The Sagar Textile Mills Ltd., Ahmedabad V. The Income tax Officer, Ward-8(1), Ahmedabad

ITA 722/AHD/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9382 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-08-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 14-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA
• Assessee Lawyers: V R CHOKSHI
• Keywords: Depreciation; Business expenditure; Revenue expenditure
• Section: 234B; 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.722/AHD/2007 (ASSESSMENT YEAR: 2003-04) THE SAGAR TEXTILE MILLS LTD., RAMKUMAR MILL COMPOUND, SARASPUR, AHMEDABAD V/S THE INCOME-TAX OFFICER, WARD-8(1), AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI V R CHOKSHI RESPONDENT BY:- SHRI P M SHUKLA, SR. DR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FIELD BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 19 TH DECEMBER, 2006 BY TAKING THE FOLLOWING EFFECTIVE GR OUNDS OF APPEAL:- 1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE THE LD. CIT(A), AHMEDABAD HAS ERRED IN DISALLOWING THE TRAINEE EXPENSES AMOUNTING TO RS.2,40,500 INCURRED IN CONNE CTION WITH THE EDUCATION FOR SON OF ONE OF THE DIRECTORS OF THE AS SESSEE COMPANY. THE DIRECTOR HAS INDEMNIFIED THE APPELLANT COMPANY AGAINST ALL PROBABLE LOSSES THAT MAY ARISE TO THE COMPANY BY AG REEING TO REIMBURSE THE ENTIRE EXPENDITURE ALONG WITH INTERES T @ 9% PER ANNUM, IN THE EVEN THIS SON DOES NOT JOIN THE COMPA NY ON COMPLETION OF HIS EDUCATION. 2 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE THE LD. CIT(A). AHMEDABAD, HAS ERRED IN DISALLOWING THE DEPRECIATION OF RS.16,545, THE SAME MAY BE ALLOWED. 2 3 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE THE LD. CIT(A), AHMEDABAD, HAS ERRED IN DIRECTING T O CHARGE INTEREST U/S 234A, 234B AND 234C OF THE ACT, WHEN N O SUCH INTEREST IS CHARGEABLE. INTEREST CHARGED, IF ANY, U/S 234A, 234B AND 234C, MAY BE DELETED. 2 THE BRIEF FACTS OF THE CASE RELATING TO GROUND N O.1 ARE THAT THE ASSESSEE-COMPANY DEBITED AN AMOUNT OF RS.2 ,40,500/- AS TRAINEE EXPENSES IN RESPECT OF EDUCATION OF ONE OF THE DIRECTORS, SHRI KAMLESH R AGARWAL. THE ASSESSEE-COMPANY HAD SU BMITTED A COPY OF LETTER DATED 15-06-2002 ADDRESSED TO THE BO ARD OF DIRECTORS OF THE COMPANY, REQUESTING THE ASSESSEE C OMPANY TO SPONSOR THE EDUCATION OF HIS SON FOR FOUR YEARS. ON RECEIPT OF THE REQUEST LETTER, THE BOARD OF DIRECTORS CONSIDERED T HE REQUEST AND PASSED THE FOLLOWING RESOLUTION:- RESOLVED THAT REQUEST RECEIVED FROM MR. KAMLESH R AGARWAL A DIRECTOR OF THE COMPANY TERMS OF HIS LETTER DATED 1 5 TH JUNE, 2002 FOR THE COMPANY SPONSORING HIS SON MASTER VIRESH K AGAR WAL AGED 17 YEARS AND WHO HAS RECENTLY PASSED HIS GUJAR AT H S C EXAMINATION FOR PURSUING HIGHER STUDIES IN THE FACU LTY OF BE MECHANICAL AT MANIPAL IN MANIPAL ACADEMY FOR HIGHER EDUCATION, MANIPAL, KARNATAKA FOR A DURATION OF 4 YEARS, SUBJE CT TO THE COMPANY BEARING TOTAL EXPENSES, APPROXIMATELY RS.2,25,000/- PER ANNUM, INCLUDING TUITION FEES, LODGING AND BOARDING FOR TH E SAID DURATION 4 YEARS, BE AND IS HEREBY ACCEPTED ON THE CONDITION T HAT, SAID