WESTIN HOSPITALITY SERVICES P.LTD, MUMBAI V. DCIT CEN CIR 39, MUMBAI

ITA 1274/MUM/2013

• Counselvise Citation: 127419914 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 24-07-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 14-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SENTHIL KUMAR
• Keywords: Business expenditure; Search and seizure; Question of law
• Section: 132; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & DR.S.T.M.PAVALA N , J M ITA NO S . 1274&1275 / MUM/20 13 ( ASSESSMENT YEAR S : 200 2 - 0 3 & 2001 - 02 ) AND ITA NO S . 1300 TO 130 3 /MUM/20 13 ( ASSESSMENT YEAR S :200 3 - 0 4 TO 2006 - 07 ) M/S WESTIN HOSPITALITY SERVICES PVT. LTD, 197, D N NAGAR, ANDHERI (WEST), MUMBAI - 400053 VS. D CIT, CC - 39 , MUMBAI PAN/GIR NO. : A A A C W 3255 G ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. VIJAY MEHTA /ASSESS EE BY : MR. S.SENTHIL KUMAR DATE OF HEARING : 3 0 TH JULY , 201 4 DATE OF PRONOUNCEMENT : 27 TH AUGUST , 2014 O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), DATED 26 - 11 - 2012 FOR THE ASSESSMENT YEARS 2001 - 02 TO 2006 - 07, RESPECTIVELY , IN THE MATTER OF IMPOSITION OF PENALTY U/S. 271(1)(C) OF THE I.T. ACT. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSE E CLAIMED EXPENDITURE ON FOREIGN EDUCATION AND FOREIGN RAVELING IN RESPECT OF STUDY OF MR. TUSHAR KHANNA, WHO IS SON OF ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 2 ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY. THE BASE ASSESSMENT YEAR IS THE ASSESSMENT YEAR 2001 - 02, WHEREIN ASSESSEE HAS CLAIMED EDU CATION EXPENSES OF RS. 29,27,748/ - AND FOREIGN TRAVELLING EXPENSES OF RS.3,17,564/ - . SIMILAR EXPENDITURE WAS CLAIMED IN SUBSEQUENT ASSESSMENT YEARS I.E. A.Y.2002 - 03 TO 2006 - 07. T HE EXPENSES SO CLAIMED WAS DISALLOWED BY THE AO ON THE PLEA THAT THIS EXPENDITU RE WAS IN RESPECT OF STUDY OF MR. TUSHAR KHANNA , WHO IS SON OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY, HE HELD THAT EXPENDITURE SO INCURRED WAS NOT FOR THE PURPOSE OF BUSINESS. THE AO ASKED THE ASSESSEE AS TO WHY THESE EXPENDITURE SHOULD NOT BE DISA LLOWED, IN REPLY THE ASSESSEE FILED A COPY OF AGREEMENT DATED 1 - 8 - 2000 BETWEEN THE ASSESSEE COMPANY AND MR. TUSHAR KHANNA CLAIMING THAT MR. TUSHAR KHANNA IS AN EMPLOYEE, WHO LEFT ON 10 - 8 - 2000 FOR NEW YORK, USA TO UNDERGO THE COURSE OF HOTEL MANAGEMENT AT T HE COLONEL UNIVERSITY, USA. THE ASSESSEE COMPANY HAS SPONSORED THE TOTAL PROGRAMME UNDER WHICH TUSHAR KHANNA WAS PROVIDED AIR PASSAGE, TUITION FEE, MAINTENANCE AND OTHER EXPENSES RELATING TO THE SAID COURSE . AS PER TERMS OF AGREEMENT, ON COMPLETING THE ABO VE COURSE, SHRI TUSHAR KHANNA SHALL RETURN TO INDIA AND JOIN THE ASSESSEE COMPANY FOR A MINIMUM PERIOD OF THREE YEARS FROM THE DATE OF HIS RETURN. IT WAS SUBMITTED THAT ON JOINING OF MR. TUSHAR KHANNA IN ASSESSEES COMPANY AS AN EMPLOYEE, ASSESSEE WAS BENE FITTED BY LOT OF KNOWLEDGE OF HOTEL MANAGEMENT ETC. OF MR. TUSHAR KHANNA AND HIS KNOWLEDGE BENEFIT ED THE COMPANY IMMENSELY. FOR THIS PURPOSE, RELIANCE ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 3 WAS PLACED ON THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF SAKAL PAPERS PRIVATE LIMITED V. CI T , 114 ITR 256 . HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION AND HE OBSERVED THAT THE DIRECTOR OF THE COMPANY HAS CLAIM ED PERSONAL EXPENSES IN THE BOOKS OF THE COMPANY. ASSESSEE