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2020 (3) TMI 544 - AT - Income TaxAssessment u/s 153A - assessment already completed can be tinkered with or disturbed where any incriminating material is found and seized during the course of search - disallowance of education expenses u/s 37(1) - HELD THAT - It is a settled legal preposition that in case of completed assessment, the scope and jurisdiction of the AO to reassess the total income of the assessee u/s 153A is limited only to the extent of the income disclosed by the incriminating material found and seized during the search and seizure action. However, in respect of the pending assessments which shall be abated as per proviso to U/s 153A(1) of the Act, the AO is free to assess the income of the assessee as part of regular assessment and there is no requirement that the same shall be based on incriminating material found and seized during the search and seizure action. In the instant case, where the assessment proceedings were pending at the time of search, we therefore donot find any legal infirmity in action of the Assessing Officer in assessing the income of the assessee by making the disallowance of education expenses u/s 37(1) based on enquires conduced during the course of assessment proceedings. Therefore, ground no. 1 of the assessee s appeal is dismissed. Addition of education expenditure - education of daughter of managing director - Held that - What is relevant is not just the ultimate benefit or utilization of such expenditure for business purposes but what is equally relevant is that the point in time when the expenditure was incurred, the business of the assessee should have been set up which however, is not the case in the instant case. The claim of education expenditure has been rightly disallowed by the Assessing officer and confirmed by the ld CIT(A) and we donot see any infirmity in the said orders and no interference is called for. The matter is accordingly decided against the assessee and in favour of the Revenue. In the result, ground no. 2 of assessee s appeal is dismissed.
Issues Involved:
1. Legality of the assessment order passed under Section 143(3) read with Section 153A of the Income Tax Act, 1961. 2. Justification of the addition of ?1,11,35,190/- on account of education expenses incurred by the appellant. Detailed Analysis: Issue 1: Legality of the Assessment Order under Section 143(3) read with Section 153A 1. The appellant argued that the assessment order should be quashed as no incriminating material was found during the search, and thus, no addition could be made. The appellant cited several judicial precedents including CIT v. Continental Warehousing Corporation and PCIT v. Meeta Gutgutia to support this claim. 2. The CIT(A) countered that the original return was only processed under Section 143(1) and not assessed under Section 143(3), thus the assessment was not abated. The CIT(A) relied on decisions like CIT v. Chetan Das Lachman Das and CIT v. Anil Kumar Bhatia to justify the assessment. 3. The Tribunal held that since the assessment proceedings were pending at the time of the search, the AO was justified in assessing the income of the assessee by making the disallowance of education expenses under Section 37(1), based on inquiries conducted during the assessment proceedings. Therefore, ground no. 1 of the assessee’s appeal was dismissed. Issue 2: Justification of the Addition of ?1,11,35,190/- for Education Expenses1. The appellant contended that the education expenses incurred for a business management course from CASS Business School, London, were for acquiring business acumen beneficial for his business and should be allowed under Section 37(1) of the Act. The appellant argued that the expenses were not personal but for the purpose of business. 2. The CIT(A) held that the courses pursued (B.Sc. in business management and M.Sc. in finance) were not specialized for the appellant’s business of trading in bullion and base metals. The CIT(A) concluded that the expenses were personal in nature and lacked a direct nexus with the business. 3. The Tribunal examined various judicial precedents cited by the appellant, including CIT v. Kohinoor Paper Products and Mallige Medical Centre (P) Ltd. However, it found that these cases were distinguishable as they involved existing businesses and employees, whereas the appellant’s business had not even started when the education expenses were incurred. 4. The Tribunal emphasized that for an expense to be allowable under Section 37(1), the business should be set up at the time of incurring the expense. Since the appellant’s business was not operational during the initial years of the education course, the expenses were deemed personal and not allowable as business expenditure. 5. The Tribunal concluded that the educational expenses were rightly disallowed by the AO and confirmed by the CIT(A). Consequently, ground no. 2 of the assessee’s appeal was dismissed. Conclusion:The appeal of the assessee was dismissed in its entirety, upholding the assessment order and the disallowance of education expenses. The Tribunal found no infirmity in the orders of the lower authorities. Order Pronounced:The order was pronounced in the open Court on 11/03/2020.
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