SHIMNIT INFRASTRUCTURE P. LTD, MUMBAI V. DCIT 3(3), MUMBAI

ITA 1766/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7790 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 05-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Business expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1766/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. SHIMNIT INFRASTRUCTURE P. LTD. DCIT 3(3) 8TH FLOOR, REGENT CHAMBERS MUMBAI NARIMAN POINT, MUMBAI 400021 VS. PAN - AABCS 1733 L APPELLANT RESPONDENT APPELLANT BY: NONE RESPONDENT BY: SHRI JITENDRA YADAV O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- VII, MUMBAI DATED 21.12.2009. 2. ASSESSEE HAS RAISED ONE GROUND OF ALLOWANCE OF EDUC ATION EXPENSES OF ` 10,18,041/- INCURRED ABROAD ON DIRECTORS DAUGHTER FOR SPECIALISED EDUCATION IN MANAGEMENT TRAINING WHICH WAS DISALLOW ED BY THE A.O. AND CONFIRMED BY THE CIT(A). 3. THE CASE WAS POSTED EARLIER ON 25 TH JANUARY 2011 WHEREIN THE ASSESSEE SOUGHT ADJOURNMENT ON THE PRETEXT THAT THE OPERATIONS OF THE COMPANY ARE BEING SHIFTED FROM MUMBAI TO HIMACHAL P RADESH AND WANTED PERIOD 30 TO 40 DAYS. ACCORDINGLY THE CASE WAS POST ED ON 23 RD MARCH 2011 WHICH WAS ACCEPTED BY THE ASSESSEE. AGAIN WHEN THE CASE WAS TAKEN UP FOR HEARING ON 23 RD MARCH 2011 ASSESSEE AGAIN SOUGHT ADJOURNMENT FOR T HE SAME REASON THAT THE ACCOUNTANT HAS GONE TO HIMACHA L PRADESH. THEREFORE IT FELT THAT THERE IS NO NECESSITY FOR ADJOURNING T HE CASE AGAIN AS IT SEEMS THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING THE APPEAL FILED. NO PERSON WAS ALSO PRESENT IN THE COURT ROOM WHEN THE CASE WA S CALLED UPON. IN VIEW OF THIS THE CASE HAS TAKEN UP EXPARTE QUA ASSESSEE. ITA NO. 1766/MUM/2010 M/S. SHIMNIT INFRASTRUCTURE P. LTD. 2 4. BRIEFLY STATED, THE ASSESSEE HAS CLAIMED EXPENDITUR E OF ` 10,18,041/- AS TRAINING FEES FOR ONE OF ITS DIRECTORS DAUGHTER . IT WAS CLAIMED DURING THE ASSESSMENT PROCEEDINGS THAT THE DAUGHTER OR THE DIR ECTOR WAS ADMITTED AS MANAGEMENT TRAINEE IN THE COMPANY AND CONSEQUENTLY WAS SENT ABROAD FOR MANAGEMENT STUDIES. AN MOU WAS ENTERED WITH THE DAU GHTER OF THE DIRECTOR TO SERVE THE COMPANY FOR 5 YEARS IN THE CA PACITY OF H.R. MANAGER AFTER COMPLETION OF HEIR STUDIES ABROAD. SINCE, THE DAUGHTER OF THE DIRECTOR WAS THE ONLY PERSON HIRED BY THE COMPANY AS MANAGEM ENT TRAINEE AND NEITHER BEFORE NOR AFTER ANY OTHER PERSON WAS EVER HIRED AS MANAGEMENT TRAINEE, THE AO CONDUCTED THAT THE EXPENDITURE WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND ACCORDINGLY DISALLOWED THE SAME. THE CIT(A) AFTER EXAMINING THE MOU SIGNED BETWEEN THE COMPANY AND THE DAUGHTER OF THE DIRECTOR WAS OF THE OPINION THAT THE EXPENDITURES WERE PURELY PERSONAL IN NATURE INCURRE D ON BEHALF OF THE DIRECTOR OF THE COMPANY, HENCE SUCH AMOUNT CANNOT B E ALLOWED UNDER SECTION 37(1) OF THE ACT. HE ALSO RELIED ON THE DEC ISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAMBANDAM SPG. MILLS (P) LTD. 133 TAXMAN 667. 5. AFTER HEARING THE LEARNED D.R. WE ARE OF THE OPINIO N THAT THE EXPENDITURE CLAIMED ON MS. SHIMUL NITIN SHAH TOWARD S HERE TRAINING AS MANAGEMENT TRAINEE CANNOT BE ALLOWED AS EXPENDITURE OF THE COMPANY. IN THE CASE OF SAKAL PAPERS PVT. LTD. VS. CIT 114 ITR 256 THE HON'BLE BOMBAY HIGH COURT HAS CONSIDERED THAT MERELY BECAUSE THERE IS APPOINTMENT AND CONTACT OR BOND TAKEN FROM THE TRAINEE THE EXPENDIT URE WHICH WAS OTHERWISE PROPER CANNOT BE DISALLOWED. IN THIS CASE MS. SHIMUL NITIN SHAH IS NOT AN EMPLOYEE AND THERE IS NO SPECIFIC REASON WHY SHE HAS BEEN SELECTED AND SENT ABROAD EXCEPT THAT SHE IS DAUGHTE R OF THE DIRECTOR. THEREFORE, THE FACTS MORE OR LESS FALL UNDER THE JU DGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE CIT VS. HINDUSTAN HOS IERY INDUSTRIES 209 ITR 383. IN THE ABOVE SAID CASE THE ASSESSEE FIRM W AS A FAMILY CONCERN OF MOTHER AND HER FOUR SONS. AMONG WHOM V WAS ONE OF T HE SONS. ASSESSEE FIRM CARRIED ON THE BUSINESS OF HOSIERY. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 1976-77 V, WHO WAS 21 YEARS OF AGE WAS SENT TO USA FOR HIGHER ITA NO. 1766/MUM/2010 M/S. SHIMNIT INFRASTRUCTURE P. LTD. 3 STUDIES AND HAD OBTAINED A DEGREE OF BUSINESS MANAG EMENT FROM AN AMERICAN UNIVERSITY. ASSESSEE CLAIMED AN EXPENDITUR E OF ` 60,678/- INCURRED FOR THE TRAINING OF V TO BE ALLOWED AS BUS INESS EXPENDITURE. THE INCOME TAX OFFICER REJECTED THE CLAIM OF THE ASSESS EE ON THE GROUND THAT THE EXPENDITURE WAS PERSON IN NATURE AND NOT A BUSI NESS EXPENDITURE. THE CIT(A) CONFIRMED THE ORDER ON THE GROUND THAT THERE WAS NO NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE AND THE EXPENDITURE IN CURRED. THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE AND ON A REFERENC E REVERSING THE DECISION OF THE TRIBUNAL THE HON'BLE BOMBAY HIGH COURT HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAD NO NEXUS WITH THE BUSI NESS OF THE ASSESSEE AND NOT ALLOWABLE AS BUSINESS EXPENDITURE. THE FACT S ARE SIMILAR TO THE PRESENT CASE. SIMILAR ISSUE WAS ALSO CONSIDERED BY THE ITAT MUMBAI BENCH IN THE CASE OF INTERSIL INDIA LTD. VS. ADDL. CIT 10 1 ITD 85 WHEREIN THE FACTS ARE THAT THE A.O. NOTICED THAT THE ASSESSEE COMPANY CLAIMED DEDUCTION ON ACCOUNT OF STUDY AND TRAINING EXPENSES INCURRED FOR SPONSORING COST OF MANAGEMENT EDUCATION ABROAD IN RESPECT OF R SON O F THE MANAGING DIRECTOR. THE A.O. HELD THAT THE EXPENDITURE IS PER SONAL IN NATURE AND ACCORDINGLY DISALLOWED THE SAME. THE CIT(A) CONFIRM ED THE DISALLOWANCE. ON SECOND APPEAL THE ITAT HELD AS UNDER: - THE EXPENDITURE COULD NOT BE SAID TO BE ENTIRELY W ITHOUT EXTRA COMMERCIAL CONSIDERATIONS. R WAS NOT AN EMPLOYEE OF THE COMPANY AT THE MATERIAL POINT OF TIME AND THERE WS NO MATER IAL THAT HIS SELECTION WAS ON PURE COMMERCIAL CONSIDERATIONS. TH E ASSESSEE SUBMITTED THAT THOUGH NOT AN EMPLOYEE, R WAS REND ERING SERVICES TO THE ASSESSEE-COMPANY FROM THE USA. HOWEVER, THERE W AS NO MATERIAL TO SUPPORT OR EVEN INDICATE THAT HE RENDERED SERVIC ES FROM THE USA. THE ASSESSEE HAD ALSO CATEGORICALLY ACCEPTED THAT R WAS NOT AN EMPLOYEE OF THE ASSESSEE COMPANY. THEREFORE, THE CONCLUSIONS ARRIVED AT BY THE COMMIS SIONER (APPEALS) WERE TO BE APPROVED AND NO INTERFERENCE WAS REQUIRE D IN THE MATTER. THE EXPENSES INCURRED ON THE FOREIGN EDUCATION OF R WHOSE ONLY CONNECTION WITH THE ASSESSEE-COMPANY AT THE RELEVAN T POINT OF TIME WAS THAT HE WAS SON OF THE MANAGING DIRECTOR OF THE COMPANY, COULD NOT BE ALLOWED AS DEDUCTION IN COMPUTING BUSINESS I NCOME OF THE ASSESSEE-COMPANY. THERE WAS NO INFIRMITY IN THE COM MISSIONER (APPEALS) CONFIRMING THE DISALLOWANCE. ITA NO. 1766/MUM/2010 M/S. SHIMNIT INFRASTRUCTURE P. LTD. 4 IN VIEW OF THIS IT CANNOT BE HELD THAT THE EXPENDIT URE INCURRED ON THE DAUGHTER OF THE DIRECTOR FOR FOREIGN TRAINING AS BU SINESS EXPENDITURE UNDER SECTION 37(1). GROUND IS REJECTED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH 2011. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31 ST MARCH 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VII, MUMBAI 4. THE CIT III, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.