FILED DETAILED SUBMISSIONS WITH REGARD TO NECESSITY OF THESE EXPENSES , H OWEVER, THE AO DID NOT CONVINCE WITH THE EXPLANATION AND DISALLOWED THE EXPENDITURE. AGAINST THE ABOVE ORDER OF AO, ASSESSEE APPROACHED TO THE CIT(A) , WHO VIDE HIS ORDER DATED 27 - 8 - 2004 DELETED ADDITION AFTER HAVING THE FOLLOWING OBSERVATIONS : - I HAV E CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BY AR/APPELLANT. APPELLANT HAS CLAIMED RS 15 ,72,874/ - ON THE EDUCATION OF SHRI TUSHAR DINESH KHANNA. HOWEVER, AO HAS DISALLOWED THE SAME OBSERVING THAT IN THE PAST, NO ORDINARY EMPLOYEE HAS BEEN SENT FO R COSTLY FOREIGN DEGREES FOR TRAINING AND WHAT THE INDIVIDUAL OBTAINED WAS A PERSONAL ASSET. HOWEVER, CONSIDERING THE FACTS OF THE CASE, I AM OF THE OPINION THAT APPELLANT IS ENTITLED TO THE DEDUCTION OF EDUCATIONAL EXPENSES OF RS.15,72,874/ - . APPELLANT CO MPANY IS IN THE BUSINESS OF FOOD AND CATERING SERVICES WHICH IS HIGHLY SPECIALIZED BUSINESS SUBJECTIVE TO THE VARIED TASTES OF CUSTOMERS. THE COMPANY CATERS TO THE HIGH - END SOCIETY OF MU M BAI. APPELLANT HAS STATED THAT A PERSISTENT PROBLEM FACED BY THIS IND USTRY AND ALSO BY APPELLANT COMPANY IS HIGH MANPOWER - TURNOVER WHICH ADVERSELY AFFECTS THE CONTINUITY IN THE BUSINESS. HUGE QUANTUM OF MONEY, TIME AND EFFORT IS SPENT ON TRAINING EMPLOYEES AND IMPARTING THE REQUIRED SKILLS. BUT WHEN SUCH EFFORTS BEGIN BEARI NG RESULTS FOR THE COMPANY, THESE TRAINED PERSONNELS LEAVE EMPLOYMENT. APPELLANT HAS FILED THE DETAILS OF EMPLOYEES WHICH SHOW THAT MOST OF THE EMPLOYEES HAVE BEEN IN THE SERVICE OF BELOW TWO YEARS. IN THIS BACKGROUND, APPELLANT HAS SENT SHRI TUSHAR DINESH KHANNA, ONE OF ITS EMPLOYEES FOR TRAINING AND EDUCATION IN THE HOTEL MANAGEMENT COURSE. IT IS THUS SEEN THAT THE EDUCATIONAL EXPENSES INCURRED BY THE APPELLANT COMPANY IS ON THE HOTEL MANAGEMENT WHICH IS THE LINE OF BUSINESS OF THE APPELLANT COMPANY. NOT ONLY THE COMPANY HAS SENT SHRI TUSHAR DINESH KHANNA FOR EDUCATION AND TRAINING IN THE HOTEL MANAGEMENT, IT HAS ALSO EMPLOYED AN INTERNATIONALLY ACCLAIMED FOREIGN COOK, SHRI SOMDET KESORAPROM FROM BANGKOK. MOREOVER, AS PER AGREEMENT, SHRI TUSHAR DINESH KHAN NA IS BOUND TO WORK AS AN EMPLOYEE OF THE COMPANY ATLEAST FOR A PERIOD OF THREE YEARS FROM THE DATE OF HIS RETURN TO INDIA. AR HAS INFORMED THAT ON RETURN BACK TO INDIA, SHRI TUSHAR DINESH KHANNA CONTINUES TO BE IN WHOLE TIME EMPLOYMENT ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 4 WITH THE COMPANY AN D IS OFFERING HIS INTERNATIONAL EXPERIENCE, EXPERTISE AND KNOWLEDGE TOWARDS THE GROWTH AND DEVELOPMENT OF THE COMPANY'S BUSINESS. THERE EXISTS A EMPLOYER - EMPLOYEE RELATIONSHIP BETWEEN APPELLANT COMPANY AND SHRI TUSHAR DINESH KHANNA. IT FOLLOWS FROM THE ABO VE THAT APPELLANT COMPANY IS VERY KEEN TO PROMOTE ITS BUSINESS AND BRING THE SAME AT INTERNATIONAL LEVEL BY PROVIDING HIGH QUALITY OF SERVICES. THE APPELLANT'S CASE IS, THEREFORE, DIRECTLY COVERED BY THE DECISION OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF SAKAL PAPERS PVT. LTD. VS. CIT [114 ITR 256 (BORN)]. RELIANCE PLACED BY THE AO ON VARIOUS DECISIONS IS MISPLACED IN AS MUCH AND AS ALSO EXPLAINED BY THE AR IN HIS SUBMISSION THAT IN THESE CASES THE EDUCATIONAL EXPENSES WERE SPENT AND CLAIMED TO ACQUIRE DE GREE IN THE BUSINESS MANAGEMENT AND MBA WHEREAS ASSESSEES IN THOSE CASES WERE DEALING IN DIFFERENT LINE OF BUSINESS. HOWEVER, IN THE