2018 (12) TMI 270 - AT - Income Tax

Disallowance on account of education sponsorship expenses - allowable business expenditure - Held that - We concur with the submissions of the Sr.DR namely that all educational expenses of the children or grand children of the Directors of the companies who ultimately may also join the family business by itself, cannot be said to be an expenditure which can be said to have been incurred wholly or exclusively for the business purposes of the assessee as the expenses for educating the children and grand children of the Directors can very well be personal expenses of the parents etc. We are conscious of the decisions wherein serving employees of the assessee companies who even if related have been sponsored for higher education on the undertaking that on their return, they shall join the said concern. Similarly there are decisions wherein loans may have been advanced to the children of the employees/Directors, sent for higher education with an undertaking to return and rejoin the assessee company etc. where the loan advanced is deducted from the salary paid etc., thus there can be no blanket decision that the higher education expenses of the Director s children necessarily are business expenses. The argument that similar expenditure has been allowed for the very same relative in the earlier year which though not demonstrated on facts but even if it is correct that no disallowance was made in the earlier year by itself cannot lay down a precedent to be followed that the expenses allowed by oversight necessarily be allowed in the subsequent years. Accordingly, the impugned order is set aside back to the file of the CIT(A) with a direction to address the correct facts and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of education sponsorship expenses.
2. Disallowance of foreign traveling expenses.

Analysis:

Issue 1: Disallowance of Education Sponsorship Expenses
The appellant challenged the order of the CIT(A) upholding the disallowance of ?10,89,016 on account of education sponsorship expenses. The appellant argued that the expenditure was for the education of the grandson of the Director, which would benefit the appellant's business by providing innovative skills and a competitive advantage. The appellant presented a Board Resolution supporting the expenses and evidence of the grandson's contribution to the business after completing the course. The appellant relied on judicial pronouncements to justify the expenses as deductible under the head "Income from Business or Profession." The CIT(A) held that the expenditure was of a personal nature and not wholly and exclusively for the business, citing the requirement under Section 37 of the Income Tax Act. The CIT(A) dismissed the appeal, stating that the appellant failed to prove the expenses were solely for business purposes. However, the ITAT set aside the order, directing the CIT(A) to address the facts correctly and provide a reasoned decision after giving the appellant a fair hearing.

Issue 2: Disallowance of Foreign Traveling Expenses
The appellant also contested the disallowance of ?2,69,050 for foreign traveling expenses. The appellant argued that the CIT(A) did not consider relevant facts and failed to justify the disallowance. The appellant provided details of the expenses incurred and their relevance to the business. The CIT(A) upheld the disallowance, emphasizing the need for expenses to be wholly and exclusively for business purposes. The ITAT, while setting aside the order on the first issue, did not provide specific details on the outcome of the appeal related to foreign traveling expenses. However, it can be inferred that the ITAT allowed the appeal for statistical purposes, indicating a possible favorable decision for the appellant regarding this issue.

In conclusion, the ITAT's judgment addressed the challenges raised by the appellant regarding the disallowance of education sponsorship and foreign traveling expenses. While the appeal related to education sponsorship expenses was remanded back to the CIT(A) for a reasoned decision, the outcome of the appeal concerning foreign traveling expenses was favorable for the appellant.