2023 (6) TMI 341 - AT - Income Tax

Allowable Business/revenue expenses - directors education expenses - whether are wholly and exclusively incurred for the purpose of business? - assessee is a company and is engaged in the business as importer and exporter of bearings and components - HELD THAT - The assessee is not involved in any manufacturing activity. There is no material available on record that the assessee has any presence outside India. Director was claimed to be already a graduate in management at the time of his appointment as Director of the assessee company. Therefore, when the assessee s business is merely in the nature of a trader with no presence outside India and its Director was already a graduate in management, no sufficient basis has been brought on record to show how the financial support provided by the assessee to its Director to pursue MSc in International Business Management is wholly and exclusively for the assessee s business purpose and has a direct relationship with the assessee s business activity. Since, in the present case, the assessee has failed to substantiate that the expenditure was incurred wholly and exclusively for the purpose of business, therefore, we find no infirmity in the impugned order affirming the disallowance of the Director s education expenditure u/s 37(1) - Appeal by the assessee is dismissed.

Summary

Issues:
The appeal challenges the order disallowing director's education expenses as business expenditure under section 37(1) of the Income Tax Act, 1961.

Director's Education Expenses:
- The assessee, an importer and exporter of bearings and components, claimed Rs. 23,43,447 as business expenditure for the director's education.
- The director pursued a postgraduate course in Marketing at Royal Holloway University of London, sponsored by the company with a condition to serve for 5 years.
- The Assessing Officer disallowed the expenses citing lack of details on benefits, course completion, company growth, and relevance to the business.
- The CIT(A) dismissed the appeal based on a Karnataka High Court decision.
- The assessee argued that the course was beneficial for the company's growth and sales due to its content on Digital Business and Marketing.
- However, the Tribunal found no direct relationship between the course and the company's business activities.
- Sales figures presented did not show significant growth attributable to the director's education.
- Previous court decisions allowing education expenses were distinguished as not applicable to the current case.
- The Tribunal upheld the disallowance of the expenses as they were not proven to be wholly and exclusively for business purposes.

Decision:
The appeal by the assessee challenging the disallowance of director's education expenses was dismissed by the Tribunal on 30/05/2023.