CASE OF APPELLANT, AS ALREADY DISCUSSED, COMPANY IS IN THE BUSINESS OF FOOD AND CATERING SERVICE. IN MY OPINION, HOTEL MAN AGEMENT HAS CLOSE NEXUS WITH THE APPELLANT'S BUSINESS AND, THEREFORE, FOLLOWING THE DECISION OF SAKAL PAPERS PVT. LTD., APPELLANT IS ENTITLED TO THE DEDUCTION OF EDUCATIONAL EXPENSES . IN VIEW OF ABOVE DISCUSSION, ADDITION IS DELETED . AGAINST THE ABOVE ORD ER OF CIT(A), THE REVENUE APPROACHED TO THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 21 - 1 - 2009, RESTORED THE MATTER TO THE FILE OF THE CIT(A) WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE SI DES. 3 . DURING INTERVENING PERIOD, THERE WAS A SEARCH AND SEIZURE OPERATION U/S. 132 OF THE IT ACT IN THE RESIDENTIAL AND BUSINESS PREMISES OF THE KHANNA GROUP. DURING SEARCH IT WAS FOUND THAT ASSESSEE COMPANY HAD INCURRED EXPENDITURE ON EDUCATION, WHICH WAS DISALLOWED BY THE AO ON REGULAR ASSESSMENT. IT WAS ALSO NOTICED THAT ASSESSEE HAS CLAIMED SIMILAR EXPENDITURE DURING THE SUBSEQUENT YEAR 2002 - 03 TO 2005 - 06. AFTER SEARCH THE AO FRAMED ASSESSMENT FOR ASSESSMENT YEAR 2001 - 02 TO 2006 - 07, WHEREIN EXPENDITU RE INCURRED ON FOREIGN EDUCATION AND FOREIGN TRAVELLING WAS AGAIN DISALLOWED. IT WAS OBSERVED THAT EXPENDITURE CLAIMED ON FOREIGN TRAVELLING OF DIRECTORS BASED AT DELHI WAS EXCESSIVE. IN AN APPEAL ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 5 FILED BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ACTION OF T HE AO VIDE ITS ORDER DATED 26 - 11 - 2012. AGAINST THIS ORDER OF CIT(A), ASSESSEE APPROACHED TO THE TRIBUNAL AND THE TRIBUNAL DISMISSED ASSESSEES APPEAL VIDE ITS ORDER DATED 27 - 10 - 2010. AGAINST THE ORDER OF TRIBUNAL, DATED 27 - 10 - 2010, ASSESSEE APPROACHED TO T HE HONBLE JURISDICTIONAL HIGH COURT , WHEREIN SUBSTANTIAL QUESTION OF LAW RELATING TO FOREIGN EDUCATION EXPENSES WAS ACCEPTED BY THE HONBLE HIGH COURT. 4 . AFTER THE DISALLOWANCE THE AO ALSO LEVIED PENALTY U/S. 271(1)(C) WITH RESPECT TO SUCH DISALLOWANC E. THE ORDER OF THE AO WAS CONFIRMED BY THE CIT(A) IN ALL THE YEARS UNDER CONSIDERATION, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. IT WAS ARGUED BY LEARNED AR THAT SUBSTANTIAL QUESTION OF LAW HAS BEEN ACCEPTED BY THE HONBLE HIGH COURT WITH RE GARD TO DISALLOWANCE OF EDUCATION EXPENSES AND OUR ATTENTION WAS INVITED TO THE ORDER OF HONBLE HIGH COURT DATED 9 - 1 - 2013, WHEREIN IT WAS HELD AS UNDER : - HEARD. ADMIT ON THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW. I) WHETHER ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL WAS JUSTIFIED IN NOT ALLOWING THE APPELLANTS CLAIM OF EXPENDITURE OF RS. 29,27,748/ - INCURRED FOR THE PURPOSE OF BUSINESS BY THE APPELLANT ON THE TRAINING OF MR. TUSHAR KHANNA? II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL ERRED IN NOT ADJUDICATING THE ALTERNATE PLEA, REGARDING THE F A CT THAT THERE CANNOT BE DISALLOWANCE OF EXPENDITURE ON THE GROUND OF PERSONAL USE IN THE CASE OF THE APPELLANT BEING A COMPANY, WHICH WAS S PECIFICALLY RAISED BY THE APPELLANTS REPRESENTATIVE IN THE COURSE APPELLATE PROCEEDINGS ? IN ALL THE YEARS UNDER CONSIDERATION, THE HONBLE HIGH COURT HAS DULY ACCEPTED SUBSTANTIAL QUESTION OF LAW WITH REGARD TO CLAIM OF EXPENDITURE ON FOREIGN EDUCATION OF TUSHAR KHANNA. LEARNED AR PLACE D ON RECORD THE ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 6 LATEST DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NAYAN