2018 (12) TMI 1210 - AT - Income Tax

Allowable business expenditure - Personal expenditure - Expenses on education of the daughter of one of the directors of the assessee company at the Boston University, which included college fee, boarding, travelling from India and back and other incidental expenses, have been incurred wholly and exclusively for the purpose of the business and allowable u/s 37(1) - Held that - The assessee is before us in second round of proceedings. In first round, the Tribunal, questioned the assessee about the fact whether at the time of making application for admission to the MBA program, the company had sponsored Ms. Esha Arya or she had applied independently. The assessee was not able to furnish a copy of application for admission to the Boston University. In view of failure to substantiate the fact of a sponsoring by the assessee company, the Tribunal restored the matter to the file of the AO directing the assessee to file all evidences starting from the making of the application till making the last payment, for determining whether the expenditure was incurred by the directors of the company out of love and affection towards their daughter or it was an expenditure incurred in the course of the business of the assessee. As far as requirement of the filing of the application form, AO has noted that no original application was filed by the assessee before him. CIT(A) has also noted that no copy of application for admission was filed by the assessee before him. He has also noted that no other evidence have been filed related to documents submitted during visa interview before the USA Embassy Authorities. Thus, it is evident that the assessee has not complied with the direction of the Tribunal issued at the time of remanding the matter back to the Assessing Officer. Before us also, only information sheet/medical & physical history of the student has been filed and copy of admission form has not been filed. We find that the assessee has accepted the decision of the Tribunal in first round of proceedings and no appeal has been filed against the said direction of the Tribunal. In such circumstances, not complying with the direction of the Tribunal, itself is sufficient to dismiss the appeal of the assessee. In addition to the above, the documents filed in relation to the remitting of foreign exchange through M/s Thomas Cook private limited, nowhere demonstrate that payments were made as part of the sponsoring agency for furtherance of the business interest of the assessee company. We also find that the assessee has failed to justify its claim of appointment of Ms Esha Arya as a whole time director of the company, barely at the age of 18 years without any relevant educational qualification or experience. - Decided against assessee.

Summary

Issues Involved:
1. Legality of the order passed by the Assessing Officer (A.O.) and the addition made.
2. Disallowance of revenue expenditure incurred for educational expenses.
3. Non-compliance with binding decisions of Courts and Tribunals.
4. Examination of records and documents provided by the appellant.
5. Legitimacy of the tax, interest, and penalty demands.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by the A.O. and the Addition Made:
The appeals by the assessee were directed against the combined order dated 21/10/2011 by the Ld. Commissioner of Income-tax (Appeals)-VII, New Delhi, for assessment years 2001-02 to 2004-05. The assessee contended that the CIT(A) erred in upholding the A.O.'s order and sustaining the illegal addition made by him. The Tribunal noted that the A.O. had made additions on account of educational expenses incurred for Ms. Esha Arya, daughter of one of the directors, for overseas education. The Ld. CIT(A) dismissed the appeals, and the Tribunal restored the issue for further examination by the A.O., directing the assessee to provide complete evidence from the application for admission to the last payment made.

2. Disallowance of Revenue Expenditure Incurred for Educational Expenses:
The primary contention was the disallowance of educational expenses incurred for Ms. Esha Arya. The A.O. disallowed these expenses on the grounds that the assessee failed to produce the original application form for admission to Boston University and did not have a scheme for employee training or higher education. The Ld. CIT(A) upheld this disallowance, noting the lack of evidence to prove the commercial expediency of the expenditure. The Tribunal agreed with this finding, emphasizing that the assessee did not comply with the Tribunal’s direction to provide all relevant evidence.

3. Non-compliance with Binding Decisions of Courts and Tribunals:
The assessee argued that the authorities did not follow binding decisions of Courts and Tribunals. However, the Tribunal found that the assessee failed to provide necessary evidence as directed, and thus, the authorities' decisions were justified. The Tribunal highlighted that the assessee did not appeal against the Tribunal's initial direction, making non-compliance a sufficient reason to dismiss the appeal.

4. Examination of Records and Documents Provided by the Appellant:
The assessee provided a paper book with documents, including a claimed copy of the admission form to Boston University and letters to Thomas Cook India Ltd. for foreign exchange release. The Tribunal noted that these documents did not demonstrate that payments were made as part of the business interest of the assessee company. Additionally, the Tribunal found that the assessee failed to justify the appointment of Ms. Esha Arya as a whole-time director at the age of 18 without relevant qualifications or experience.

5. Legitimacy of the Tax, Interest, and Penalty Demands:
The Tribunal upheld the disallowance of educational expenses, concluding that the expenses were personal and not incurred wholly and exclusively for business purposes. The Tribunal also noted that the assessee did not provide evidence of any scheme for employee education or any bond signed by Ms. Esha Arya to ensure she would work for the company after completing her education. Consequently, the demands for tax, interest, and penalties were deemed legitimate and sustainable.

Conclusion:
The Tribunal dismissed all four appeals for assessment years 2001-02 to 2004-05, concluding that the assessee failed to comply with the Tribunal's directions and did not provide sufficient evidence to justify the educational expenses as business expenditure. The Tribunal emphasized that the expenses were personal in nature and not incurred for the business purposes of the assessee company.