M/s. Shree Lakhi Metals and Steels Pvt. Ltd., , Kolkata V. Principal CIT, Central - 3, Kolkata , Kolkata

ITA 523/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4804 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 27-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Assessee Lawyers: S M SURANA
• Keywords: Revision of order; Business expenditure; Source of fund; Tangible material
• Section: 143(3); 37(1); 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA A BENCH, KOLKATA (BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER) I.T.A NO. 523/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S. SHREE LAKHI METALS AND STEELS PVT. LTD.........................APPELLANT 3 RD FLOOR 8C, MAHARSHI DEVENDRA ROAD KOLKATA 700 007 [PAN : AAKCS 8597 F] VS. PR. COMMISSIONER OF INCOME TAX, CENTRAL - 3, KOLKATA......................................................RESPONDENT APPEARANCES BY: SHRI S.M. SURANA, ADVOCATE, APPEARED ON BEHALF OF THE ASSESSEE . SHRI RADHEY SHYAM, CIT D/R. APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : FEBRUARY 20 TH , 2019 DATE OF PRONOUNCING THE ORDER : MAY 17 TH , 2019 ORDER PER S.S. GODARA, JM :- THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2013-14 ARISES AGAINST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX - 3, KOLKATA PASSED IN CASE NO. F. NO. PR. CIT- 3/HQRS.-3/KOL/U/S263/SHREE LAKHI METALS AND STEEL PVT. LTD./2017-18, INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IT TRANSPIRES AT THE OUTSET THAT THE PCITS SECTION 263 SHOW CAUSE NOTICE DATED 21/02/2018 HAD SOUGHT TO REVISE THE REGULAR ASSESSMENT IN ISSUE FRAMED IN THE ASSESSEES CASE ON THREE ISSUES I.E., DIRECTORS OVERSEAS STUDY EXPENSE OF RS.15,41,632/- IS NOT ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37 OF THE ACT, COMMISSION PAID OF RS.15,87,200/- ALLOWED WITHOUT ENQUIRY AND THE ASSESSING OFFICERS FAILURE IS NOT VERIFYING SOURCE OF FUNDS AMOUNTING TO RS.40,03,079/- AND RS.83,70,818/- USED IN PURCHASING RESIDENTIAL FLAT AND LAND; RESPECTIVELY. 3. MR. SURANA, INFORMS US DURING THE COURSE OF HEARING THAT THE ASSESSEE WISHES TO PRESS FOR ONLY THE FIRST ISSUE OF ALLOWABILITY OF ITS DIRECTORS OVERSEAS STUDY EXPENSE SINCE THE ASSESSING OFFICERS CONSEQUENTIAL ASSESSMENT FRAMED ON 30/12/2018 HAS NOT DISALLOWED THE LATTER TWO CLAIMS (SUPRA). HE FILES COPY OF THE SAID ASSESSMENT ORDER ON 2 I.T.A NO. 523/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S. SHREE LAKHI METALS AND STEELS PVT. LTD RECORD. WE THEREFORE PROCEED TO DEAL WITH THE SOLE SURVIVING ISSUE OF ALLOWABILITY OF ASSESSEES DIRECTOR FOREIGN STUDY EXPENSE. 