/ Industry”. The assessee in its clarification pointed out as under:
“… The expenses were incurred on the overseas studies of partner “Mr. Salil Gogia” in specific field of business management in retail business that too the study paper studies and submitted were in specific context of Gogia’s the assessee firm. The copies of the submitted papers also submitted vide our letter dated 16.11.2009. Copy of judgment in the case of ACIT vs. Delhi Dermatology Group (2009) 29 DTR (Del)(Trib) 383 was also submitted in which case it was held that foreign tour expenses by a partner to update their knowledge of science is an allowable expenses…”.
The AO did not allow the assessee’s claim, inter alia, observing that assessee had tried to give a colourable device to evade the tax which is not permissible in law. He further disallowed the salary claimed in respect of salil Gogia , as working partner observing that a person who was under the full time degree course in foreign country, how could he be a working partner drawing salary. Accordingly, he disallowed Rs. 12,03,416/- (Rs. 10,19,836/- + Rs. 1,83,580/-).
Before ld. CIT(A), the assessee had given detailed submission in regard to the disallowance of Rs. 10,19,836/- and had, inter alia, pointed out that the total
4 ITA 2270/Del/2012 & CO 312/Del/2012 business was being carried out in orthodox and routine manner from last more than three decades and, therefore, it was necessary to take some professional consultancy of the professionals in the field of “Marketing & retail sales” or to train and educate partner of the firm itself in order to have permanency in the availability of professionalism. Therefore, Salil Gogia was put to business administration in the field of retail management in Kingston University, UK. It was pointed out that during the conduct of course he specifically took the research and study in context of marketing strategies of his firm “Gogia’s” in India, study papers, substantiating the said facts were duly submitted to the AO. The assessee had again filed following details before ld. CIT(A) also: a) Copy of the letter dt. 27.11.2009. b) Details of expenses, containing the details of back ground of such expenses. c) Copy of study paper undertaken & submitted during the course. i) Study on Operation Review/ Management in specific context of “Gogia’s” with remarks sheets of the faculty member ii) Study on Strategic Review in specific context of “Gogia’s” iii) Study on Marketing Plan in specific context of “Gogia’s”, with remarks sheet of the facility member iv) Study in context with “The Indian Retail Context” d) Copy of judgment relied upon ACIT Vs. Delhi Dermatology Group (2009) 24 DTR Del (Trib) 383 (page 90 to 91) in which case it was held that foreign tour expenses by a partner to update their knowledge of science is an allowable expenses.”
Ld. CIT(A), after considering the detailed submissions, as reproduced in her order, called for a remand report from AO. But in the remand report the AO merely reiterated the findings recorded by AO without commenting on the contents of 5 ITA 2270/Del/2012 & CO 312/Del/2012 submissions. Considering all these aspects ld. CIT(A) allowed this ground, inter alia, observing that since the study was specifically related to “Gogia’s”, therefore, amount incurred on higher study was to be allowed.
As regards the disallowance of Rs. 1,83,580/-, being the remuneration paid to partner in accordance with the provisions of section 40(b)(v), ld. CIT(A) observed that the same was allowable as it was incurred for business purposes.
The third issue is in regard to disallowance of foreign travel expenses of Salial Gogia and Anil Gogia. The AO made the disallowance on the ground that the same was not for business purposes. As regards the disallowance of foreign travelling expenses, ld. CIT(A) accepted the assessee’s contention that the expenses on foreign visits of the partner Anil Gogia were with the purpose of selecting upcoming/ latest designs of garments being sold, which had not yet entered the Indian market. Some samples were purchased, some were photographed and then given to our supplier in India for supplies to assessee.
Confirmation from the Indian suppliers to this effect were also filed. The assessee also pointed out that it is well known fact that Thailand and Hongkong are the hub of garments industry. The expenses of Mr. Salil Gogia, partner of the firm, to UK were in context with taking up course for upgradation of his business knowledge as
per the facts obtained.
6 ITA 2270/Del/2012 & CO 312/Del/2012 10. We have considered the submissions of both the parties and have perused the record of the case. We find that all the three grounds are interlinked in one way or the other and, therefore, we take up all the three grounds together.
Ld. DR submitted that the expenditure incurred on the studies of Salil Gogia was not wholly and exclusively for the purpose of business. He referred to page 16 of the PB, wherein operational issues in the case of assessee is contained and pointed out that from the identification of key operational issues mentioned therein, it is evident that it was the personal knowledge of Salil Gogia, which was uplifted and, therefore, it could not be treated as business expenditure. He submitted that the matter may be restored back to the file of AO as assessee had filed all these details before ld. CIT(A). On this count I find that in the written submissions filed before ld. CIT(A), available on record, the assessee had pointed out to various submissions and papers filed before AO. The same is reproduced hereunder:
“Following submission were filed during assessment proceedings. 1. Submission vide letter dated 27.11.2009 to Ld. AO, relevant para 9 of the letter reproduced as below: “Details of Professional up-gradation / Education expenses incurred on partner of @ the firm. These expenses were incurred on the course undertaken by the partner of the firm in Business Administration with covering the field of retail management, which is in direct co-relation of the business.