SHRI KAMLESH AGARWAL SUBMITS TO THE COMPANY A BOND OF AS SURANCE DULY EXECUTED BY HIM ON BEHALF OF HIS MINOR SON, TO THE EFFECT THAT AFTER COMPLETING HIS STUDIES HIS SON SHALL SERVE THE COMP ANY FOR A TERM OF 5 YEARS FOR SUCH REMUNERATION AS DECIDED BY THE COMPA NY AFTER NEGOTIATION WITH HIM, FAILING WHICH SAID SHRI KAMLE SH R AGARWAL SHALL BE BOUND TO RETURN THE TOTAL AMOUNT SPENT BY THE COMPANY ON HIS SONS STUDIES AS AFORESAID WITH SIMPLE INTEREST @ 9 % PER ANNUM. ON THE BASIS OF THE ABOVE RESOLUTION SHRI KAMLESH R AGARWAL WAS REQUESTED TO FILE INDEMNITY BOND INDEMNIFYING T HE COMPANY THAT HIS SON WOULD WORK WITH THE COMPANY FOR AT LEA ST 5 YEARS 3 FAILING WHICH, SHRI KAMLESH R AGARWAL WOULD REIMBUR SE THE ENTIRE EXPENDITURE ALONG WITH INTEREST @ 9% PER ANN UM. THE ASSESSEE-COMPANY HAS CLAIMED DEDUCTION OF RS.2,40,5 00/- U/S 37(1) OF THE IT ACT, 1961. THE AO HAS TREATED THE S AME AS NON- BUSINESS EXPENDITURE AS NOT HAVING BEEN INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE-COMPANY AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. WHE N THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) HAS CONFIRMED TH E ORDER OF THE AO. 3 BEFORE US, THE LEARNED AR REITERATED THE ARGUMEN TS WHICH WERE ADVANCED BEFORE THE CIT(A) AND CONTENDED THAT THE AO WHILE MAKING THE ADDITION, HAS IGNORED THE FOLLO WING FACTS: (I) THAT SHRI KAMLESH R AGARWAL HAD INDEMNIFIED THE COMPANY AGAINST THE LOSS, IF ANY, HAD HIS SON NOT JOINED ASSESSEE-COMPANY. (II) THAT SHRI KAMLESH R AGARWAL WOULD HAVE TO REIMBURSE ENTIRE EXPENDITURE ALONG WITH INTEREST @ 9% PER ANNUM, IF SHRI VIRESH K AGARWAL (SON OF THE ASSESSEE) DID NOT JOIN THE ASSESSEE COMPANY. THE LEARNED AR ALSO RELIED ON THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF SAKAL PAPERS PVT. LTD. 114 ITR 256 , WHEREIN IT HAS BEEN HELD AS UNDER:- HELD, THAT MERELY BECAUSE THERE WAS NO COMMITMENT OR CONTRACT OR BOND TAKEN FROM THE TRAINEE, THE EXPEND ITURE WHICH WAS OTHERWISE PROPER, CANNOT BE DISALLOWED TO THE COMPANY, PARTICULARLY WHEN AS A RESULT OF THAT EXPE NDITURE THE TRAINEE HAD SECURED BOTH A DEGREE AND TRAINING WHICH WOULD BE OF ASSISTANCE TO THE ASSESSEE-COMPANY AND SHE HAD IN FACT SERVED THE COMPANY ON HER RETURN TO INDIA. THE FACTUM OF RELATIONSHIP ITSELF WOULD BE AN ASSURANCE THAT AS FAR AS POSSIBLE, THE RESULT OF THE TRAINING WOULD B E UTILIZED FOR THE BENEFIT OF THE COMPANY. THEREFORE, THE EXPE NDITURE 4 INCURRED ON THE FOREIGN EDUCATION OF THE DAUGHTER W AS ALLOWABLE AS A DEDUCTION IN DETERMINING THE BUSINES S PROFITS OF THE ASSESSEE-COMPANY FOR THE ASSESSMENT YEAR 196 1-62. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE ITA T MUMBAI BENCH IN THE CASE OF J B ADVANI & CO. LTD. V JOINT CIT [2005] 1 SOT 830 (MUM) AS WELL AS THE DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF ACIT V P C HATHI [2004] 1 SOT 119 (AHD) (SMC) FOR THE PROPOSITION THAT FOREIGN STUDY EXPENSES IN CURRED BY A COMPANY IN RESPECT OF AN EMPLOYEE CANNOT BE DI SALLOWED SIMPLY BECAUSE EMPLOYEE HAPPENS TO BE RELATIVE OF A DIRECTOR. THE LEARNED AR THEREFORE SUBMITTED THAT THE EXPENDI TURE INCURRED ON FOREIGN EDUCATION FOR THE SON OF ONE OF THE DIRE CTORS OF THE COMPANY SHOULD BE ALLOWED. 