4. THIS ASSESSEE IS A COMPANY TRADING IN IRON AND STEEL. IT FILED ITS RETURN DECLARING INCOME OF RS.7,61,120/-. THE ASSESSING OFFICER COMPLETED AS REGULAR ASSESSMENT ON 17/03/2016 DISALLOWING VARIOUS SETS OF EXPENDITURE OF TRAVELLING, CAR RUNNING AND MAINTENANCE AND ADVERTISEMENT INVOLVING VARYING SUMS. CASE FILE SUGGESTS THAT THE PCIT THEREAFTER ISSUED SECTION 263 REVISION SHOW CAUSE NOTICE ON THE ABOVE THREE ISSUES. HIS MAIN GROUND REQUIRING OUR INSTANT ADJUDICATION IS THAT THE ASSESSEE HAD INCURRED FOREIGN STUDY EXPENDITURE OF ITS DIRECTOR MR. KAUSHAL CHANDGOTHIA AMOUNTING TO RS.15,41,362/- WHICH HAD WRONGLY BEEN ACCEPTED AS ALLOWABLE BUSINESS EXPENDITURE UNDER SECTION 37 OF THE ACT. HE TERMED THE ASSESSING OFFICERS REGULAR ASSESSMENT AS ERRONEOUS CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE THEREFORE IN OTHER WORDS. THIS TAXPAYER FILED ITS WRITTEN SUBMISSIONS DATED 28/02/2018 CONTESTING THE PCITS REVISION PROPOSAL. THE SAME STANDS DECLINED IN THE REVISION ORDER UNDER CHALLENGE AS FOLLOWS:- 4. I HAVE CONSIDERED THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE AND THE FACTS ON RECORD. IT IS OBSERVED THAT THE ASSESSEE IS ENGAGED IN TRADING OF IRON & STEEL. THE ASSESSEE IN REPLY TO SHOW CAUSE NOTICE SUBMITTED THAT PROPER ENQUIRY WAS CONDUCTED BY A.O WHEREIN THE AO HAS SPECIFICALLY CALLED FOR THE DETAILS OF DIRECTOR'S STUDY EXPENSES INCURRED BY THE ASSESSEE WHICH WERE DULY REPLIED FOR BY THE ASSESSEE WHEREIN DETAILS OF STUDY EXPENSES ALONG WITH BOARD RESOLUTION DATED 18-05-2012 APPROVING SUCH EXPENSES, ALONG WITH SUPPORTING BILLS ISSUED BY SHEFFIELD HALLAM UNIVERSITY, UK AND SERVICE AGREEMENT DATED 31-03-2009 WERE SUBMITTED BEFORE THE AO IN THE COURSE OR ASSESSMENT PROCEEDINGS U/S143(3) OF THE ACT. IT WAS CLAIMED BY THE ASSESSEE THAT A.O HAS DULY VERIFIED ALL THE STUDY EXPENSES AND ALLOWED THE SAME AFTER MAKING NECESSARY ENQUIRES DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT. IT WAS ALSO CLAIMED THAT ASSESSEE HAS INCURRED THESE EXPENSES DURING THE A. Y. 2013-14 FOR STUDY OF DIRECTOR OF ASSESSEE COMPANY MR. KAUSHAL CHANDGOTHIA AT SHEFFIELD HALLAM UNIVERSITY, UK AND COMPLETING MBA COURSE. IT WAS CLAIMED THAT SAID EXPENSES WERE BUSINESS EXPENSES ALLOWABLE U/S 37(1) OF THE ACT AS THE SAID EXPENSES WERE INCURRED FOR OBJECTS OF THE ASSESSEE COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND HENCE THE SAME SHOULD BE ALLOWED AS BUSINESS EXPENSES. IT WAS ALSO SUBMITTED THAT THE ASSESSMENT ORDER U/S 143(3) WAS PASSED BY THE AO AFTER DUE APPLICATION OF MIND, THUS THE SAME CANNOT BE CALLED AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE AND HENCE THE SAME COULD NOT BE INTERFERED BY LEARNED PR. CIT BY INVOKING REVISIONARY POWERS U/S. 263 OF THE ACT. ON THE STRENGTH OF THE ABOVEMENTIONED BOARD RESOLUTION AND INVOICES ISSUED BY SHEFFIELD HALLAM UNIVERSITY, UK AND SERVICE AGREEMENT DATED 31-03-2009, IT IS CLAIMED BY THE ASSESSEE THAT THE SAID EXPENSES INCURRED ON STUDY OF SAID NEWLY APPOINTED DIRECTOR NAMELY MR. KAUSHAL CHANDGOTHIA AT SHEFFIELD HALLAM UNIVERSITY, UK ARE BUSINESS EXPENSES OR THE