M/s. Dharampal Satyapal Sons (P) Ltd., New Delhi V. DCIT, New Delhi

ITA 5918/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3656 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 153A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SH.G.D.AGRAWAL, HONBLE PRESIDENT AND SH.K.N.CHARY, JUDICIAL MEMBER ITA NO. 5918/DEL/2014 (ASSESSMENT YEAR: 2010 -11) ORDER PER K.N.CHARY, JUDICIAL MEMBER THE ASSESSEE PREFERRED THIS APPEAL CHALLENGING THE ORDER DATED 02.07.2014 IN APPEAL NO.26-28/13-14/1179 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL) [IN SHORT CIT(A)]-XXXIII, NE W DELHI FOR ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUND:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LEARNED CIT-A ERRED IN NOT DELETING THE WRONGFUL AD DITION MADE BY LD. AO (FOR ASSESSING OFFICER) AMOUNTING TO RS.25, 89,354/- ERRONEOUSLY TREATING THE FULLY ALLOWABLE BUSINESS E XPENSE AS INADMISSIBLE UNDER SECTION 37 OF THE ACT WHEREAS FR INGE BENEFIT TAX (FBT) STANDS PAID ON RELEVANT PORTION DURING APPLIC ABLE PERIOD AND DULY SUBSTANTIATED BY WRITTEN CONTRACT. 2. BRIEFLY STATED FACTS ARE THAT DURING THE SCRUTIN Y OF THE RETURN OF INCOME OF THE ASSESSEE FILED IN RESPONSE TO THE NOTICE U/S 153A OF THE ACT, IT WAS DHARAMPAL SATYAPAL SONS (P) LTD., C/O-KAPIL GOEL, ADV., F-26/124, SECTOR-7, ROHINI, NEW DELHI-110085. PAN-AABCD9090K VS DCIT, CENTRAL CIRCLE-4, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. KAPIL GOEL, ADV. RESPONDENT BY MS. RACHNA SINGH, CIT DR DATE OF HEARING 2 6 . 1 0 .2017 DATE OF PRONOUNCEMENT 09 . 11 .2017 ITA NO. 5918/DEL/2014 PAGE | 2 FOUND THAT IN THE RELEVANT PREVIOUS YEAR, THE ASSES SEE CLAIMED TO HAVE INCURRED AN EXPENDITURE OF RS.25,89,354/- ON ACCOUN T OF FOREIGN TRAVEL AND EDUCATION OF SH. CHITRESH GUPTA WHO WAS ALLEGEDLY A PPOINTED TO THE POST OF GENERAL MANAGER ON 04.08.2006. FROM THE RELATED PA RTY DISCLOSURE MADE IN THE FINANCIAL STATEMENT OF VARIOUS CONCERNS OF THE ASSESSEE GROUP, AO FOUND THAT SH. CHITRESH GUPTA IS THE SON OF SH. RAJESH GU PTA, WHO WAS ONE OF THE DIRECTORS OF M/S DHARAMPAL SATYAPAL LTD., A CLOSE R ELATION OF SH. RAJIV KUMAR & SH. RAVINDER KUMAR WHO CONTROLLED ALL THE M ANAGEMENT OF THE GROUP. IT WAS EXPLAINED BY THE ASSESSEE THAT THE S AID EXPENDITURE WAS INCURRED ON THE STUDY OF SH. CHITRESH GUPTA FOR BAC HELOR DEGREE IN MECHANICAL ENGINEERING AT SOUTHERN METHODIST UNIVER SITY, USA AND ACCORDING TO THE ASSESSEE, IT WAS USEFUL FOR MEETIN G UPON THE OVER ALL ACTIVITY AND PRODUCTIVITY OF THE ASSESSEES CONCERNS. HOWEV ER, AO OPINED THAT APPOINTMENT OF THE SH. CHITRESH GUPTA TO THE POST O F GENERAL MANAGER AND SENDING HIM TO THE STUDY AT SOUTHERN METHODIST UNIV ERSITY, USA IS A FARCE AND HAS NOTHING TO DO WITH THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY. AO FOLLOWED THE DECISION REPORTED IN CIT VS NAVSARI COTTON & SILK MILLS LTD. [1982] 135 ITR 546 (GUJ.) AND PROCEEDED TO DISALLOW THE SAID EXPENDITURE OF RS.25,90,354/-. IN APPEAL, BY WAY OF IMPUGNED ORDE R, LD.CIT(A) CONFIRMED THE ADDITION ON THE SAME GROUNDS RECORDED BY THE AO . HENCE, THIS APPEAL FILED BY THE ASSESSEE BEFORE US. 