4 THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE AO. 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE O RDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH TH E DECISION AS POINTED OUT BY THE LEARNED AR IN THE CASE OF ACIT V P C HATHI [2004] 1 SOT 119 (AHD) (SMC), IN WHICH IT HAS BEEN HELD AS UNDER:- IN THE INSTANT CASE, THERE WAS DIRECT NEXUS BETWEEN THE TYPE OF EDUCATION PROCURED BY THE PARTNER AND THE NATURE OF BUSINESS OF THE ASSESSEE. THE EXPENSES INCURRED BY THE ASSESSEE-FIR M TOWARDS THE PROCUREMENT OF DEGREE IN BUSINESS MANAGEMENT IN THE LAW BY ONE OF ITS PARTNERS, WERE DEFINITELY IN NATURE OF REVENUE EXPENDITURE, AND, THEREFORE, THERE WAS NO REASON TO INTERFERE WITH TH E FINDING OF THE COMMISSIONER (APPEALS). NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE B Y THE LEARNED DR. THEREFORE, RESPECTFULLY FOLLOWING THE A FORESAID 5 DECISION OF THIS TRIBUNAL, WE ALLOW GROUND NO.1 AND DELETE THE ADDITION OF RS.2,40,500/-. 6 THE FACTS OF THE CASE IN RELATION TO GROUND NO.2 ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE DETAILS WERE CALLED FOR IN RESPECT OF ADDITIONS TO FIXED AS SETS AND THE ASSESSEE COMPANY FURNISHED CERTAIN BILLS. HOWEVER, IT WAS SUBMITTED THAT THE BILLS IN RESPECT OF RAP COMPUTER OF RS.27,575/- WAS NOT TRACEABLE. THEREFORE, THE ASSES SEE COULD NOT PRODUCE THE BILL OF RAP COMPUTER. THE AO, THEREFORE , DISALLOWED THE DEPRECIATION OF RS.16,545/- CLAIMED ON THE SAME. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE DISALLOWANCE ON THE GROUND THAT EVEN AT THE APP ELLATE STAGE, THE ASSESSEE COULD NOT PRODUCE ANY BILLS. 7 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO G ONE THROUGH THE ORDER OF THE TAX AUTHORITIES BELOW. THIS IS AN ADMITTED FACT THAT THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF A CCOUNTS AND HAS ALSO CARRIED OUT THE AUDIT U/S 44AB OF THE ACT. THE AUDITED BALANCE-SHEET HAS NOT BEEN QUALIFIED BY THE CHARTER ED ACCOUNTANT. THERE IS AN OUTFLOW OF THE EXPENSES. TH E ONUS IS ON THE ASSESSEE TO PRODUCE THE BILLS FOR THE COMPUTER. THE ASSESSEE HAS NOT SUBMITTED THE COPY OF THE BILLS. EVEN NO SU CH COPY OF BILL WAS SUBMITTED BEFORE US. IF THE BILL IS NOT AVAILAB LE, THE ASSESSEE COULD HAVE PROCURED THE CONFIRMATION FROM THE PARTY FROM WHOM THE COMPUTER HAS BEEN PURCHASED. WE ARE, THEREFORE, OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE OF DEPRECIATION. 6 8 THE LAST GROUND RELATES TO LEVY OF INTEREST U/S 234A, 234B AND 234C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. THE AO IS THEREFORE DIRECTED TO LEVY THE INTEREST U/S 2 34A, 234B, AND 234C AFTER GIVING EFFECT TO THIS ORDER. 9 IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21-08-2009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 21-08-2009 COPY OF THE ORDER FORWARDED TO : 1. THE SAGAR TEXTILE MILLS LTD., RAMKUMAR MILL COMP OUND, SARASPUR, AHMEDABAD 2. THE ITO, WARD-8(1), AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-XIV, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD