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2004 (10) TMI 595 - AT - Income TaxDisallowance of education sponsorship abroad of the son of the Managing Director assessee - vehicle expenses - entertainment expense - HELD THAT - In assessee s submissions before us, it was stated that though not an employee Shri Rishav Mehra was rendering services to the assessee-company in the USA. However, there is no material to support, or even indicate, that Shri Rishav Mehra rendered any services from the USA. We have also noted that the assessee has categorically accepted that Shri Rishav Mehra was not an employee of the assessee-company. Keeping all these factors in mind, as also entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. The expenses incurred on the foreign education of Shri Rishav Mehra, whose only connection with the assessee-company at the relevant point of time was that he was son of the Managing Director of the company, cannot be allowed as deduction in computing business income of the assessee- company. We see no infirmity in CIT(A) s sustaining the said disallowance. Ground No. 1 is thus dismissed. Vehicle expenses - The disallowance has been confirmed by the CIT(A) treating the expenses as personal expenses. But then, a company is an artificial juridical person, and, therefore there cannot be any personal expenses in the case of the company. This is so held in the judgment of Hon ble Gujarat High Court in the case of Sayaji Iron ; Engg. Co. v. CIT 2001 (7) TMI 70 - GUJARAT HIGH COURT which has also been followed by a number of Benches of the Tribunal, including by the Ahmedabad Bench in the reported case of Dy. CIT v. Mira Industries 2003 (4) TMI 220 - ITAT AHMEDABAD-A . Thus, we direct the Assessing Officer to delete the impugned disallowance. The assessee will get the relief to that extent. Ground No. 2 is thus allowed. Entertainment expenses - We find that it is an undisputed position that the canteen expenses were incurred for the purpose of staff members and managers of the company but the objection is taken by the revenue that the outsiders being provided the tea and snacks from the same canteen cannot be ruled out. The revenue has failed to discharge the onus of demonstrating that the suo motu disallowance offered by the assessee is lesser than what is required. In the earlier years also, no such additional disallowance was made by the Assessing Officer. The CIT(A) has also confirmed the disallowance in a somewhat mechanical manner and without marshalling out the relevant facts. Keeping in view all the factors, as also entirety of the case, we direct the Assessing Officer to delete the additional disallowance. The assessee will get relief on this issue also. Ground No. 3 is thus allowed - In the result, the appeal is partly allowed.
Issues Involved:
1. Disallowance of 'study and training expenses' of Rs. 11,50,438. 2. Disallowance of 'vehicle expenses' of Rs. 76,316. 3. Disallowance of Rs. 22,800 in respect of 'entertainment expenses'. Summary: Issue 1: Disallowance of 'study and training expenses' of Rs. 11,50,438 The assessee challenged the disallowance of Rs. 11,50,438 for study and training expenses incurred for the Managing Director's son, Shri Rishav Mehra, who was not an employee at the time. The Assessing Officer (AO) and CIT(A) disallowed the expenses, citing judicial precedents and the personal nature of the expenditure. The Tribunal upheld the disallowance, noting that the expenses did not have a direct nexus with the business and were influenced by extra-commercial considerations. The Tribunal referenced cases such as Hindustan Hosiery Industries and Sakal Papers (P.) Ltd., concluding that the expenditure was not wholly and exclusively for business purposes. Issue 2: Disallowance of 'vehicle expenses' of Rs. 76,316 The assessee contested the 25% disallowance of vehicle expenses for lack of a logbook and non-business use. The CIT(A) confirmed the disallowance based on previous years' orders. However, the Tribunal noted that a company, being an artificial juridical person, cannot have personal expenses. Citing the Gujarat High Court's judgment in Sayaji Iron & Engg. Co. v. CIT, the Tribunal directed the AO to delete the disallowance of Rs. 76,316, granting relief to the assessee. Issue 3: Disallowance of Rs. 22,800 in respect of 'entertainment expenses' The AO disallowed Rs. 22,800, treating 20% of staff welfare expenses as entertainment expenses. The CIT(A) upheld this disallowance. The Tribunal found that the canteen expenses were for staff and managers, and the revenue failed to prove that the disallowance should be higher than what the assessee offered. The Tribunal directed the AO to delete the additional disallowance of Rs. 22,800, providing relief to the assessee. Conclusion: The appeal was partly allowed, with the Tribunal upholding the disallowance of study and training expenses but granting relief on the disallowance of vehicle and entertainment expenses.
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