ASSESSEE COMPANY WHICH ARE WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS OF THE ASSESSEE COMPANY SATISFYING THE MANDATE OF SECTION 37(1) OF THE ACT. NO APPOINTMENT LETTER ISSUED BY ASSESSEE COMPANY IN FAVOUR OF SAID MR. KAUSHAL CHANDGOTHIA IS FILED. NO DOCUMENT IS PLACED ON RECORD TO REFLECT WHAT ARE THE ROLES, RESPONSIBILITIES AND JOB PROFILE OF THE SAID DIRECTOR, MR. KAUSHAL CHANDGOTHIA. THE PERIOD OF APPOINTMENT OF SAID MR. KAUSHAL CHANDGOTHIA IS ALSO NOT ON RECORD AND WHETHER IT WILL EXTEND BEYOND HIS PERIOD OF STUDY AT SHEFFIELD HALLAM UNIVERSITY. UK IS ALSO NOT ON RECORD. IT IS ALSO NOT ON RECORD AS TO THE COMMITMENT/BOND EXECUTED BY SAID MR. KAUSHAL CHANDGOTHIA, DIRECTOR TO SERVE THE ASSESSEE COMPANY EXCLUSIVELY POST HIS EDUCATION FOR CERTAIN PERIOD OF TIME SO THAT THE ASSESSEE COMPANY 3 I.T.A NO. 523/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S. SHREE LAKHI METALS AND STEELS PVT. LTD CAN RECOUP ITS EXPENSES ON HIS EDUCATION AND REAP TILE BENEFITS OF HIS EDUCATION FOR COMPANY'S BUSINESS POST COMPLETION OF HIS EDUCATION WITH SHEFFIELD HALLAM UNIVERSITY, UK FOR CERTAIN NUMBER OF YEARS. EVEN BUSINESS PLANS TO DEVELOP THE ASSESSEE COMPANY AND ROLE WHICH MR. KAUSHAL CHANDGOTHIA, DIRECTOR AFTER COMPLETION OF HIS EDUCATION IN UK CAN PLAY IN DEVELOPING THE ASSESSEE COMPANY'S BUSINESS WERE SUBMITTED. NO VISION STATEMENTS/ PROJECTIONS OF THE FUTURE PLANS OF THE ASSESSEE COMPANY'S BUSINESS WERE PLACED. EVEN WHAT HAPPENED POST COMPLETION OF EDUCATION OF SAID MR. KAUSHAL CHANDGOTHIA IN UK WAS NOT ON RECORD AS TO WHETHER HE CAME BACK TO INDIA AND JOINED THE ASSESSEE COMPANY TO PLAY A LARGER ROLE TO ENHANCE BUSINESS OF THE ASSESSEE COMPANY WAS NOT PUT ON RECORD BY THE ASSESSEE ON PERUSAL OF THE AUDITED FINANCIAL STATEMENTS, IT COULD NOT BE FOUND THAT ANY REMUNERATION WAS PAID TO THE SAID DIRECTOR, MR. KAUSHAL CHANDGOTHIA DURING THE YEAR UNDER CONSIDERATION AS NO SALARY IS FOUND DEBITED IN THE AUDITED P&L ACCOUNT EVEN DIRECTORS FEE PAID FOR ATTENDING BOARD MEETINGS ALSO DID NOT FIND MENTION IN THE PROFIT AND LOSS ACCOUNT. IT IS ALSO NOT ON RECORD AS TO WHAT REIMBURSEMENTS/DAMAGES WHICH THE ASSESSEE WILL BE ENTITLED TO RECOVER FROM SAID MR. KAUSHAL CHANDGOTHIA IN CASE HE BREACHES HIS CONTINUATION TO SERVE THE ASSESSEE COMPANY POST COMPLETION OF HIS EDUCATION WITH SHEFFIELD HALLAM UNIVERSITY, UK. EVEN COURSE CONTENT OF THE MBA COURSE BEING STUDIED BY SAID MR. KAUSHAL CHANDGOTHIA WITH SHEFFIELD HALLAM UNIVERSITY, UK AND ITS CORRELATION WITH THE ASSESSEE'S BUSINESS WAS NOT BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE AO. THE SAID EXPENSES OF RS. 15,41,632/- WERE REFLECTED BY THE ASSESSEE UNDER THE HEAD 'DIRECTOR STUDY EXPENSES' IN THE AUDITED FINANCIAL STATEMENTS AS ALSO BEFORE THE AO IT WAS CLAIMED THAT THESE EXPENSES ARE TOWARDS STUDY OF THE SAID DIRECTOR, BUT THESE EXPENSES ARE PERTAINING TO THE FORMAL EDUCATION OF MR. KAUSHAL CHANDGOTHIA, DIRECTOR WHICH WILL LEAD TO THE AWARD OF MBA DEGREE FROM UK IN FAVOUR OF MR. KAUSHAL CHANDGOTHIA ON THE SUCCESSFUL COMPLETION OF EDUCATION PROGRAMME. THE ASSESSEE HAS USED THE NOMENCLATURE OF THESE HEAD OF EXPENSES AS 'DIRECTOR STUDY EXPENSES' ILL THE BOOKS OF ACCOUNTS AND AUDITED FINANCIAL STATEMENTS WHICH ARE THE EDUCATION EXPENSES INCURRED BY THE ASSESSEE COMPANY WHICH WILL LEAD TO AWARD OF FORMAL MBA DEGREE IN FAVOUR OF MR. KAUSHAL CHANDGOTHIA BY SHEFFIELD HALLAM UNIVERSITY, UK. THE DICTIONARY MEANING OF THE WORD VIZ. EDUCATION OR STUDY IS DEFINED AS THE SYSTEM OF TEACHING PEOPLE, USUALLY AT A SCHOOL OR COLLEGE. THUS, AS COULD BE SEEN THERE IS A VAST DIFFERENCE IN THE MEANING OF EDUCATION AND TRAINING, WHILE EDUCATION IS MORE CONCERNED WITH FORMAL EDUCATION AT SCHOOL OR COLLEGE LEADING TO AWARD OF DEGREE ETC IN FAVOUR OF PUPIL WHICH PERMANENTLY ENHANCES THE INTELLECTUAL TRAIT OF A PERSON, WHILE TRAINING IS FOR IMPROVING SKILLS RELATED TO A JOB. IN THIS CASE, THE EXPENSES WERE INCURRED FOR FORMAL EDUCATION LEADING TO FORMAL DEGREE BEING MBA AWARDED IN FAVOUR OF MR. KAUSHAL CHANDGOTHIA. THE ABOVE EXPENSES INCURRED BY THE ASSESSEE WHICH DEFINITELY REQUIRED GREATER SCRUTINY BY THE AO BEFORE ALLOWING THE SAME AS BUSINESS EXPENSES OF THE ASSESSEE AND TO SEE THAT MANDATE OF SECTION 37(1) OF THE ACT IS SATISFIED OR NOT. SINCE, RELEVANT AND TANGIBLE MATERIAL WAS NOT PLACED BEFORE THE AO BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE OPINION FORMED BY THE AO COULD NOT HAVE BEEN PROPER IN THE ABSENCE OF RELEVANT MATERIAL ON RECORD AS THE AO COULD NOT HAVE MADE PROPER VERIFICATIONS. THUS, IN THE ABSENCE OF RELEVANT AND VITAL INFORMATION AS DETAILED ABOVE, THE AO COULD NOT HAVE MADE PROPER VERIFICATIONS WHICH OUGHT TO HAVE BEEN MADE TO HAVE COME TO THE CONCLUSION THAT THESE ARE BUSINESS EXPENSES ALLOWABLE U/S 37(1) BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE, WHICH HAS CERTAINLY RENDERED THE ASSESSMENT ORDER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE AND THUS AMENABLE TO INTERFERENCE BY PR. CIT BY INVOCATION OF REVISIONARY POWERS U/S 263 AS THE SAID EXPENSES STOOD ALLOWED AS BUSINESS EXPENSE DESPITE BEING ABSENCE OF RELEVANT AND TANGIBLE MATERIAL ON RECORD BEFORE THE AO. THE ENQUIRY CONDUCTED BY THE A.O WAS CLEARLY VITIATED DUE TO ABSENCE OF SUCH CRUCIAL AND VITAL INFORMATION ON RECORD. IN THE ABSENCE OF SUCH CRUCIAL & VITAL INFORMATION ON RECORD AND BASED ON MATERIAL WHICH WAS NOT ON RECORD, THE AO COULD NOT HAVE FORMED AN OPINION AND HAVE COME TO THE CONCLUSION THAT THESE ARE BUSINESS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS SATISFYING THE MANDATE OF SECTION 37(1) OF THE ACT. MAKING THE ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE LIABLE TO REVISIONARY POWERS U/S 263 OF THE ACT BY PR. CLT. 