3. IT IS THE SUBMISSION OF THE LD.AR THAT SH.CHITRE SH GUPTA IS PRIMARILY INVOLVED IN IMPROVEMENT OF THE MANUFACTURING PROCES S IN UP KEEPING OF MACHINERY & UTILITIES AND ALSO ADVISING THE ASSESSE E ON ISSUES OF STRATEGIC PLANNING OF MANAGEMENT RESULTING IN THE OVER ALL IM PROVEMENT IN THE ITA NO. 5918/DEL/2014 PAGE | 3 ACTIVITY AND THE PRODUCTIVITY OF THE COMPANY. LD.A R FURTHER ASSERTED THAT SH. CHITRESH GUPTA IS NOT RELATED TO ANY DIRECTOR O R MEMBER OF THE COMPANY. LD. AR PLACED RELIANCE IN THE DECISION OF HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF M/S KOSTUB INVESTMENT LTD. VS CIT VIDE ORDER DATED 25.02.2014 IN ITA NO.10/2014 . LD.AR FURTHER SUBMITTED THAT THE REMUNERATION GIVEN TO SH. CHITRESH GUPTA IS AS PER THE CONTRACT OF APPOIN TMENT DATED 04.08.2006 I.E. BELOW THE ACTUAL REMUNERATION BEING OFFERED TO OTHER PROFESSIONAL ON SIMILAR POSITION OF DESIGNATION BY THE COMPANY. 4. PER CONTRA, IT IS THE ARGUMENT OF THE LD. DR THA T CANDIDATE WITHOUT HAVING ANY FORMAL DEGREE AND AT A TENDER AGE WILL N OT BE APPOINTED TO THE POST OF GENERAL MANAGER AND THE APPOINTMENT IS ONLY MAKE BELIEF STORY TO CLAIM THE DEDUCTION EXPENSES OF SH. CHITRESH GUPTA WHO IS ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY. IT IS FURTHER A RGUED BY THE LD.DR IN CIT VS NAVSARI COTTON & SILK MILLS LTD. (SUPRA) THAT CERTAIN TESTS ARE FORMULATED BY HONBLE JURISDICTIONAL HIGH COURT FOR CONSIDERING T HE ALLOWABILITY OF EXPENSES AND IN THIS CASE, THE ASSESSEE FAILED TO MEET THE C RITERIA THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY CONNECTED WITH THE BUSIN ESS OF THE COMPANY. 5. WE HAVE CAREFULLY GONE THOUGH THE RECORD. AS PE R THE ASSESSMENT ORDER, THE AO GATHERED THE INFORMATION THAT THE CAN DIDATE, SH. CHITRESH GUPTA IS SON OF SH. RAJESH GUPTA, ONE OF THE DIRECT ORS OF THE ASSESSEE COMPANY AND A CLOSE RELATION OF SH. RAJIV KUMAR & S H. RAVINDER KUMAR WHO HAVE THE CONTROL OF THE MANAGEMENT OF VARIOUS CON CERNS OF M/S. DHARAMPAL SATYAPAL GROUP. FROM THE BEGINNING, IT APPEARS FRO M THE RECORD THAT THE ASSESSEE HAS BEEN CONTENDING THAT SH. CHITRESH GUPT A IS NOT A RELATION OF ANY DIRECTOR OR MEMBER OF THE COMPANY. THE ASSESSM ENT ORDER DOES NOT ITA NO. 5918/DEL/2014 PAGE | 4 REVEAL AS TO ANY ATTEMPT MADE BY THE AO TO GET CLAR ITY ON THIS ASPECT. IT HAS BEEN CONTENDED ON BEHALF OF THE ASSESSEE THAT AFTER THE COMPLETION OF THE DEDUCTION, SH. CHITRESH GUPTA IS WORKING WITH THE A SSESSEES COMPANY ON A REMUNERATION THAT WAS FIXED BY THE TERMS OF CONTRAC T OF APPOINTMENT DATED 04.08.2006 AND SUCH A REMUNERATION IS BELOW THE ACT UAL REMUNERATION OFFERED TO OTHER PROFESSIONALS APPEARS TO OTHER DES IGNATION BY OTHER COMPANIES. RELIANCE IS PLACED ON THE THE DECISION REPORTED IN M/S KOSTUB INVESTMENT LTD. VS CIT (SUPRA) AND IN THIS DECISION VIDE PARA 9, THE HONBLE JURISDICTIONAL HIGH COURT OBSERVED AS FOLLOWS:- 9. WHILST THERE MAY BE SOME GRAIN OF TRUTH THAT TH ERE MIGHT BE A TENDENCY IN BUSINESS CONCERNS TO CLAIM DEDUCTION UNDER SECTI ON 37, AND FOIST PERSONAL EXPENDITURE, SUCH A TENDENCY ITSELF CANNOT RESULT I N AN UNSPOKEN BIAS AGAINST CLAIMS FOR FUNDING