Case Law Details
M/s JBM Industries Ltd Vs CIT (Delhi High Court)
In the present case, Ms. Esha Arya, the daughter of one of the Directors was barely 18 years of age without any relevant education, qualification or experience when she was inducted as a whole time Director of the Company. The agreement with the company wherein she undertook to remain in the employment of the assessee company for a period of not less than one year from the date of completion of higher education/training was executed on 20.03.2000, the date when she was inducted as the Director of the Company. The terms of the said agreement also defy logic. It is highly improbable that a Company which would incur expenditure to the tune of Rs. 70 lacs approximate on overseas education, agreed to have Ms. Esha Arya make a commitment to work for the Company only for a period of one year and, in the event she were to leave the Company before the expiry of the said period, she was required to pay only Rs. 50,000/- as default money, which too could also be waived off at the discretion of the Director of the assessee. When these contradictions were pointed out, the Assessee produced the supplemental agreement dated 01.11.2000 wherein she agreed to serve the Company for not less than two years and in the event of default, reimburse 50% of the expenditure incurred on higher education. These facts cannot be ignored and one can easily infer that the expenses were not incurred wholly and exclusively for the business of the Company. Significantly, when the learned ITAT restored the matter to the file of the AO, in the first round of a challenge, the assessee, despite opportunity failed to produce the evidence that would justify the expenditure, as noted in the impugned order. The assessee could not produce any evidence to show that the assessee company had sponsored the application of Ms. Esha Arya from the beginning. The Assessing Officer thus concluded that there was no nexus between the higher education expense of Ms. Esha Arya and the business of the assessee and accordingly disallowed the entire sum holding that it was not an expenditure incurred wholly and exclusively for the purpose of business. While it may also be true that it is for the assessee to decide as to who should be employed, and what should be the terms of the Contract, however, it is for the Income Tax Officer to determine whether there is indeed a nexus between the expense and the business of the Company and for that, the enquiry conducted by him cannot be faulted with. The present case is similar to Natco Exports Pvt. Ltd. (supra). The distinction sought to be drawn by Mr. Santhanam on the ground that in the present case Ms. Esha Arya had executed a bond with the assessee Company is rejected because the bond is itself farcical and that is not the only relevant factor. In Natco Exports Pvt. Ltd. (supra), this Court observed:-
“5. The aforesaid findings are findings of fact and have been upheld by the Tribunal. We may also note that in the present case Ruchika Grover had not executed any bond that she would work for the appellant company after she completes the course and on failure shall return the money spent. The findings of the Tribunal clearly show that Ruchika Grover, who had completed her graduation in the year 2005 and immediately thereafter applied for further studies in University of Nottingham in United Kingdom. It is a case where she continued with her studies. The said application for undertaking the studies abroad was made even prior to her completing the course. The alleged board resolution has rightly not been relied upon as it was not relied and filed before the Assessing Officer. Considering the facts and circumstances of the case, the aforesaid expenditure, it has been held, cannot be regarded as wholly and exclusively incurred for the purpose of business. The findings are findings of fact. The findings are not perverse.”
The cumulative impact of all the events and circumstances noted in the impugned order, has led the Income Tax Authorities to hold that the deduction could not have been allowed. The reasons for disallowance are germane and relevant and cannot be ignored. Apparently, this was an attempt on the part of the assessee to avoid tax liability.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
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Have SEBI , MCA taken cognisance of it? or are even aware ? Don’t think so…