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2015 (7) TMI 1411 - AT - Income TaxExpenditure incurred on education of the children of the Directors - Allowable revenue expenditure or not? - HELD THAT - It is not in dispute that the assessee incurred expenditure on higher education and foreign tours of the grandchildren/children of the Directors. As rightly submitted by the Ld. D.R., it is the responsibility of the parents/ grandparents to give education to their children/grandchildren. No business purpose is going to be served to the assessee by incurring expenditure on the foreign education of the children and grandchildren of the Directors. Merely because the company was in existence for decades, the law laid down by the jurisdictional High Court in RKKR Steels P. Ltd. 2001 (11) TMI 20 - MADRAS HIGH COURT and in K. Subramaniam Bros 2000 (12) TMI 67 - MADRAS HIGH COURT would not change. This Tribunal is of the considered opinion that the law laid down by Madras High Court in RKKR Steels P. Ltd. (supra) and in K. Subramaniam Bros (supra) is squarely applicable to the facts of the case. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed. Disallowance u/s 14A - expenditure relatable to earning of dividend disallowed - HELD THAT - As rightly submitted by the Ld. D.R., AO on the basis of the statement of account called upon the assessee to show cause why the expenditure relatable to earning of dividend should not be disallowed. This clearly shows that the Assessing Officer is not satisfied with the claim of the assessee on the basis of the books of account. Therefore, it would not be correct to say that the Assessing Officer is not satisfied with the correctness of the account. Rule 8D came into operation by Finance Act, 2009, which is mandatory for computation of disallowance under Section 14A of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed. Assessee appeal dismissed.
Issues:
1. Expenditure incurred on education of the Directors' children. 2. Disallowance made under Section 14A of the Income-tax Act, 1961. Expenditure on Education of Directors' Children: The first issue in this case pertains to the expenditure incurred by the assessee on the education of the Directors' children. The appellant argued that the expenditure was solely for the business purpose of the company, emphasizing the role of education in the growth of the company. Reference was made to the judgment of the Delhi High Court in Kostub Investment Ltd. v. CIT. On the contrary, the Departmental Representative contended that educating the Directors' children was the responsibility of the parents and not a business expense. The Madras High Court judgments in RKKR Steels P. Ltd. and K. Subramaniam Bros were cited to support this argument. The Tribunal agreed with the Departmental Representative, stating that no business purpose was served by the expenditure on the education of the Directors' children. The Tribunal upheld the decision of the CIT(Appeals) based on the precedents set by the Madras High Court. Disallowance under Section 14A of the Income-tax Act: The second issue concerns the disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961. The appellant contended that the Assessing Officer could only compute the disallowance under Rule 8D if satisfied with the correctness of the claim based on the accounts. It was argued that since the satisfaction was not recorded, the disallowance was unjustified. The Departmental Representative, however, stated that the Assessing Officer had clearly mentioned the investment and dividend income in the accounts, which was exempted under Section 10(34) of the Act. The Tribunal agreed with the Departmental Representative, noting that the Assessing Officer had called upon the assessee to explain why the expenditure related to earning dividends should not be disallowed. The Tribunal held that Rule 8D was mandatory for computing disallowance under Section 14A and confirmed the decision of the CIT(Appeals). In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the decisions made regarding both issues.
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