HIGHER EDUCATION ABROAD OF THE E MPLOYEES OF THE CONCERN. AS TO WHETHER THE ASSESSEE WOULD HAVE SIMILARLY ASS ISTED ANOTHER EMPLOYEE UNRELATED TO ITS MANAGEMENT IS NOT A QUESTION WHICH THIS COURT HAS TO CONSIDER. BUT THAT IT HAS CHOSEN TO FUND THE HIGHER EDUCATION OF ONE OF ITS DIRECTORS SONS IN A FIELD INTIMATELY CONNECTED WITH ITS BUSINESS I S A CRUCIAL FACTOR THAT THE COURT CANNOT IGNORE. IT WOULD BE UNWISE FOR THE CO URT TO REQUIRE ALL ASSESSES AND BUSINESS CONCERNS TO FRAME A POLICY WITH RESPEC T TO HOW EDUCATIONAL FUNDING OF ITS EMPLOYEES GENERALLY AND A CLASS THER EOF, I.E. CHILDREN OF ITS MANAGEMENT OR DIRECTORS WOULD BE DONE. NOR WOULD I T BE WISE TO UNIVERSALIZE OR RATIONALIZE THAT IN THE ABSENCE OF SUCH A POLICY , FUNDING OF EMPLOYEES OF ONE CLASS- UNRELATED TO THE MANAGEMENT-WOULD QUALIFY FO R DEDUCTION UNDER SECTION 37(1). WE DO NOT SEE ANY SUCH INTENT IN THE STATUE WHICH PRESCRIBES THAT ONLY EXPENDITURE STRICTLY FOR BUSINESS CAN BE CONSIDERED FOR DEDUCTION. NECESSARILY, THE DECISION TO DEDUCT IS TO BE CASE-DEPENDENT. 6. WHEN WE LOOK AT THE THINGS FROM THE LIGHT OF THE OBSERVATION OF THE HONBLE HIGH COURT COUPLED WITH THE SUBMISSIONS OF THE LD.AR THAT AFTER COMPLETION OF THE DEDUCTION, SH. CHITRESH GUPTA IS WORKING WITH THE ASSESSEES COMPANY ON A REMUNERATION THAT WAS FIXED BY THE TERMS OF CONTRACT OF APPOINTMENT DATED 04.08.2006 AND SUCH A REMUNERATION IS BELOW THE ACTUAL REMUNERATION THAT IS OFFERED TO OTHER PR OFESSIONALS APPEARS TO OTHER DESIGNATION BY OTHER COMPANIES. IF THE APPOI NTMENT OF MR. CHITRESH ITA NO. 5918/DEL/2014 PAGE | 5 GUPTA IS A DEVISE ONLY TO CAMOUFLAGE HIS FOREIGN ED UCATION EXPENSES IT IS UNLIKELY THAT AFTER COMPLETION OF STUDY, HE WOULD N OT HAVE JOINED THE ASSESSEE COMPANY WITH THE REMUNERATION OFFERED AT T HE INCEPTION. CONTINUING THE SERVICE PURSUANT TO THE EARLIER APPO INTMENT AND UTILIZATION OF THE KNOWLEDGE GAINED BY MR. GUPTA IN THE ASSESSEES COMPANY AFTER COMPLETION OF THE STUDIES IS ONE OF THE FACTORS THA T SUPPORT THE CONTENTION OF THE ASSESSEE. IT, THEREFORE, APPEARS THAT THE VERI FICATION OF THESE FACTS WOULD THROW A GREATER LIGHT ON THE ASPECT OF THE ALLOWABI LITY OR OTHERWISE OF THE EXPENSE. WE, THEREFORE, ARE OF THE OPINION THAT IT IS A FIT CASE TO SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR VERIFICATION AS TO WHETHER SH. CHITRESH GUPTA IS IN RELATION WITHIN THE MEANING OF THE ACT OR WHETHER HE HAS BEEN WORKING WITH WHETHER HE JOINED THE ASSESSEE COMPANY AFTER COMPLETION OF THE DEDUCTION AT THE REMUNERATION FIXED BY THE LETT ER OF THE APPOINTMENT. WITH THIS VIEW, THE ASSESSEE WILL SUBMIT THE MATERI AL IN SUPPORT OF HIS CONTENTION BEFORE THE AO TO GET THEIR JUST TAX LIAB ILITY ADJUDICATED. WITH THIS VIEW OF THE MATTER, WE SET ASIDE THE GROUND FOR VER IFICATION TO THE END OF THE AO AS INDICATED ABOVE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09 TH NOVEMBER, 2017. SD/- SD/- (G.D.AGRAWAL) (K.N.CHARY) PRESIDENT JUDICIAL MEMBER *AMIT KUMAR* DATE:- 09.11.2017 ITA NO. 5918/DEL/2014 PAGE | 6 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSIST ANT REGISTRAR ITAT NEW DELHI