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TMI Blog2019 (10) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... required to pay only ₹ 50,000/- as default money, which too could also be waived off at the discretion of the Director of the assessee. When these contradictions were pointed out, the Assessee produced the supplemental agreement dated 01.11.2000 wherein she agreed to serve the Company for not less than two years and in the event of default, reimburse 50% of the expenditure incurred on higher education. These facts cannot be ignored and one can easily infer that the expenses were not incurred wholly and exclusively for the business of the Company. In the first round of a challenge, the assessee, despite opportunity failed to produce the evidence that would justify the expenditure, as noted in the impugned order. The assessee could not produce any evidence to show that the assessee company had sponsored the application of Ms. Esha Arya from the beginning. AO thus correctly concluded that there was no nexus between the higher education expense of Ms. Esha Arya and the business of the assessee and accordingly disallowed the entire sum holding that it was not an expenditure incurred wholly and exclusively for the purpose of business. - Decided against assessee. - ITA 519/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Ms. Esha Arya for admission to the Boston University, USA. The Assessing Officer also noted that the assessee did not have any scheme for training of the employees, particularly for imparting higher education. Further appeal before the CIT (A) met the same fate and the CIT (A) upheld the disallowance of the expenditure claimed by the appellant. The Tribunal, in the impugned order has extracted the findings returned by the CIT (A). Since the same are pertinent, we reproduce the same as hereunder: 6.2 I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer and the facts on record. I have also perused the judgments relied upon by learned counsel of the assessee. I have also perused the directions given by the Hon ble ITAT; New Delhi which were very specific. The appellant was given clear directions by the ITAT to furnish all the facts starting from making the application of admission till making the last payment. However, it is found that no evidence regarding application of admission could be produced by the assessee before the A.O. and also before the undersigned as per the directions of the ITAT It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. In any case, such expenditure on facts cannot be said to be laid out or expbiTdeTwholly and exclusively for the purpose of business. In view of the foregoing discussion and for the reasons given by the AO, I am of the considered view that the expenditure on education of Miss Esha Arya is in nature of personal expenditure of the Director of the appellant company, which cannot be stated to be laid out or expended wholly and exclusively for the purposes of business of the appellant company. As such, these expenses cannot be considered as allowable expenses under section 37(1) of the Act. Therefore, disallowance made by the AO on account of the educational expenses incurred by the appellant on behalf of Ms Esha Arya, is hereby upheld. As a result, Ground of appeal No. 4 for the assessment years 2001-02, 2002-03, 2003-04 2004-05 is dismissed. (sic) (emphasis supplied) 6. Before the Tribunal, the assessee produced the paper book containing 224 pages to justify its claim of deductable expenses. The Tribunal has not found merit in the appeal and dismissed the same. The discussion found in the impugned order reads as follows: 12. We have heard th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, itself is sufficient to dismiss the appeal of the assessee. 15. 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. 16. We also note that in assessment year 2003-04, the Assessing Officer has disallowed the salary of ₹ 33,337/- paid by the assessee to Ms. Esha arya observing as under: 7.In respect of assessment year 2003-04, the appellant has also raised Grounds of appeal No.5 which relates to the disallowance of the salary to the extent of ₹ 33,337/- paid by the appellant to Ms. Esha Arya. This matter was also restored to the file of the AO for fresh adjudication after ascertaining whether any service was rendered by her to the assessee company in this year for during her vocation pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the director of the company updated about the latest trends and developments in the field of consultancy and was also sending key input in the form of articles, research papers etc to enable the company to keep itself updated of the technical know-how and knowledge. Whereas, in the instant case before us, even the claim of services during the vocation period has not been found to be true. Thus, the ratio of the above decision cannot be applied over the facts of the instant case. In the case of Mallige Medical Centre Private Limited (supra), the daughter of the managing director acquired degree in medicine and she was already employed with company as full-time employee. In the instant case, the daughter of the director barely attained the age of 18 years and completed schooling. Thus, facts of the instant case are distinguishable from the facts of the cases relied upon by the assessee. (emphasis supplied) 7. The submission of Mr. Santhanam, learned counsel for the appellant, is that the Tribunal heard the submissions on 18.12.2018 and pronounced the impugned order on 20.12.2018 without considering the compilation of documents submitted by the appellant. He fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Esha Arya to Boston University to undertake the MBA Course were her parents, and none else. She also points out that the nature of the bond executed by Ms. Esha Arya is also questionable inasmuch as, she was only required to serve the company, upon her return, for a period of one year, failing which she was subjected to penalty of ₹ 50,000/-, which too could be waived. 11. She points out that the expenditure incurred by the appellant company on the foreign education of Ms. Esha Arya was to the tune of ₹ 70 lakhs (approx.), spread over a period of four years. She also points out that the assessee company was running into losses when it purportedly resolved to send Ms. Esha Arya for her higher education to Boston University for the MBA course. 12. We have gone through the facts of the case and have also examined the judgments cited by the Appellant as well as the Revenue. The assessee has claimed expenditure in respect of educational expenses incurred by the assessee for overseas education of Ms. Esha Arya, daughter of one of the directors of the assessee company. The expenses were disallowed concurrently by all the authorities- the A.O, CIT (A) as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings are perverse or contrary to the evidence and material on record. 15. It is also to be noted that the Appellant is a Company engaged in the business of manufacturing of Sheet Metal components and LPG Cylinders. It has claimed that it incurred expenses for education of the newly inducted Director- 18 year old daughter of at least one of the existing Directors, for pursuing MBA programme in USA. The Board of Directors comprised of Sh. S.K. Arya and Smt. Neelam Arya (Husband Wife) and Ms. Esha Arya (their daughter) was inducted in the business as a Director at the start of the previous year in respect of assessment year 2001-2002, when she was barely 18 years of age. 16. In Kostub Investment Ltd (supra), the crucial factor that prevailed upon the Court is noticeable in the following words, But that it has chosen to fund the higher education of one of its Director's sons in a field intimately connected with its business is a crucial factor that the Court cannot ignore. The assessee in that case was in the business of investments and securities and it claimed expenditure on account of education and training under the head Education and Training Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the matter to the file of the AO, in the first round of a challenge, the assessee, despite opportunity failed to produce the evidence that would justify the expenditure, as noted in the impugned order. The assessee could not produce any evidence to show that the assessee company had sponsored the application of Ms. Esha Arya from the beginning. The Assessing Officer thus concluded that there was no nexus between the higher education expense of Ms. Esha Arya and the business of the assessee and accordingly disallowed the entire sum holding that it was not an expenditure incurred wholly and exclusively for the purpose of business. While it may also be true that it is for the assessee to decide as to who should be employed, and what should be the terms of the Contract, however, it is for the Income Tax Officer to determine whether there is indeed a nexus between the expense and the business of the Company and for that, the enquiry conducted by him cannot be faulted with. The present case is similar to Natco Exports Pvt. Ltd. (supra). The distinction sought to be drawn by Mr. Santhanam on the ground that in the present case Ms. Esha Arya had executed a bond with the assessee Co ..... 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