9911796707
TMI Blog2014 (9) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year 2000-01, the Company had employed an internationally acclaimed foreign cook, Mr Somdet Kesoraprom from Bangkok - it sponsored one of its employees to acquire hotel management education and training at Cornell University, USA. Assessment proceedings and penalty proceedings are separate and distinct and assessee has all the liberty to put his case in the penalty proceedings to prove that there was no concealment of particulars of income or no intention to furnish any inaccurate particulars - in quantum proceedings, assessee’s claim of expenses was declined by Tribunal on the plea that before passing Board resolution, there was all intention to send Mr. Tushar Khanna abroad for higher education - the expenses so incurred were not for the purpose of the business - it was demonstrated that after coming from training Mr. Tushar Khanna is continuously rendering his services to the assessee company with the help of his specialized education in hotel management - the agreement entered with Tushar Khanna, before leaving India for higher education was being acted upon and there is nothing adverse found by the departmental authority to show that after returning back to India, Tush ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fee, maintenance and other expenses relating to the said course. As per terms of agreement, on completing the above course, Shri Tushar Khanna shall return to India and join the assessee company for a minimum period of three years from the date of his return. It was submitted that on joining of Mr. Tushar Khanna in assessee s company as an employee, assessee was benefitted by lot of knowledge of Hotel Management etc. of Mr. Tushar Khanna and his knowledge benefited the company immensely. For this purpose, reliance was placed on the decision of Hon ble Bombay High Court in the case of Sakal Papers Private Limited v. CIT,114 ITR 256. However, the AO was not satisfied with the explanation and he observed that the Director of the company has claimed personal expenses in the books of the company. Assessee filed detailed submissions with regard to necessity of these expenses, however, the AO did not convince with the explanation and disallowed the expenditure. Against the above order of AO, assessee approached to the CIT(A), who vide his order dated 27-8-2004 deleted addition after having the following observations :- I have considered the facts of the case and submission made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. The appellant's case is, therefore, directly covered by the decision of Hon'ble Mumbai High Court in the case of Sakal Papers Pvt. Ltd. vs. CIT [114 ITR 256 (Born)]. Reliance placed by the AO on various decisions is misplaced in as much and as also explained by the AR in his submission that in these cases the educational expenses were spent and claimed to acquire degree in the Business Management and MBA whereas assessees in those cases were dealing in different line of business. However, in the case of appellant, as already discussed, company is in the business of food and catering service. In my opinion, hotel management has close nexus with the appellant's business and, therefore, following the decision of Sakal Papers Pvt. Ltd., appellant is entitled to the deduction of educational expenses. In view of above discussion, addition is deleted. Against the above order of CIT(A), the Revenue approached to the Tribunal and the Tribunal vide its order dated 21-1-2009, restored the matter to the file of the CIT(A) with a direction to decide the issue afresh after providing reasonable opportunity of hearing to both the sides. 3. During intervening period, there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the Hon ble High Court has duly accepted substantial question of law with regard to claim of expenditure on foreign education of Tushar Khanna. Learned AR placed on record the latest decision of Hon ble Bombay High Court in the case of Nayan Builders Developers Pvt. Ltd., 24th July, 2014, wherein it was held that mere admission of appeal by High Court is sufficient to debar the penalty levied u/s.Section 271(1)(c) of the IT Act. In this case the Hon ble Bombay High Court observed that in the quantum proceedings, the Tribunal upheld the addition of three items of income. The assessee filed an appeal to the High Court, which was admitted. The AO levied penalty u/s.271(1)(c) in respect of the said three items. The penalty was upheld by the CIT(A). The Tribunal deleted the penalty on the ground that when the High Court admits the substantial question of law, on admission, it becomes apparent that the addition is certainly debatable. In such circumstances, penalty cannot be levied u/s.271(1)(c). It was held that the admission of substantial question of law by the High Court lends credence to bonafide claims of the assessee. It added that once it turns out that the claim of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal order by the High Court. In such a case also penalty has been held to be not imposable u/s 271(1)(c) of the Act. The Mumbai Bench of the Tribunal in Nayan Builders Developers Pvt. Ltd. v. ITO [ITA No.2379/Mum/2009], vide order dated 18.03.2011, has also held that where substantial question of law has been admitted by the Hon ble High Court against the additions sustained by the Tribunal, there cannot be any question of penalty u/s.271(1)(c). Similar view has been taken by the Third Member of the Tribunal in the case of Rapam Mercantiles Limited v. DCIT [(2004) 91 ITD 237 (Ahd.) (TM)]. In view of that matter, we delete the entire penalty levied consequent to the disallowances/additions on which the quantum appeal now is admitted by the High Court. It is needless to mention that it is not required at this stage to discuss or deliberate the grounds of appeals separately on merit. 5.2 Reliance was also placed on the decision of Indore Bench of the Tribunal in the case of Shri Yugal Kishore Jajoo, decided in ITA No.272/Ind/2011, vide order dated 12-2-2013, wherein the penalty imposed u/s.271(1)(c) was deleted by the Tribunal on the plea that in respect of addition so co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities in their respective orders with reference to levy of penalty u/s.2171(1)(c) of the I.T. Act. From the record we found that assessee company is engaged in the business of food and catering services. During the years under consideration, assessee company has claimed expenditure on foreign education and foreign travelling in respect of Tushar Khanna, who is son of one of the Directors of the assessee company. The expenditures were disallowed by the AO on the plea that these expenditures were in respect of study of Tushar Khanna, who is son of one of the Directors of the assessee company, therefore, expenditures were not for the purpose of the business of the assesse company but to benefit to the son of the Director. It was explained before the AO that food business in which assessee company is involved is highly specialized and extremely subjective to the varied tastes of customers. Proficient customer services backed by a highly dedicated system is a pre-requisite in this line of business. The company caters to the high-end society of Mumbai. It expends huge sums on staff training hiring the best personal in the Industry. A persistent problem faced by this Industry and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, it sponsored one of its employees to acquire hotel management education and training at Cornell University, USA. 8. From the record, we also found that on returning back to India, Tushar Khanna continued to be in whole-time employment of the assessee company and is offering his international experience and expertise and knowledge towards the growth and development of the assessee company s business. Mr. Tushar Khanna was in employment with the Company, before being sent abroad to acquire specific training and education in Hotel Management. While he was abroad, he continued to be in employment with the Company and was granted leave of absence towards such training. There is no dispute to the well settled proposition that assessment proceedings and penalty proceedings are separate and distinct and assessee has all the liberty to put his case in the penalty proceedings to prove that there was no concealment of particulars of income or no intention to furnish any inaccurate particulars. Merely because in the instant case in quantum proceedings, assessee s claim of expenses was declined by Tribunal on the plea that before passing Board resolution, there was all intention to send M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case and in law the Tribunal was justified in not allowing the appellant s claim of expenditure of ₹ 29,27,748/- incurred for the purpose of business by the appellant on the training of Mr. Tushar Khanna? ii) Whether on the facts and in the circumstances of the case and in law the Tribunal erred in not adjudicating the alternate plea, regarding the fact that there cannot be disallowance of expenditure on the ground of personal use in the case of the appellant being a company, which was specifically raised by the appellant s representative in the course appellate proceedings ? 9. We also found that issue with regard to allowability of claim of these expenditures is debatable insofar as in the assessment year 2001-02, The addition made by the AO was deleted by the CIT(A), even though matter was subsequently restored by the Tribunal to the file of the AO for deciding afresh and in the second round disallowances so made was confirmed by Tribunal. Thus, two views were available which rendered the matter debatable. When the issue is debatable and substantial question of law has been accepted by the Hon ble High Court, no penalty is levia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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