Allowability of expenses incurred on higher studies of director’s son

Allowability of expenses incurred on higher studies of director’s son – Matter remanded back to CIT(A)

IN THE ITAT AHMEDABAD BENCH ‘C’

Deputy Commissioner of Income-tax

versus

Inox India Ltd.

IT Appeal Nos. 1095 & 1096 (Ahd.) of 2010
[ASSESSMENT YEARS 1997-98 & 1998-99]

NOVEMBER  23, 2012

ORDER

Kul Bharat, Judicial Member

These two appeals of the Revenue are directed against the common order of the Commissioner of Income-tax (Appeals)-I, Baroda (“CIT(A)” for short), dated December 18, 2009, pertaining for the assessment years 1997-98 and 1998-99.

First we take up I.T.A. No. 1095/Ahd/2010 (for the assessment year 1997-98)

2. The Revenue has raised the following grounds of appeal :

“1.          On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in deleting the penalty of Rs. 2,17,000 levied under section 271(1)(c) of the Act on the additions amounting to Rs. 5,04,326.

2.            On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in not appreciating the fact that the assessee has, by claiming business expenditure of Rs. 4,78,260 under the head ‘staff and labour training expenses’ incurred on the sponsorship of advance education at the U. S. A. for the son of the managing director, who is not a member of staff. The expenditure was couched as ‘staff and labour training expenses’ and thus furnished inaccurate particulars of income.

3.            On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have appreciated the fact that the expenditure incurred for the education of Shri Siddharth Jain son of the managing director is of personal nature as he is in no way connected to the business affairs of the company either as an employee or the director.”

3. The facts of the case are that assessee is a limited company engaged in the business of manufacture of vacuum insulated tanks, cold convertor systems, atmospheric vaporizers and cryo containers, etc. The learned Commissioner of Income-tax-Departmental representative for the Revenue submitted that penalty has been levied on the addition amounting to Rs.5,04,326. He submitted that expenditure was claimed as business expenditure under the head “Staff and labour training expenses” incurred on the sponsorship of advance education of the son of the managing director for higher studies at abroad. He submitted that expenditure was claimed under staff and labour training expenses and thus furnished inaccurate particulars of income. He submitted that the learned Commissioner of Income-tax (Appeals) has failed to appreciate the fact that the business expenses as claimed was not a business expenses since the son of the managing director was not an employee of the assessee-company and there is nothing on record suggesting that the expenditure has been incurred for the purpose of business. He submitted that the learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that expenditure was essentially personal in nature. He submitted that there is no resolution of the assessee-company that the expenditure was incurred for the purpose of business. He relied upon the decision of the hon’ble Delhi High Court rendered in the case of CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510. On the contrary, learned counsel for the assessee submitted that neither it is a case of concealment of income nor furnishing inaccurate particulars of income. He submitted that the expenditure was duly reflected into the books of account. He submitted that the expenditure was essentially for business purpose as the assessee-company entered into an agreement with the son of the managing director. He drew our attention to page 6 of the paper book, wherein in Notes No. 3 it has been duly reflected. He further drew our attention to page 61 of the paper book, wherein the copy of the agreement is enclosed. He submitted that one of the condition in the agreement was that after returning to India, the candidate will serve to the assessee-company for a minimum period of three years. He also drew our attention to the resolution of the assessee-company, wherein it has been resolved that all the expenses to be incurred by Mr. Siddharth Jain during his stay at abroad will be borne by the assessee-company. He submitted that the Assessing Officer has observed that the assessee did only conceal the particulars of its income but also furnished inaccurate particulars of income deliberately. Learned counsel for the assessee contended that the assessee has been charged for both the default and this is not permissible under law. In support of his contention he relied on the decision of this Tribunal rendered in the case of Mukeshchandra A. Lakdawala v. ITO [2010] 4 ITR (Trib) 307 (Ahd) and the decision of the hon’ble Lucknow Bench rendered in the case of Dy. CIT v. B. J. D. Paper Products 134 ITD 552.

4. We have heard the rival submissions and perused the materials available on record. We find that on the point out query, learned counsel for the assessee could not furnish details when the son of the managing director of the assessee-company retuned from abroad and when he joined the assessee-company and could not give any detail of any of the resolution passed in favour of the person who entered into an agreement with Shri Siddharth Jain, son of the managing director of the assessee-company. Further, the argument as advanced by learned counsel for the assessee that the Assessing Officer has levied the penalty for both concealment of the materials particulars and furnishing of inaccurate particulars of income and also placed reliance on the decision of the hon’ble co-ordinate Bench rendered in the case of Mukeshchandra A. Lakdawala (supra) we find that this ground was not raised before the learned Commissioner of Income-tax (Appeals) and these decisions were not cited before the learned Commissioner of Income-tax (Appeals). Therefore, in the interest of justice we set aside the order of the learned Commissioner of Income-tax (Appeals) and this ground and the Revenue’s appeal is restored back to the file of the learned Commissioner of Income-tax (Appeals) to decide afresh after providing reasonable opportunity of being heard to the assessee, in the light of the decision of the hon’ble co-ordinate Bench rendered in the case of Mukeshchandra A. Lakdawala (supra). In case the assessee does not succeed on this ground then the learned Commissioner of Income-tax (Appeals) would decide afresh on merit. In this view of this matter, the appeal of the Revenue is allowed for statistical purposes.

5. In the result, the Revenue’s appeal is allowed for statistical purposes. Coming to I. T. A. No. 1096/Ahd/2010 (for the assessment year 1998-99).

6. The facts are identical in the assessment year 1997-98 and taking a consistent view we remit back the file to the learned Commissioner of Income-tax (Appeals) for fresh decision as indicated above. This appeal of the Revenue is also allowed for statistical purposes.

7. In the result, the Revenue’s appeal is allowed for statistical purposes.

8. In combined result, both appeals, of the Revenue are allowed for statistical purposes.