BUILDERS & DEVELOPERS PVT. LTD. , 24 TH JULY, 2014, WHEREIN IT WAS HELD THAT MERE ADMISSION OF APPEAL BY HIGH COURT IS SUFFICIENT TO D E BAR T HE PENALTY LEVIED U/S. SECTION 271(1)(C) OF THE IT ACT. IN THIS CASE THE HON BLE BOMBAY HIGH COURT OBSERVED THAT IN THE QUANTUM PROCEEDINGS, THE TRIBUNAL UPHELD THE ADDITION OF THREE ITEMS OF INCOME. THE ASSESSEE FILED AN APPEAL TO THE HIGH COURT, WHICH WAS ADMITTED. THE AO LEVIED PENALTY U/S. 271(1)(C) IN RESPECT OF THE SAID THREE ITEMS. THE PENALTY WAS UPHELD BY THE CIT(A) . THE TRIBUNAL DELETED THE PENALTY ON THE GROUND THAT WHEN THE HIGH COURT ADMITS THE SUBSTANTIAL QUESTION OF LAW, ON ADMISSION, IT BECOME S APPARENT THAT THE ADDITION IS CERTAINLY DEBATABLE. IN SUCH CIRCUMSTANCES, PENALTY CANNOT BE LEVIED U/S. 271(1)(C). IT WAS HELD THAT THE ADMISSION OF SUBSTANTIAL QUESTION OF LAW BY THE HIGH COURT LENDS CREDENCE TO BONAFIDE CLAIMS OF THE ASSESSEE. IT ADDED THAT ONCE I T TURNS OUT THAT THE CLAIM OF ASSESSEE COULD HAVE BEEN CONSIDERED FOR DEDUCTION AS PER A PERSON PROPERLY INSTRUCTED IN LAW AND IS NOT COMPLETELY DEBARRED AT AL L , THE MERE FACT OF CONFIRMATION OF DISALLOWANCE WOULD NOT PER SE LEAD TO IMPOSITION O F PENALTY. ON APPEAL BY THE DEPARTMENT TO THE HIGH COURT, THE HONBLE HIGH COURT DISMISS ED THE APPEAL, HELD THAT THIS APPEAL CANNOT BE ENTERTAINED AS IT DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. THE IMPOSITION OF PENALTY WAS FOUND NOT TO BE JUSTIFIE D AND THE APPEAL WAS ALLOWED. AS A PROOF THAT THE PENALTY WAS DEBATABLE AND ARGUABLE ISSUE, THE TRIBUNAL REFERRED TO THE ORDER ON ASSESSEES APPEAL IN QUANTUM ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 7 PROCEEDINGS AND THE SUBSTANTIAL QUESTIONS OF LAW WHICH HAVE BEEN FRAMED THEREIN. 5 . LEARNED AR F URTHER CONTENDED THAT SAME VIEW HAS BEEN TAKEN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF LIQUID INVESTMENT AND TRAINING CO, 350 ITR 408. RELIANCE WAS ALSO PLACED ON THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF WANDER PVT. LTD. , WHEREIN PEN ALTY WAS DELETED BY THE HIGH COURT ON THE PLEA THAT ASSESSEES QUANTUM APPEAL HAS BEEN ADMITTED BY THE HIGH COURT. 5.1 LEARNED AR ALSO PLACED RELIANCE ON THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF ADITYA BIRLA CENTRE, DECIDED IN ITA NO. 5931/MUM/2010 VIDE ORDER DATED 4 - 9 - 2013 , WHEREIN PENALTY IMPOSED U/S. 271(1)(C) WAS DELETED ON THE PLEA THAT SUBSTANTIAL QUESTION OF LAW HAS BEEN ACCEP T ED BY THE HON BLE HIGH COURT, THEREFORE, THE ISSUE HAS BECOME DEBATABLE AND NO PENALTY CAN BE IMPOSED. T HE OBSERVATION OF THE BENCH WAS AS UNDER : - THE APPEAL OF THE ASSESSEE AGAINST THE ORDER OF THE ITAT IN THE QUANTUM PROCEEDINGS CONFIRMING THE ADDITION MADE BY THE AUTHORITIES ON THE BASIS OF WHICH THE PENALTY HAS BEEN LEVIED HAS BEEN ADMITTED BY THE HON BLE HIGH COURT OF BOMBAY VIDE ORDER DATED 22.07.2011 IN INCOME TAX APPEAL NO. 4611 OF 2010 UNDER SECTION 260 A OF THE INCOME TAX ACT AS THE ISSUE INVOLVES SUBSTANTIAL QUESTION OF LAW. WHERE THE HIGH COURT HAS ACCEPTED THE APPEAL AS THE SUBJECT MATTER OF AD DITION INVOLVES SUBSTANTIAL QUESTION OF LAW U/S 260A, IT IS NEEDLESS TO EMPHASIS THAT THE ISSUE IS DEBATABLE AND ACCORDINGLY NO PENALTY IS IMPOSABLE U/S 271(1)(C) OF ACT. THE HONBLE DELHI HIGH COURT IN CIT V. LIQUID INVESTMENT & TRADING CO. [IN ITA NO.240 /2009] VIDE ITS JUDGMENT DATED 5.10.2010 HAS HELD THAT AN ISSUE