DCIT, CIR-12, KOLKATA, Kolkata V. M/s Shree Baidyanath Ayurved Bhawan Pvt Ltd., Kolkata

ITA 1314/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9357 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2014
• Court: TRIBUNAL
• Department Lawyers: MD GHYASUDDIN JCITSRDR
• Assessee Lawyers: S M SURANA
• Keywords: Business expenditure
• Section: 143(3); 142(1); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI A.T.VARKEY, JM & DR. A.L.SAINI, AM ./ ITA NO.1314/KOL/2014 ( / ASSESSMENT YEAR:2009-2010) DCIT, CIRCLE-12, KOLKATA, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, 7 TH FLOOR, KOLKATA-700069 VS. SHREE BAIDYANATH AYURVED BHAWAN, PRIVATE LIMITED, 1, GUPTA LANE, KOLKATA-700006 ./ ./PAN/GIR NO.: AAECS 5408 D ( /APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : MD. GHYAS UDDIN, JCIT, SR-DR ASSESSEE BY : SHRI S.M.SURANA, ADVOCATE / DATE OF HEARING : 22/02/2017 /DATE OF PRONOUNCEMENT 23/02/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAINI NG 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 TUR N ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER (AO) UNDER SE CTION 143(3) OF THE INCOME TAX ACT 1961, (IN SHORT THE ACT), DATED 29 .12.2011. 2. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE FILED ITS RETURN OF INCOME ON 19.09.2009 FOR THE ASSESSME NT 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 SCRUTI NY AND NOTICES U/S. 143(2) & 142(1) WERE ISSUED AND SERVED ON THE ASSES SEE. ON VERIFICATION OF THE DETAILS FILED DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, AO OBSERVED FROM THE PROFIT & LOSS A/C THAT THE ASSESS EE HAS DEBITED A SUM ITA NO.1314/14 M/S SHREE BAIDYANATH AYURVED BHAWAN PVT. LTD. 2 OF RS.51,67,107/- TOWARDS THE COST OF SCHOLARSHIP E XPENSES. THE ASSESSEE STATED THAT RS.51,67,107/- IS THE SCHOLARS HIP EXPENSE CLAIMED WHICH IS NOTHING BUT THE FOREIGN EDUCATION OF CHILD REN OF THE DIRECTORS. THE AO STATED THAT THIS EXPENSE IS NOT WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS. IF ANY COMMON PERSON COMES TO THE COMP ANY, REQUESTS THE COMPANY TO MEET THE EXPENSE OF HIS OR HER FOREIGN S TUDIES AND ASSURING IT THAT HE OR SHE WILL MAKE AN AGREEMENT AFTER COMPLET ING THE FOREIGN STUDIES, THEY WILL JOIN THE COMPANY. THEN IN NO CIR CUMSTANCES, THE DIRECTORS WILL ACCEPT SUCH REQUEST OF ANY COMMON PR UDENT & INTELLIGENT PERSON. BUT, FOR BEING THEIR CHILDREN, THIS EXPENSE WOULD NOT HAVE BEEN INCURRED. THE DIRECTOR ARE RICH PERSONS, AND THEREF ORE, 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 O F THEIR CHILDREN IS NOT AN ALLOWABLE EXPENSE AND IT IS NOT WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS ACTIVITY. ALSO, THEIR DEGREES ARE IN MANAG EMENT WHICH IS A COMMON FIELD OF EDUCATION AND IS NOT RELATED WITH T HE 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. 3. AGGRIEVED FROM THE ORDER OF THE AO, ASSESSEE FIL ED AN APPEAL BEFORE THE CIT(A), WHO HAS DELETED THE ADDITIONS MA DE BY THE AO OBSERVING THE FOLLOWINGS :- ITA NO.1314/14 M/S SHREE BAIDYANATH AYURVED BHAWAN PVT. LTD. 3 5.2.3 DECISION I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS PUT FO RTH ON BEHALF OF THE APPELLANT ALONG WITH THE SUPPORTING D ETAILS/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 CO MPANY FOR SOME A SPECIFIED PERIOD AFTER THE COMPLETION OF HER EDUCAT ION. 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. (S UPRA) IS VERY MUCH APPLICABLE IN THIS CASE. THUS. ASSESSEE'S APPE AL ON GROUND NO. 3 IS ALLOWED. IN THE LIGHT OF THE ABOVE DISCUSSION, AFTER CONSIDE RING THE SUBMISSION OF THE APPELLANT AND FOLLOWING THE DECIS ION OF MY PREDECESSOR, I DO NOT FIND ANY REASON TO DIFFER FRO M 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 APPE AL OF THE APPELLANT ON THIS GROUND IS ALLOWED. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S 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 BUSIN ESS.' 4.1. THE LD DR FOR THE REVENUE HAS SUBMITTED BEFORE US THAT A SUM OF RS. 51,67,107/- INCURRED TOWARDS SCHOLARSHIP EXPENS E 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 A ND 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. ITA NO.1314/14 M/S SHREE BAIDYANATH AYURVED BHAWAN PVT. LTD. 4 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 FO R SOME SPECIFIED PERIOD AFTER THE COMPLETION OF THEIR EDUCATION. THE ASSESS E 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. ITA NO.5511/MUM/2000 DATED 30.09.2004 IS VERY MUCH APPL ICABLE IN THIS CASE. IN ADDITION TO THIS, THE LD. AR ALSO RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF M/S GOURNITYE TE A & 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 T HE PRESIDENT ONE CANNOT JUMP TO THE CONCLUSION THAT APPOINTMENT ITSELF IS AN APPOINTMENT SMACKS OF NEPOTISM. IT IS SETTLED POSIT ION OF LAW THE COMPANY PARTICULARLY BEING A LIMITED ONE AND A SEPA RATE JURISTIC ENTITY ANY DIRECTOR, SHAREHOLDER OR ANY OFFICER FOR THAT MATTER (ARE) IS COMPLETELY DIFFERENT ENTITY AND THEIR INTEREST CANN OT BE EQUATED WITH THE INTEREST OF THE COMPANY. IT APPEARS THAT SUBSEQUENTLY ON FACT THAT SAID S. K ALYANI AFTER COMPLETION OF THE HIGHER STUDY FOR FIVE YEARS JOINE D 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 HIG HER STUDY DURING HIS TRAINEESHIP AND IT WAS RELATABLE AND IS STILL R ELATED TO THE EXPENSES OF THE COMPANY'S BUSINESS AS SUCH DEDUCTIO N CAN SAFELY BE ALLOWED UNDER SECTION 37(1) OF THE SAID ACT. 4.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMI SSIONS OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY LD. AR FOR THE ASSE SSEE ARE SUPPORTED BY ITA NO.1314/14 M/S SHREE BAIDYANATH AYURVED BHAWAN PVT. LTD. 5 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 REASONE D 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 D ISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23/022 017. SD/ - ( A.T.VARKEY ) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; ! DATED 23/02/2017 ' $%& /PRAKASH MISHRA , 0 . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) % & , / ITAT, 1. / THE APPELLANT- DCIT, CIRCLE-12, KOLKATA 2. / THE RESPONDENT.- M/S SHREE BAIDYANATH AYURVED BHAWAN PVT. LTD. 3. 1 ( ) / THE CIT(A), KOLKATA. 4. 1 / CIT 5. 23 4 0056 , 56 , / DR, ITAT, KOLKATA 6. 4 78 / GUARD FILE. 2 0 //TRUE COPY//