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL CONTENTIONS AGAINST AND IN FAVOUR OF THE PCITS ACTION ASSUMING SECTION 263 REVISION JURISDICTION FOR DISALLOWING 4 I.T.A NO. 523/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S. SHREE LAKHI METALS AND STEELS PVT. LTD THE ASSESSEES DIRECTORS STUDY EXPENDITURE CLAIMED AS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. THERE IS HARDLY ANY DISPUTE ABOUT THE SETTLED LEGAL PROPOSITION IN THE HONBLE APEX COURTS LANDMARK DECISION MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX [2000] 243 ITR 83 THAT SECTION 263 REVISION EXERCISE HAS TO SIMULTANEOUSLY SATISFY TWIN TESTS OF THE ASSESSMENT BEING ERRONEOUS AS WELL AS CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE. THEIR LORDSHIPS MAKE IT CLEAR THAT EACH AND EVERY LOSS OF THE REVENUE AS A CONSEQUENCE TO THE ORDER OF AN ASSESSING AUTHORITY CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE IF THE SAID AUTHORITY ADOPTS ONE OF THE POSSIBLE VIEWS OR WHERE TWO VIEW ARE POSSIBLE AND THE ASSESSING OFFICER TAKES ONE OF THE TWO VIEWS THAT WHICH THE COMMISSIONER OF INCOME TAX DOES NOT AGREE. WE KEEP IN MIND THE OTHER SETTLED LEGAL PROPOSITIONS TO DEAL WITH THE RIVAL PLEADINGS. 5.1. LEARNED CIT-DR, STRONGLY SUPPORTS THE PCITS VIEW THAT THE ASSESSEES DIRECTORS OVERSEAS STUDY EXPENSES ARE NOT ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37 OF THE ACT AS IT HAD NOT PLACED ALL THE REQUISITE DETAILS SUMMARISED IN ABOVE EXTRACTED DISCUSSION AND THEREAFTER, THE ASSESSING OFFICER HAD ERRED IN ACCEPTING THE CORRESPONDING EXPENDITURE CLAIMED. HE CLARIFIES THAT THE PCIT HAS ONLY RESTORED THE ISSUE BACK TO THE ASSESSING OFFICERS FILE FOR FRESH ADJUDICATION AS PER LAW. WE FIND NO MERIT IN THE REVENUES INSTANT ARGUMENTS. CASE RECORDS SUGGEST THAT THE ASSESSEE HAS EXECUTED ITS SERVICE AGREEMENT WITH THE ABOVE DIRECTOR SHRI KAUSHAL CHANDGOTHIA WAY BACK ON 31/03/2009 IN LIEU OF RS.35,000/- PER MONTH REMUNERATION/SALARY CLAIMED/ALLOWED AS A BUSINESS EXPENDITURE IN ALL THESE INTERVENING ASSESSMENT YEARS. THERE IS FURTHER NO QUARREL THAT THE SAID DIRECTOR HAD AGREED TO WORK EXCLUSIVELY FOR THE ASSESSEE ONLY. WE NOTICE IN THIS BACKDROP THAT THE HONOURABLE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF GOURNITYE TEA & INDUSTRIES VS. CIT IN ITA NO. 249 OF 2005; DT. 24/06/2010 , ALLOWS SIMILAR CLAIM OF DIRECTORS STUDY EXPENDITURE AS FOLLOWS:- WHILE GOING THROUGH THE GAMUT OF THE MATTER AND CONSIDERING THE CONTENTION OF THE LEARNED COUNSEL FOR THE PARTIES TWO FOLLOWING POINTS ARE POSED BEFORE US FOR ANSWERING, AND TO DECIDE THIS APPEAL;- I) WHETHER THE LEARNED TRIBUNAL ON THE GIVEN FACTS AND MATERIALS HAS HELD THAT 50 PER CENT OF THE SUM OF RS.3,00,783/- SHOULD BE TREATED TO BE THE PERSONAL EXPENDITURE ? II) WHETHER THE EXPENDITURE OF A SUM OF RS.14,27,531/- INCURRED