BECOMES DEBATABLE ON THE ADMISSION OF SUBSTANTIAL QUESTION OF LAW AGAINST THE TRIBUNAL ORDER BY THE HIGH COURT. IN SUCH A CASE ALSO PENALTY HAS BEEN HELD TO BE NOT IMPOSABLE U/S 271(1)(C) OF T HE ACT. THE MUMBAI BENCH OF THE TRIBUNAL IN NAYAN BUILDERS & DEVELOPERS PVT. LTD. V. ITO [ITA NO.2379/MUM/2009], VIDE ORDER DATED 18.03.2011, HAS ALSO HELD ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 8 THAT WHERE SUBSTANTIAL QUESTION OF LAW HAS BEEN ADMITTED BY THE HONBLE HIGH COURT AGAINST THE ADDIT IONS SUSTAINED BY THE TRIBUNAL, THERE CANNOT BE ANY QUESTION OF PENALTY U/S.271(1)(C). SIMILAR VIEW HAS BEEN TAKEN BY THE THIRD MEMBER OF THE TRIBUNAL IN THE CASE OF RAPAM MERCANTILES LIMITED V. DCIT [(2004) 91 ITD 237 (AHD.) (TM)]. IN VIEW OF THAT MATTER, WE DELETE THE ENTIRE PENALTY LEVIED CONSEQUENT TO THE DISALLOWANCES/ADDITIONS ON WHICH THE QUANTUM APPEAL NOW IS ADMITTED BY THE HIGH COURT. IT IS NEEDLESS TO MENTION THAT IT IS NOT REQUIRED AT THIS STAGE TO DISCUSS OR DELIBERATE THE GROUNDS OF APPEALS SE PARATELY ON MERIT. 5.2 RELIANCE WAS ALSO PLACED ON THE DECISION OF INDORE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI YUGAL KISHORE JAJOO, DECIDED IN ITA NO.272/IND/2011, VIDE ORDER DATED 12 - 2 - 2013 , WHEREIN THE PENALTY IMPOSED U/S. 271(1)(C) WAS DELETED BY THE TRIBUNAL ON THE PLEA THAT IN RESPECT OF ADDITION SO CONFIRMED BY THE TRIBUNAL, SUBSTANTIAL QUESTION OF LAW HAS BEEN ACCEPTED BY THE HONBLE HIGH COURT, ACCORDINGLY, PENALTY CANNOT BE IMPOSED U/S.271(1)(C) ON SUCH DEBATABLE ISSUE. 5.3 RELIANCE WAS ALS O PLACED ON THE DECISION OF COORDINATE BENCH IN THE CASE OF M/S NAYAN BUILDERS & DEVELOPERS PVT LTD., DECIDED IN ITA NO.2379/MUM/2009, VIDE ORDER DATED 18 - 3 - 2011 ,WHEREIN FOLLOWING WAS THE CONCLUSION : - 3. IT IS, THEREFORE, ABUNDANTLY CLEAR THAT THE ADDITI ONS IN RESPECT OF WHICH PENALTY WAS CONFIRMED HAVE BEEN ACCEPTED BY THE HON'BLE BOMBAY HIGH COURT LEADING TO SUBSTANTIAL QUESTION OF LAW. WHEN THE HIGH COURT ADMITS SUBSTANTIAL QUESTION OF LAW ON AN ADDITION, IT BECOMES APPARENT THAT THE ADDITION IS CERTA INLY DEBATABLE. IN SUCH CIRCUMSTANCES PENALTY CANNOT BE LEVIED U/S 271 (L1)(C) AS HAS BEEN HELD IN SEVERAL CASES INCLUDING RUPAM MERCANTILE VS. DCIT [(2004) 91 ITD 237 (AHD) (TM)] AND SMT.RAMILA RATILAL SHAH VS. ACFT [(1998) 60 IT] (AHD) 171]. THE ADMISSIO N OF SUBSTANTIAL QUESTION OF LAW BY THE HON'BLE HIGH COURT LENDS CREDENCE TO THE BONA FIDES OF THE ASSESSEE IN CLAIMING DEDUCTION. ONCE IT TURNS OUT THAT THE CLAIM OF THE ASSESSEE COULD HAVE BEEN CONSIDERED FOR DEDUCTION AS PER A PERSON PROPERLY INSTRUCTE D IN LAW AND IS NOT COMPLETELY DEBARRED AT ALL, THE MERE FACT OF CONFIRMATION OF DISALLOWANCE WOULD NOT PER SE LEAD TO THE IMPOSITION OF PENALTY. SINCE THE ADDITIONS, IN RESPECT OF WHICH ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 9 PENALTY HAS BEEN UPHELD IN THE PRESENT PROCEEDINGS, HAVE BEEN HELD BY THE HON'BLE HIGH COURT TO BE INVOLVING A SUBSTANTIAL QUESTION OF LAW, IN OUR CONSIDERED OPINION, THE PENALTY IS NOT EXIGIBLE UNDER THIS SECTION. WE, THEREFORE, ORDER FOR THE DELETION OF PENALTY. 4. IN THE RESULT, THE APPEAL IS ALLOWED . 6 . ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND CONTENDED THAT ASSESSEE HAS CLAIMED PERSONAL EXPENDITURE UNDER THE GARB OF BUSINESS EXPENDITURE WITH RESPECT TO EDUCATION OF SON OF ONE OF THE DIRECTORS, THEREFORE, THE AO WAS JUSTIFIED IN LEVYI NG PENALTY U/S. 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS WITH RESPECT TO THIS EXPENDITURE . ACCORDINGLY, IT WAS PLEADED THAT ORDER OF THE CIT(A) CONFIRMING THE PENALTY IS JUSTIFIED. 7 . RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORD PERUSED. WE H AVE DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED AT BAR BY LEARNED AR AND DR AS WELL AS JUDICIAL PRONOUNCEMENTS DISCUSSED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS WITH REFERENCE TO LEVY OF PENALTY U/S. 2171(1)(C) OF THE I.T. ACT. FROM THE RECORD WE FOUND THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FOOD AND CATERING SERVICES. DURING THE YEARS UNDER CONSIDERATION, ASSESSEE COMPANY HAS CLAIMED EXPENDITURE ON FOREIGN EDUCATION AND FOREIGN TRAVELLING IN RESPECT OF TUSHAR KHANNA, WHO IS SON OF O NE OF THE DIRECTORS OF THE ASSESSEE COMPANY. THE EXPENDITURES WERE DISALLOWED BY THE AO ON THE PLEA THAT THESE EXPENDITURES WERE IN RESPECT OF STUDY OF TUSHAR KHANNA, WHO IS SON OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY, THEREFORE, EXPENDITURES WERE NOT FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 10 COMPANY BUT TO BENEFIT TO THE SON OF THE DIRECTOR. IT WAS EXPLAINED BEFORE THE AO THAT FOOD BUSINESS IN WHICH ASSESSEE COMPANY IS INVOLVED I S HIGHLY SPECIALIZED AND EXTREMELY SUBJECTIVE TO THE VARIED TAST ES OF CUSTOMERS. PROFICIENT CUSTOMER SERVICES BACKED BY A HIGHLY DEDICATED SYSTEM IS A PRE - REQUISITE IN THIS LINE OF BUSINESS. THE COMPANY CATERS TO THE HIGH - END SOCIETY OF MUMBAI. IT EXPENDS HUGE SUMS ON STAFF TRAINING & HIRING THE BEST PERSONAL IN THE IN DUSTRY. A PERSISTENT PROBLEM FACED BY THIS INDUSTRY AND SO ALSO BY ASSESSEE C OMPANY AS HIGH 'MANPOWER - TURNOVER'. THIS ADVERSELY AFFECTS THE CONTINUITY IN BUSINESS. HUGE QUANTUM OF MONEY, TIME AND EFFORT WAS SPENT ON TRAINING EMPLOYEES AND IMPARTING THE REQ UIRED SKILLS. BUT IT SO HAPPENS THAT WHEN SUCH EFFORTS BEGIN BEARING RESULTS FOR THE COMPANY, THESE TRAINED PERSONNELS LEAVE EMPLOYMENT. UNDER THESE CIRCUMSTANCES, ASSESSEE COMPANY DECIDED TO SEND MR. TUSHAR KHANNA , SON OF THE DIRECTOR FOR SPECIALIZATION I N FOOD INDUSTRIES AND SELECTED CORNELL UNIVERSITY TO IMPART THE REQUIRED TRAINING AND EDUCATION. CORNELL UNIVERSITY IS ONE OF THE FINEST HOTEL MANAGEMENT UNIVERSITIES IN THE WORLD. IT WAS RESOLVED TO SPONSOR MR TUSHAR KHANNA TO ACQUIRE SUCH TRAINING AND ED UCATION. THIS, IN THE OPINION OF THE BOARD OF DIRECTORS OF ASSESSEE COMPANY WOULD BENEFIT THE COMPANY SUBSTANTIALLY IN BROADENING ITS BUSINESS HORIZON. AN AGREEMENT DATED L AUGUST 2000 WAS ENTERED INTO BETWEEN THE COMPANY AND MR. TUSHAR KHANNA , WHEREIN IT WAS MADE MANDATORY FOR THE SPONSORED EMPLOYEE TUSHAR ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 11 KHANNA TO COMPLETE HIS TRAINING AND AFTER RETURN BACK TO INDIA TO SERVICE THE COMPANY FOR A MINIMUM PERIOD OF 3 YEARS THEREAFTER. IN MAY 2004, MR. TUSHAR KHANNA SUCCESSFULLY COMPLETED THE TRAINING. AS PE R TERMS OF THE AFORESAID AGR EEMENT, THE EMPLOYEE RETURNED BACK TO INDIA AND IS EMPLOYED WITH THE ASSESSEE COMPANY. WE FOUND THAT T HE ENTIRE TRAINING AND EDUCATION WAS IN HOTEL MANAGEMENT, BEING THE SPECIFIC LINE OF BUSINESS THE COMPANY IS ENGAGED IN. TRAIN ING AND EDUCATION ACQUIRED IN THIS SPECIALIZED COURSE WOULD BE OF NO HELP IN ANY OTHER INDUSTRY OR BUSINESS ACTIVITIES. TRAINING IS FOCUSED TOTALLY TOWARDS A SPECIFIC INDUSTRY. WE