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2011 (2) TMI 963 - AT - Income TaxExpenses disallowed not incurred wholly and exclusively for the purpose of business - Personal or business expenditure - assessee has spent Rs. 21,43,220 in foreign currency for the training of Mr. Vishesh Bhatt in USA Mr. Vishesh Bhatt is the son of Mr. Mukesh Bhatt who is the major shareholder of the assessee company - Held that - As it is observed that during the financial year 2003-04 relevant to assessment year 2004-05 under consideration, Mr. Vishesh Bhatt went to Italy and U.K. and has not gone to New York. From the copy of the Passport it is also observed that Mr. Vishesh Bhatt got VISA of USA on 23-7-2004 which falls in the financial year 2004-05 relevant to the assessment year 2005-06 and not in the year under consideration i.e., assessment year 2004-05. Therefore, it cannot be said that during the year under consideration the Mr. Vishesh Bhatt has gone on tour to New York, USA for study in New York University, passed in the Board Resolution. Thus the assessee has failed to establish that Mr. Vishesh Bhatt, Director of the company has gone to USA for training in New York University during the year under consideration. Thus the assessee is not entitled to deduction claimed as training expenses of a Director sent to USA for the course of Cinematography and film/video production - uphold the findings of the ld. CIT(A) in sustaining the disallowance made by the Assessing Officer.
Issues Involved:
1. Disallowance of training expenses incurred for a director's foreign education. Issue-wise Detailed Analysis: 1. Disallowance of Training Expenses Incurred for a Director's Foreign Education: The core issue revolves around the disallowance of Rs. 21,43,220 spent by the assessee company on the foreign education of Mr. Vishesh Bhatt, a director and son of the major shareholder, Mr. Mukesh Bhatt. The Assessing Officer (AO) disallowed the expense, arguing it was not incurred wholly and exclusively for the business purpose. The AO noted that Mr. Vishesh Bhatt, who was 19 years old and had studied up to Class XII, went to the USA for training in cinematography and film/video production. The AO concluded that the education was a continuation of his normal studies and had no direct connection to the business of the assessee company. The AO relied on several judicial decisions, including Siddho Mals & Sons v. CIT, Bengal Enamel Works Ltd. v. CIT, and Swadeshi Cotton Mills Ltd. v. CIT, to support the disallowance, asserting that the expenses were driven by extra commercial considerations and not bona fide business interests. Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the education of Mr. Vishesh Bhatt was a personal decision by his parents, who were the major shareholders, and thus should be treated as a post-tax matter. The CIT(A) agreed with the AO that the arrangement to show the expense as a commercial decision was not acceptable. The assessee argued that Mr. Vishesh Bhatt had given an undertaking to work exclusively for the company for five years and complete at least one project each year, justifying the expense as a business expenditure. The assessee relied on several judicial precedents, including Sakal Papers (P.) Ltd. v. CIT, CIT v. Kohinoor Paper Products, and ITO v. Seftech India (P.) Ltd., where expenses on foreign education were allowed as business deductions. However, the Tribunal observed that during the financial year 2003-04, Mr. Vishesh Bhatt had traveled to Italy and the UK, not to New York, USA, for his studies. The Tribunal noted discrepancies in the documentation, such as the VISA for the USA being issued on 23-7-2004, which falls in the subsequent financial year, and not in the year under consideration. The Tribunal found no supporting material to show that Mr. Vishesh Bhatt was studying at New York University during the relevant period. The Tribunal concluded that the assessee failed to substantiate that the expenses incurred were for the benefit of the business. The Tribunal distinguished the facts of the present case from the judicial precedents cited by the assessee, noting that the decisions relied upon were not applicable due to different factual matrices. The Tribunal also referred to recent decisions in Echjay Forgings Ltd. and Ocean City Trading (India) (P.) Ltd., where expenses on foreign training were disallowed due to lack of substantiation of business benefit. Therefore, the Tribunal upheld the disallowance of Rs. 21,43,220 as training expenses, agreeing with the CIT(A) and AO but with different reasoning, and dismissed the assessee's appeal.
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