FOR SENDING 'WHETHER ON THE FACTS AND ON THE MATERIALS' THE LEARNED TRIBUNAL WAS CORRECT IN ITS CONCLUSION THAT THE SUM OF 5 I.T.A NO. 523/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S. SHREE LAKHI METALS AND STEELS PVT. LTD RS.14,27,531/- INCURRED ON ACCOUNT OF FOREIGN STUDIES OF S.KALYANI BEING THE SON OF PRESIDENT IS NOT RELATED TO THE BUSINESS OF THE COMPANY ? BEFORE WE DISCUSS THIS MATTER WE SHALL TAKE NOTE OF THE JUDICIAL PRONOUNCEMENT ON THIS ISSUE AS TO WHETHER EXPENSES INCURRED ON ACCOUNT OF THE TRAINING COURSE IN ABROAD OF THE EMPLOYEE OR FOR THAT MATTER ANY OFFICER OF ANY CONCERN, CAN BE TREATED TO BE A BUSINESS EXPENDITURE SO AS TO GET THE DEDUCTION UNDER SECTION 37 OF THE SAID ACT. IN THIS CONTEXT, MADHYA PRADESH HIGH COURT IN CASE OF COMMISISONER OF INCOME-TAX VS.KOHINOOR PAPER PDOCUTS (REPORTED IN 226 ITR 220) HAS HELD THAT ANY EXPENDITURE OR ANY EXPENSES INCURRED FOR EDUCATION AND TRAINING OF A PARTNER OF A PARTNERSHIP FIRM IS A BUSINESS EXPENDITURE AND THIS CAN BE CONSIDERED AS ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE SAID ACT. IN THAT CASE ONE OF THE THREE PARTNERS OF THE ASSESSEE FIRM AT THE TIME OF CONSTITUTION OF THE FIRM WAS A STUDENT OF THE B.SC. COURSE. AFTER OBTAINING M.SC. DECREE LATER ON HE PROCEEDED TO USA FOR HIGHER STUDIES AND FOR THE ASSESSMENT YEARS 1983- 84, 1984-85 AND 1985-86 THE FIRM CLAIMED DEDUCTION OF EXPENSES INCURRED IN EDUCATION AS BUSINESS EXPENDITURE. THE HIGH COURT OF MADHYA PRADESH UPHELD THE CONCERNED TRIBUNAL'S VIEW THAT THE FOREIGN TOUR EXPENSES OF THE PARTNER IN QUESTION FOR HIGHER STUDY FOR THE PURPOSE OF BUSINESS AND ALLOWED THE NECESSARY DEDUCTION. IN THE CASE OF SAKAL PAPERS PVT. LTD. V. COMMISSIONER OF INCOME-TAX, POONA (REPORTED IN 114 ITR 256) THE BOMBAY HIGH COURT HAS VIEWED THAT THE RELATION OF THE DIRECTORS OF A PRIVATE LIMITED COMPANY WHO WAS SERVING IN THE COMPANY HAD UNDERGONE FOR TRAINING COURSE AND FOR ACQUIRING HIGHER STUDY FOR THE BENEFIT OF THE COMPANY CANNOT BE AN OBLIQUE MOTIVE AND EXPENSES INCURRED FOR THIS HIGHER STUDIES WAS ACCEPTED AS BUSINESS EXPENDITURE AS SUBSEQUENTLY IN THAT CASE THE SAID RELATION OF THE DIRECTORS CAME BACK AND JOINED THE COMPANY AND SERVED AFTER OBTAINING HIGHER STUDY. IN THE CASE OF HINDUSTHAN ALUMINIUM CORPORATION LIMITED V. COMMISSIONER OF INCOME-TAX (REPORTED IN 159 ITR 673,CALCUTTA) THIS COURT HELD THAT TWENTY-EIGHT OFFICERS OF THE ASSESSEE COMPANY WERE SENT FOR USA FOR PRACTICAL TRAINING IN RUNNING THE ALUMINUM FACTORY. BEFORE THEY HAD GONE FOR ABROAD TRAINING THEY ENTERED INTO AN AGREEMENT WITH THE COMPANY THAT ON RETURN THEY WOULD AT LEAST SERVE FOR FIVE YEARS AT A SETTLED REMUNERATION. THEREFORE, THIS EXPENDITURE INCURRED ON ACCOUNT OF THEIR PRACTICAL TRAINING WAS VIEWED BY THIS COURT AS BUSINESS EXPENDITURE. HENCE, THE SAME WAS DEDUCTED UNDER SECTION 37 OF THE