, ``
IN THE INCOME TAX APPELLATE TRIBUNAL
"J" BENCH, MUMBAI
, .
RAJENDRA, AM
BEFORE SHRI VIJAY PAL RAO, JM & SHRI RAJENDRA,
./I.T.A. No.1706/Mu
1706/Mu m/2009
No. 1706/Mum/2009
( / Assessment Year :2005-06)
./I.T.A. No.161/Mum/2011
No. 161/Mum/2011
( / Assessment Year :2006-07)
./I.T.A. No.4760/Mum/2010
No. 4760/Mum/2010
( / Assessment Year :2007-08)
M/s Jet Speed Audio Pvt. / The Assistant Co mmissioner
Ltd., 48, Pravasi Indl. of Income Tax, Circle-11(1),
Vs.
Estate, 2 n d Floor, Opp. Aarey 4 t h Floor, Aayaka r Bhavan,
Road, Goregaon East, Churchgate,
Mumbai Mumbai-20
. / . / PAN/GIR No. :AAACJ0260A
( /Appellant
Appellant)
pellant .. ( / Respondent)
Respondent
/Assessee by : Shri Satish R. Mody
/ Revenue by : Shri B. P. K. Panda
/ D a te o f H e ar i n g : 2nd December 2013
/D at e O f P ro n o u n c e m e n t : 11th December 2013
/ O R D E R
PER : , .. / VIJAY PAL RAO, JM
These three appeals by the assessee are directed against the
respective orders of the CIT(A) for the assessment years 2005-06 to
2007-08.
2. First common ground raised by the assessee in all these three
appeals except the amount involved is as under:
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"The Commissioner of Income Tax (Appeals) erred in
upholding the Assessing Officer order of disallowing Education
Expenses of ` 29,05,488/- on the facts."
3. Two Directors of the assessee company completed MBA course
abroad. Their expenses have been charged to the profit and loss
account. The assessee claimed that the MBA degree has helped the
Directors in improving the business profile of the assessee and
therefore, the expenditure incurred for acquiring higher professional
degree is an allowable business expenditure. The A.O denied the claim
of the assessee on the ground that these two Directors are sons of the
promoter directors of the assessee company and have been admitted
as directors for the sole purpose of debiting their education expenditure
to the profit and loss account of the company. On appeal, the CIT(A) has
confirmed the disallowance made by the A.O by holding that the
expenses are purely personal and under no circumstances can be
stated to be commercial in nature or business purposes of the assessee
company.
4. Before us the Ld. A.R of the assessee has submitted that Mr.
Keyur Shah and Mr. Varun Makhija were employee as Directors of the
assessee company in the prior years and not in the year when the
expenditure on education was incurred and claimed of the assessee. He
has further contended that these two Directors had already completed
their basic education prior to employed in the assessee company. The
education of MBA course was not in general but was very specific
course of Marketing & Finance in case of Mr. Keyur Shah and similarly
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Jet Speed Audio Pvt. Ltd.
the technical course for Mr. Varun Makhija is also for getting direct
benefit by the assessee company. After acquiring higher education in
the specific field and profession the directors would be able to manage
the affairs of the assessee more competitively and technically better in
the fast changing and stiff competitive scenario in the business of the
assessee company. He has further submitted that there are agreements
between the assessee company and these directors whereby the
directors gave prior undertaking to join back the assessee after
completing the courses and therefore the higher education would
benefit the companies business. He has relied upon the decision of
Hon'ble Jurisdiction High Court in case of Sakal Paper Pvt. Ltd. Vs CIT
114 ITR 256 and submitted that the Hon'ble Jurisdiction High Court has
held that the husband and wife as shareholders and directors of the
company running Marathi Paper incurred expenditure for obtaining
practical training of their daughter who was working in the editorial
department of the company was held to be revenue expenses. He has
also relied upon the following decision:
CIT Vs Dr. M. S. Shroff 80 ITR 687 (Del)
M/s J. B. Advani & Company Pvt. Ltd. 92 TTJ 175
Apurva Patel 7 SOT 755
5. The Ld. A.R has further pointed out that for the assessment year
2006-07 and 2007-08 the assessee has paid Fringe Benefit Tax (FBT) on
these expenses which have been accepted by the A.O after verification.
Therefore, in view of CBDT Circular No. 8/2005 dated 29.8.2005 the
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Jet Speed Audio Pvt. Ltd.
expenditure on education of the employee is an allowable business
expenses. In support of his contention he has relied the decision of this
Tribunal dated 16.9.2011 in case of Hansraj Mathuradas Vs ITO in ITA
No. 2397/M/2010.
6. On the other hand, the Ld. D.R has relied upon the orders of the
authorities below and submitted that when both the directors are sons
of the promoter-director of the assessee company then it is apparent
that they were inducted in the company with the sole purpose of
claiming the education expenses in the account of the company. He has
further submitted that the expenses incurred on education of the sons
of the promoter-directors are a personal expense cannot be allowed as
business expenses.
7. We have considered the rival submissions as well as relevant
material on record there is no dispute that these two directors after
completing their basic education were employed in the assessee
company in the earlier year and subsequently they were sent for higher
education of MBA and technical courses to foreign countries. It is not
disputed by the A.O that the assessee took the undertaking/bond from
these two directors for joining back to the assessee company after
completing their respective higher education. At the outset we note
that for the assessment years 2006-07 and 2007-08 the assessee paid
the Fringe Benefit Tax on these education expenses. The Assessing
Officer has categorically dealt with the payment of value and
chargeability of Fringe Benefit Tax as mentioned in the assessment
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order u/s 115 WE: "After verification, the value of Fringe Benefit
chargeable to tax is accepted at ` 12,91,235/-." Thus, it is clear that the
Fringe Benefit Tax paid by the assessee has been duly examined by the
A.O and then accepted. Once the A.O has accepted the FBT paid by the
assessee then such expenditure cannot be disallowed. The Co-ordinate
Bench of this Tribunal in case of Hansraj Mathuradas Vs ITO (supra) has
considered an identical issue in para 17 as under:
"17. We have heard the arguments of both the sides and also
perused the relevant material on record. The learned counsel
for the assessee has taken us through the CBDT Circular No.
8/2005 dated 29-08-2005 giving explanatory notes on the
provisions relating to fringe benefit tax as introduced by the
Finance Act, 2005 and invited our attention to the relevant
portion thereof to explain the object behind levying fringe
benefit tax. As indicated in the said circular, the fringe benefit
tax has been introduced as a surrogate tax on employer with
the objects of resolving the problems in taxing some
perquisites/fringe benefits in the hands of the employees in
terms of section 17. Further, as explained in para No. 3.2 of
the Circular, the scope of the term "fringe benefits provided" is
defined in section 11 5WB (1) to mean any consideration for
employment provided by way of any privilege, service facility
or amenity, directly or indirectly, provided by an employer,
whether by way of reimbursement or otherwise, to his
employees. Moreover, as clarified in the said circular while
answering frequently asked question No. 15, fringe benefit is
deemed to have been provided if the employer has incurred
expenses for any of the purposes referred to in the relevant
provisions and there is no requirement to segragate such
expenses between those incurred for official purposes and
personal purposes. It was further clarified while answering
question No. 81 that when expenditure on running and
maintenance of motor cars is liable to fringe benefit tax, the
employees will not be liable to income tax on the perquisite
value of motor car provided by the employer. As rightly
contended by the learned counsel for the assessee, circular
No. 8/2005 dated 29-08-2005 issued by the Board explaining
the provisions relating to fringe benefit tax thus makes it clear
that fringe benefit tax is levied on the expenses incurred by
the employer irrespective of whether the same are incurred for
official or personal purposes. In our opinion, once fringe
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Jet Speed Audio Pvt. Ltd.
benefit tax is levied on such expenses as has been done in the
present case, it follows that the same are treated as fringe
benefits provided by the assessee as employer to its
employees and the same have to be appropriately allowed as
expenses incurred wholly and exclusively incurred by the
assessee for the purpose of its business. In that view of the
matter, we delete the disallowance made by the A.O and
confirmed by the learned CIT(A) out of conveyance and
telephone expenses and allow ground no. 4 and 5 of the
assessee's appeal."
8. Apart from the payment of Fringe Benefit Tax and acceptance of
the same by the revenue we further note that the expenditure in
question has been incurred by the assessee for the professional higher
education of its employees (directors) for reaping the benefit of the said
higher education and accordingly the said expenditure is an allowable
business expenditure. The Hon'ble Jurisdiction High Court in case of
Sakal Papers Pvt. Ltd. Vs CIT (supra) has held as under:
"On these facts, it appears to us impossible to accept the
Tribunal's contention that merely because there was no
commitment or contract or bond taken from the trainee, the
expenditure, which was otherwise proper, should be
disallowed to the company, particularly when as a result of
that expenditure the trainee has secured both a degree and
training which will be of assistance to the assessee-company
and she has in fact served the assessee-company after her
return to India. The relationship between the directors and the
trainee is also to be borne in mind. With that relationship the
question is whether any formal contract or bond is required.
We are of the opinion, that the factum of relationship itself will
confer assurance on any scrutinising mind that as far as
possible the result of the training will be utilised for the benefit
of the company.
On the facts as found by the Tribunal, which have been
indicated and summarized above, is appears to us that the
reason given by the Tribunal for the disallowance in the facts
and circumstances of this case and particularly bearing in
mind the close relationship of the two directors and the trainee
is clearly unsustainable; and if that be the only reason which
has weighed with the Tribunal, we must answer the question
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referred to us in favour of the assessee since the view we have
taken is that the reason given by the Tribunal is not a good
reason."
9. The above decision of the Hon'ble Jurisdiction High Court is
applicable in the facts of the case in hand. Accordingly, in the facts and
circumstances of the case and in view of the above discussion we
delete the addition made by the A.O on this account and decide this
issue in favour of the assessee. The decision relied upon by the A.O are
clearly distinguishable on the facts and therefore would not help the
case of the revenue.
2005-06
For the assessment year 2005-
10. The assessee has raised another ground as under:
"The Commissioner of Income Tax(Appeals) erred in upholding
the Assessing Officer order of ad-hoc disallowance of Vehicle
Expenses & Depreciation on Vehicle totalling to ` 48,138/- on
the facts."
11. We have heard the Ld. A.R as well as Ld. D.R and considered the
relevant material on record. The A.O has disallowed 20% of the Vehicle
Expenses on the ground of personal element in para 4 as under:
"4. Assessee has debited vehicle expenses of ` 2,21,330/- in
the Profit & Loss A/c filed. Similarly, assessee has claimed the
depreciation of ` 19,359/- on account of vehicle owned.
Considering the personal element involved, 1/5th of the total
expenses amounting to ` 48,138/- is hereby disallowed and
added back to the income returned to the assessee."
12. It is clear from the assessment order that the A.O has not pointed
out any fact or circumstances indicate the personal use of the vehicles
and further no basis has been given for ad-hoc disallowance of 20% on
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this account. The CIT(A) has also not discussed any fact or
circumstances but just confirm the disallowance made by the A.O in
para 3.2 as under:
"3.2 I have considered the rival submissions and the materials
on record. Personal element in such expenses cannot be ruled
out. In my opinion, disallowance @ 20% is quite justifiable.
This ground also deserves to be rejected."
13. It is clear from the findings of the authorities below that no
specific averment or incident has been brought on record to indicate
that the vehicle has been used other then the business purposes. Even
otherwise in the case of company if it is found that the vehicle has been
used for personal purpose then it can be considered as perquisites in
the hands of the user employee. Accordingly, in the facts and
circumstances of the case we do not find any justification on ad-hoc
disallowance of 20% on this account. Hence the same is deleted.
2006-07
For the assessment year 2006-
14. The assessee has raised the second ground as under:
"The Commissioner of Income Tax(Appeals) erred, in the
circumstances of the case and in law, upholding the Assessing
Officer order of disallowing the claim of bad debts of ` 33,445/-
"
15. The assessee has claimed an amount of ` 33,445/- as a part of
bad debts. This amount have been advanced to an old employee
namely Shri Vijay Jadhav and had not been recovered by the assessee.
The A.O disallowed the said claim at the ground that this amount is not
a bad debts and the assessee is not eligible to claim expenditure of the
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Jet Speed Audio Pvt. Ltd.
same as bad debts. On appeal, the CIT(A) confirmed the disallowance
made by the A.O.
16. Before us the Ld. A.R has submitted that an advance of ` 50,000/-
was given to an employee who subsequently left the service of the
assessee and accordingly a sum of ` 33,445/- remained outstanding.
The Ld. A.R has submitted that since the employee had already left the
service of the assessee it was not possible to recover the assessee
amount therefore the same may be allowed as business loss if not as
bad debts. On the other hand, the Ld. D.R has relied upon the orders of
the authorities below and submitted that the loan given by the assessee
does not qualified as allowable claim of expenditure therefore, same
cannot be allowed even as business loss.
17. Having considered the rival submissions as well as relevant
material on record we are of the view that the assessee has failed to
establish that the amount paid to the employee was for the purpose of
the business of the assessee. Advancing loan which is not the business
activity of the assessee and further having no nexus with the business
of the assessee cannot be allowed as bad debts or business loss, if the
assessee is not able to recover the same. Accordingly, we do not find
any error or illegality in the orders of the authorities below qua this
issue.
18. In the result, the appeals of the assessee for the assessment
years 2005-06 and 2007-08 are allowed and assessment year 2006-07
is partly allowed.
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Jet Speed Audio Pvt. Ltd.
Order pronounced in the open Court on this 11th day of December
2013
Sd/- Sd/-
( ) ( )
(RAJENDRA) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai : Dated: 11th December 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai
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