ALSO FOUND THAT T HE EMPLOYER - EMPLOYEE RELATIONSHIP IS IN PLACE PRIOR TO THE ASSESSEE COMPANY SPONSORING SUCH TRAINING. INTACT, IT WAS ONLY BECAUSE OF SUCH RELATIONSHIP THAT THE BOARD OF DIRECTORS DECIDED TO SEND 'SUCH EMPLOYEE FOR ACQUIRING INTERNATIONAL TRAINING AND EDUCATION. AFTER COMPLETION OF TRAINING, MR. TUSHAR KHANNA W AS UNDER A SPECIFIC OBLIGATION TO BE IN EMPLOYMENT WITH THE EMPLOYER FOR A PERIOD OF THREE YEARS. THUS, IT IS CLEAR THAT TO IMPLEMENT INTERNATIONAL HOTEL BUSINESS PRACTICES AND SYSTEMS, THE ASSESSEE COMPANY HAS SPENT MONIES ON EMPLOYING FOREIGN NATIONALS. DURING THE PREVIOUS YEAR 2000 - 01, THE COMPANY HAD EMPLOYED AN INTERNATIONALLY ACCLAIMED FOREIGN COOK, MR SOMDET KESORAPROM FROM BANGKOK. SIMILARLY, IT SPONSORED ONE OF ITS EMPLOYEES TO ACQUIRE HOTEL MANAGEMENT EDUCATION AND TRAINING AT CORNELL UNIVERSITY, USA. ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 12 8 . FROM THE RECORD, WE ALSO FOUND THAT ON RETURNING BACK TO INDIA, TUSHAR KHANNA CONTINUED TO BE IN WHOLE - TIME EMPLOYMENT OF THE ASSESSEE COMPANY AND IS OFFERING HIS INTERNATIONAL EXPERIENCE AND EXPERTISE AND KNOWLEDGE TOWARDS THE GROWTH AND DEVELOPM ENT OF THE ASSESSEE COMPANYS BUSINESS. MR. TUSHAR KHANNA WAS IN EMPLOYMENT WITH THE COMPANY, BEFORE BEING SENT ABROAD TO ACQUIRE SPECIFIC TRAINING AND EDUCATION IN HOTEL MANAGEMENT. WHILE HE WAS ABROAD, HE CONTINUED TO BE IN EMPLOYMENT WITH THE COMPANY AN D WAS GRANTED LEAVE OF ABSENCE TOWARDS SUCH TRAINING . THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSITION THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT AND ASSESSEE HAS ALL THE LIBERTY TO PUT HIS CASE IN THE PENALTY PROCEEDI NGS TO PROVE THAT THERE WAS NO CONCEALMENT OF PARTICULARS OF INCOME OR NO INTENTION TO FURNISH ANY INACCURATE PARTICULARS. MERELY BECAUSE IN THE INSTANT CASE IN QUANTUM PROCEEDINGS, ASSESSEES CLAIM OF EXPENSES WAS DECLINED BY TRIBUNAL ON THE PLEA THAT BEF ORE PASSING BOARD RESOLUTION, THERE WAS ALL INTENTION TO SEND MR. TUSHAR KHANNA ABROAD FOR HIGHER EDUCATION. THEREFORE, IT WAS CONCLUDED THAT THE EXPENSES SO INCURRED WERE NOT FOR THE PURPOSE OF THE BUSINESS. AT THE PENALTY PROCEEDINGS BY PUTTING VARIOUS DOCUMENTS ON RECORD, IT WAS DEMONSTRATED THAT AFTER COMING FROM TRAINING MR. TUSHAR KHANNA IS CONTINUOUSLY RENDERING HIS SERVICES TO THE ASSESSEE COMPANY WITH THE HELP OF HIS SPECIALIZED EDUCATION IN HOTEL MANAGEMENT. THUS, THE AGREEMENT SO ENTERED WITH T USHAR KHANNA, BEFORE LEAVING INDIA FOR ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 13 HIGHER EDUCATION WAS BEING ACTED UPON AND THERE IS NOTHING ADVERSE FOUND BY THE DEPARTMENTAL AUTHORITY TO SHOW THAT AFTER RETURNING BACK TO INDIA, TUSHAR KHANNA HAS NOT RENDERED THE SERVICES AS PER TERMS OF AGREEMENT DATED 1 - 8 - 2000 AS AGREED BY HIM WITH THE ASSESSEE COMPANY. IN TODAY'S HIGHLY COMPETITIVE BUSINESS ENVIRONMENT, HUMAN RESOURCE IS THE MOST VALUABLE ASSET, MORE SIGNIFICANTLY IN THE SERVICE INDUSTRY. UPDATING SKILLS AND CONTINUOUS TRAINING TO EMPLOYEES IS TH E KEY TO ENHANCE THEIR PERFORMANCE, WHICH HAS A DIRECT BENEFIT TO THE BUSINESS OF THE EMPLOYER. WORLD OVER, ALL GOOD COMPANIES SPEND SIGNIFICANT SUMS OF MONEY IN HR TRAINING & DEVELOPMENT. UNDER THESE CIRCUMSTANCES, AND LOOKING INTO THE FACTS OF ASSESSEE C OMPANY , THE ENTIRE EXPENDITURE WAS INTENDED TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES HOTEL BUSINESS. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE, IT IS NOT A FIT CASE FOR LEVY OF PENALT Y FOR THE DISALLOWANCE OF EXPENSES SO MADE . ACCORDINGLY, WE DIRECT TO DELETE THE PENALTY IMPOSED FOR DISALLOWING CLAIM OF EXPENDITURE ON FOREIGN EDUCATION AND FOREIGN TRAVELLING. EVEN THE ISSUE WITH REGARD TO IMPOSITION PENALTY WHEN SUBSTANTIAL QUESTION OF LAW IS ACCEPTED BY HONBLE HIGH COURT IS SQUARELY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S NAYAN BUILDERS & DEVELOPERS PVT. LTD . DATED 24 - 7 - 2014 (SUPRA) , WHEREIN IT WAS CATEGORICALLY HELD THAT MERE ADMISSION OF APPEA L BY THE HIGH COURT IS SUFFICIENT TO DEBAR THE PENALTY LEVIED ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 14 U/S. 271(1)(C) OF THE ACT. IN THE INSTANT CASE ALSO, THE HONBLE HIGH COURT VIDE ORDER DATED 9 - 1 - 2013 HAD ACCEPTED THE SUBSTANTIAL QUESTION OF LAW FOR ALL THE YEARS UNDER CONSIDERATION. RELEVANT OBSERVATION OF THE HON BLE HIGH COURT IN THE A.Y.2001 - 02 WAS AS UNDER : - HEARD. ADMIT ON THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW. I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL WAS JUSTIFIED IN NOT ALLOWING THE AP PELLANTS CLAIM OF EXPENDITURE OF RS.29,27,748/ - INCURRED FOR THE PURPOSE OF BUSINESS BY THE APPELLANT ON THE TRAINING OF MR. TUSHAR KHANNA? II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL ERRED IN NOT ADJUDICATING TH E ALTERNATE PLEA, REGARDING THE FACT THAT THERE CANNOT BE DISALLOWANCE OF EXPENDITURE ON THE GROUND OF PERSONAL USE IN THE CASE OF THE APPELLANT BEING A COMPANY, WHICH WAS SPECIFICALLY RAISED BY THE APPELLANTS REPRESENTATIVE IN THE COURSE APPELLATE PROCEE DINGS ? 9 . WE ALSO FOUND THAT ISSUE WITH REGARD TO ALLOWABILITY OF CLAIM OF THESE EXPENDITURES IS DEBATABLE INSOFAR AS IN THE ASSESSMENT YEAR 2001 - 02, THE ADDITION MADE BY THE AO WAS DELETED BY THE CIT(A) , E VEN THOUGH MATTER WAS SUBSEQUENTLY RESTORED BY THE TRIBUNAL TO THE FILE OF THE AO FOR DECIDING AFRESH AND IN THE SECOND ROUND DISALLOWANCES SO MADE WAS CONFIRMED BY TRIBUNAL . THUS, TWO VIEW S WERE AVAILABLE WHICH RENDERED THE MATTER DEBATABLE. WHEN THE ISSUE IS DEBATABLE AND SUBSTANTIAL QUESTION OF LAW HAS BEEN ACCEPTED BY THE HONBLE HIGH COURT, NO PENALTY IS LEVIABLE. AS DISCUSSED ABOVE, THE ISSUE WITH REGARD TO LEVY OF PENALTY WHEN SUBSTANTIAL QUESTION OF LAW HAS BEEN ACCEPTED, IS DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ADITYA B IRLA CENTRE, NAYAN BUILDERS & DEVELOPERS PVT. LTD. (SUPRA) A S WELL AS BY THE INDORE ITA NO S . 1274, 1275 &1300 TO 130 3 /2013 15 BENCH OF THE TRIBUNAL IN THE CASE OF SHRI YUGAL KISHORE JAJOO (SUPRA) . THE DECISION OF TRIBUNAL IN NAYAN BUILDERS & DEVELOPERS HAS DULY BEEN CONFIRMED BY THE HON BLE BOMBA Y HIGH COURT VIDE ITS ORDER DATED 24 - 7 - 2014. RESPECTFULLY FOLLOWING THE SE DECISION S AS WELL AS DECISION OF JURISDICTIONAL HIGH COURT , WE DO NOT FIND ANY MERIT FOR LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT FOR ALL THE YEARS UNDER CONSIDERATION. 10 . IN THE R ESULT, ALL THE APPEAL S FILED BY THE ASSESSEE ARE ALLOWED , IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27/08/ 201 4 . 27/08/ 2014 SD/ - SD/ - ( ) ( DR.S.T.M.PAVALAN ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED 27/08 /2014 /PKM , PS COPY OF THE ORDER FOR WARDED TO : / BY ORDER, (ASSTT. REGISTRAR) / ITAT, MUMBA I 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//