SAID ACT. ON CAREFUL READING OF ALL THOSE DECISIONS WE COULD FIND THAT ANY EXPENDITURE INCURRED ON ACCOUNT OF TRAINING AND IMPARTING HIGHER EDUCATION IN ABROAD OR EVEN INSIDE THE COUNTRY ARE TREATED TO BE BUSINESS EXPENDITURE PROVIDED AFTER COMPLETION OF THEIR STUDY THEY HAVE CONTRIBUTED TO THE BUSINESS ACTIVITIES OF THE ASSESSE COMPANY IRRESPECTIVE OF THE FACT WHETHER THE COMPANY HAS CONTINUED BUSINESS ACTIVITIES OR EARNED PROFIT. IN THE BACKGROUND OF THE AFORESAID POSITION OF LAW WE NOW EXAMINE ABOUT THE FACT HEREIN. AS WE HAVE RECORDED SO ALSO IT IS ADMITTED POSITION THAT THE COMPANY BY VALID RESOLUTION OF THE BOARD DATED 21.12.1998 HAD APPOINTED A TRAINEE AND THIS RESOLUTION WAS NEVER QUESTIONED BY ANYONE ELSE. THEREFORE, IT WAS NOT OPEN FOR THE REVENUE AUTHORITY TO QUESTION THE LEGALITY, VALIDITY AND PROPRIETY OF THE SAME. THIS APPOINTMENT OF TRAINEE HAS TO BE ACCEPTED. WE ARE OF THE VIEW THAT THE LEARNED TRIBUNAL HAS MADE A LITTLE GUESSWORK IGNORING THE AFORESAID RESOLUTION APPOINTING HIM AS A TRAINEE. SUBSEQUENTLY BY ANOTHER RESOLUTION TAKEN ON 21.9.1999 IT HAS BEEN DECIDED THAT THE SAID S. KALYANI WHO HAS BEEN APPOINTED AS TRAINEE SHALL BE SENT TO USA FOR HIGHER STUDY TO ACQUIRE SPECIAL KNOWLEDGE IN MODERN TECHNOLOGY IN THE FIELD OF AGRICULTURE FOR AUGMENTATION OF PRODUCTION, IMPROVEMENT OF QUALITY AND ALSO FOR BETTERMENT OF MARKETABILITY AND PROFITABILITY. HIS DURATION OF STUDY AND TRAINING WAS FOR A PERIOD OF FIVE YEARS. THE BOARD UNANIMOUSLY ADOPTED THAT ENTIRE EXPENDITURE HAS TO BE BORNE BY THE COMPANY AT THE FIRST INSTANCE, HOWEVER, IF THE SAID S. KALYANI ON COMING BACK AFTER COMPLETION OF THE EDUCATION FROM ABROAD WILL BE OBLIGED TO RESUME SERVICE IN THE COMPANY AS A TECHNICAL EXECUTIVE AT LEAST FOR TEN YEARS. IN CASE OF DEFAULT OF THE SAID CONDITION THE SAID S. KALYANI HAS TO PAY BACK THE ENTIRE EXPENSES BORNE BY THE COMPANY WITH INTEREST @18 PER CENT PER ANNUM. 6 I.T.A NO. 523/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S. SHREE LAKHI METALS AND STEELS PVT. LTD IT APPEARS THAT A WRITTEN AGREEMENT WAS SIGNED AND EXECUTED TO THIS EFFECT AND THE SAME WAS PRODUCED BEFORE THE ASSESSING OFFICER, COMMISSIONER OF INCOME TAX(APPEAL) AS WELL AS BEFORE THE TRIBUNAL. THE COMMISSIONER OF INCOME TAX (APPEAL) HAD DULY NOTED THE AFORESAID DOCUMENTS AND ACCEPTED THE SAME. UNFORTUNATELY THE LEARNED TRIBUNAL DID NOT DISCUSS LEGALITY AND VALIDITY OF THOSE DOCUMENTS NOR DISCARDED THE SAME EXPRESSLY AND THE LEARNED TRIBUNAL WENT ON PRESUMING ADVERSELY THAT A SON OF A PRESIDENT CANNOT BECOME A TRAINEE OR EXPENDITURE FOR HIS HIGHER EDUCATION COULD NOT BE TREATED TO BE RELATABLE TO THE EXPENDITURE OF THE COMPANY. WE ARE UNABLE TO ACCEPT THE LOGIC OF THE LEARNED TRIBUNAL PARTICULARLY WHEN WE NOTICED THOSE RESOLUTIONS ARE UNCHALLENGED AND UNIMPEACHABLE AND THOSE HAVE BEEN CARRIED INTO