7 ITA 2270/Del/2012 & CO 312/Del/2012 Copies of some of the relevant study papers enclosed. The Study/Course pursued primarily was centered on Gogia's operations in order to obtain the comments, advices, technical elaboration/strategies of the global experts/teachers/ professors, associated with Kingston University, London. 12. Apart from above, before ld. CIT(A) the assessee also submitted following documents:
“Some of studies submitted are enclosed herewith:- i) Study in context with ''The Indian Retail Context" ii) Study on Operation review/Management of "Gogia's" iii) Study on Strategic Management iv) Study on Marketing Management”
In the written submissions, the assessee has referred to the letters filed before AO dated 27-11-2009 and 11-12-2009, in which it has elaborately been pointed out that all the documents filed in the paper book, were there before the AO. Moreover, in any view of the matter, ld. CIT(A) had called for a remand report from AO. Therefore, there was no reason to consider them as additional evidence filed before the CIT(A).
In course of submission, ld. counsel referred to the various documents filed before lower revenue authorities, particularly page 11, which is the assignment mark sheet with Student ID number: K0632931 and the operational review submitted by Salil Gogia. A bare perusal of the contents
8 ITA 2270/Del/2012 & CO 312/Del/2012 of its study makes it clear that the entire expenditure was incurred in connection with retail business carried on by assessee and, therefore, was for business purposes because the key issues considered therein were as under: “Thus, the key issues for been Gogia's have been summarised as the following: - How to retain the best customers with products and services that exceed expectations? - How to maximise the customer experience in all sales channels? - How to increase the inventory turns and manage the supply chain better for better stock control? - How to understand the customers better so that the company's offerings can be differentiated from those of the competitors? - How to manage pricing, promotions, and markdowns to maximise profits while still retaining the best customers? - How to offer the best store experience for customers while still keeping operating costs down? - How to cope with irregularities in demands due to seasonality (winter months being more sales I generating that summer months) (Appendix 1) 15. The assessee has relied on the decision of ITAT in the case of ACIT Vs. Delhi Dermatology Group (2009) 24 DTR Del (Trib) 383 ( page 90 to 91), wherein it has been, inter alia, held that expenditure relating to professional activities of the assessee firm due to urgent commercial expediency and efficiency is an allowable expenditure. In the present case
9 ITA 2270/Del/2012 & CO 312/Del/2012 the studies of Salil Gogia brought professionalism in the business which was essential to survive in even rising competitive business.
We, therefore, do not find any reason to interfere with the order of ld. CIT(A) on this issue.
As we have allowed ground no. 1, the foreign travelling expenses incurred on the tour of Shri Salil Gogia are also allowed as being incurred towards business.
The other part of the foreign travelling expenses is towards the foreign trips of Anil Gogia to Thailand and Hongkong which are also purely for business purpose because Anil Gogia had gone there to collect the samples which were given to assessee’s suppliers for remodeling the garments.
Accordingly, we find no reason to interfere in the order of ld. CIT(A) on these counts. In the result ground nos. 1 and 3stand dismissed.
Now coming to the salary paid to partner. In our opinion, since Salil Gogia was partner in firm and had gone to UK to upgrade his professional skill, which was necessary for business conducted by assessee firm, therefore, the salary paid to him as working partner was allowable. Even otherwise, we find considerable force in the submissions of assessee that in any view of the matter, for the period April 2006 to July 2006, he was fully employed in the business of the firm in Delhi and, thereafter, was engaged
10 ITA 2270/Del/2012 & CO 312/Del/2012 and/ or official deployed for attaining the higher academics w.e.f. August, 2006, specifically in the field of firm’s business and in particular context of Gogia’s retail business, therefore, the alternate plea that salary @ 45000/-
per month for four months was reasonable and, hence, allowable even otherwise. Accordingly, this ground is dismissed.
In its cross objections, the assessee has only supported the order of ld. CIT(A). Since we have dismissed the revenue’s appeal by upholding the order of ld. CIT(A), the cross objections filed by the assessee have become infructuous and stands dismissed accordingly.
In the result, revenue’s appeal as well as assessee’s cross-objections stand dismissed. Order pronounced in open court on 15/12/2015.