EFFECT THERE IS NO REASON TO DISCARD THE SAME. THOSE DOCUMENTS WERE NOT CREATED, IT WAS A CONTEMPORANEOUS ONE AND PURSUANT TO THE SAID RESOLUTION FOLLOWED BY AN AGREEMENT THE TRAINEE WENT FOR ABROAD TRAINING AND EDUCATION. SIMPLY BECAUSE A TRAINEE HAPPENS TO BE THE SON OF THE PRESIDENT ONE CANNOT JUMP TO THE CONCLUSION THAT APPOINTMENT ITSELF IS AN APPOINTMENT SMACKS OF NEPOTISM. IT IS SETTLED POSITION OF LAW THE COMPANY PARTICULARLY BEING A LIMITED ONE AND A SEPARATE JURISTIC ENTITY ANY DIRECTOR, SHAREHOLDER OR ANY OFFICER FOR THAT MATTER (ARE) IS COMPLETELY DIFFERENT ENTITY AND THEIR INTEREST CANNOT BE EQUATED WITH THE INTEREST OF THE COMPANY. IT APPEARS THAT SUBSEQUENTLY ON FACT THAT SAID S. KALYANI AFTER COMPLETION OF THE HIGHER STUDY FOR FIVE YEARS JOINED 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 HIGHER STUDY DURING HIS TRAINEESHIP AND IT WAS RELATABLE AND IS STILL RELATED TO THE EXPENSES OF THE COMPANY'S BUSINESS AS SUCH DEDUCTION CAN SAFELY BE ALLOWED UDNER SECTION 37(1) OF THE SAID ACT. THE DECISION WOULD HAVE BEEN DIFFERENT, HAD HE NOT JOINED AFTER COMPLETION OF HIS EDUCATION IN THE COMPANY AND REALISATION OF THE AMOUNT WITH INTEREST @18 PER CENT WOULD HAVE BEEN RESORTED TO, THIS EXPENDITURE IN THAT CASE COULD NOT HAVE BEEN BROUGHT WITHIN THE PURVIEW OF BUSINESS EXPENDITURE. WE ARE OF THE VIEW THAT LEARNED TRIBUNAL UNFORTUNATELY IN SPITE OF ITS ATTENTION BEING DRAWN TO THE AFORESAID DOCUMENTS AT A SUBSEQUENT STAGE ON MISCELLANEOUS APPLICATION AND AT THE INITIAL STAGE, OVERRULED THE SAME AND PROCEEDED IN A DIFFERENT DIRECTION. WE, THEREFORE, ARE INCLINED TO AND HEREBY DELETE THE DISALLOWANCE OF EXPENDITURE INCURRED ON ACCOUNT OF HIGHER EDUCATION IN ABROAD. 6. IT IS THEREFORE CLEAR THAT THE PCITS ASSUMPTION OF SECTION 263 REVISION JURISDICTION IN FACTS OF THE INSTANT CASE SEEKING TO DISALLOW THE ASSESSEES DIRECTORS FOREIGN STUDY EXPENDITURE IS NOT SUSTAINABLE GOING BY THE ABOVE LEGAL POSITION. WE HOLD THAT THE PCIT HAS ERRED IN EXERCISING HIS REVISION JURISDICTION SEEKING TO DISALLOW THE IMPUGNED CLAIM ON MERITS AFTER HOLDING THAT THE ASSESSMENT ORDER ACCEPTING THE ASSESSEES EXPLANATION AMOUNTED TO AN ERRONEOUS ASSESSMENT CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE. THIS ORDER UNDER CHALLENGE IS REVERSED ACCORDINGLY. 7. THIS ASSESSEES APPEAL IS ALLOWED PARTLY IN ABOVE TERMS. KOLKATA, THE 17 TH DAY OF MAY, 2019. SD/- SD/- [J. SUDHAKAR REDDY] [S.S. GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17.05.2019 {SC SPS} 7 I.T.A NO. 523/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S. SHREE LAKHI METALS AND STEELS PVT. LTD COPY OF THE ORDER FORWARDED TO: 1. M/S. SHREE LAKHI METALS AND STEELS PVT. LTD 3 RD FLOOR 8C, MAHARSHI DEVENDRA ROAD KOLKATA 700 007 2. PR. COMMISSIONER OF INCOME TAX, CENTRAL - 3, KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES