M/S. Kansara Bearing Ltd v. The Income Tax Officer, War 1(1), Jodhpur

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR J U D G M E N T INCOME TAX APPEAL NO.57/2011 M/S. KANSARA BEARING LTD. VS. THE INCOME TAX OFFICER, WAR 1(1), JODHPUR Date of Judgment : 15.03.2011 HON'BLE MR. JUSTICE A.M. SAPREHON'BLE MR. JUSTICE C.M. TOTLA Mr. Anjay Kothari, for the appellant. BY THE COURT : (PER HON'BLE SAPRE,J.) This is an appeal filed by the assessee underSection 260-A of the Income Tax Act against an order dated06.08.2009 passed by I.T.A.T., Jodhpur Bench, Jodhpur (forshort called Tribunal) in I.T.A. No.452/JU/2008 for the periodAY 2004-05. 2.By the impugned order, the Tribunal partly allowedthe appeal of Revenue and to some extent modified the orderof Commissioner of Appeals impugned in this appeal on theissue raised in this appeal. 3.So the question that arises for consideration inthese appeals is whether it involves any substantial questionof law within the meaning of Section 260-A ibid? 4.Facts of the case are these:5.The appellant is a privet limited company whoseone of the director is Mr. Navaratan Kansara. The appellant is engaged in manufacture of semi-finished rollers that is one ofthe components of bearings. 6.Mr. Navaratan Kansara has a son by name MasterNaveen. He was sent to Australia for doing graduation by hisfather (Mr. Navaratan Kansara). According to appellant(assessee), since the appellant Company incurred all theexpenses of Master Naveen (Rs, 33,27,116) while he was atAustralia, and hence they were entitled to claim thisexpenditure as business expenditure in their profit and lossaccount in the year under consideration. According to assesee,since visit of Naveen to Australia was approved by the Board ofDirectors of the assessee (company) prior to his leaving on hisapplying to Assessee to finance with a rider that he wouldserve the assessee company on his return from Australia on amonthly salary not exceeding Rs. 15,000 and hence, the entireexpenditure incurred by the assessee should be allowed asbusiness expenditure as having been incurred wholly andexclusively for the business of the assessee company. It is thisclaim that was disallowed by the assessing officer, butallowed by the Commissioner of Income Tax (appeals) in anappeal filed by the assessee and later reversed by the Tribunalby impugned order against the assessee giving rise to filing ofthis appeal by the assessee under Section 260-A ibid. 7.While reversing the findings of the Commissionerof Appeals, the Tribunal in Para 5 of the impugned order heldas under: “On careful analysis of the materialavailable on record in the light ofarguments advanced by the ld. D.R. in thelight of written submissions made by theassessee and the findings of the CIT(A) it isfound that the assessee has claimedRs.33,27,116/- spent on account of studyas well as salary paid to Mr. NaveenKansara during his stay at Australia for hiseducation. The assessee has not placed 3 7.While reversing the findings of the Commissionerof Appeals, the Tribunal in Para 5 of the impugned order heldas under: “On careful analysis of the materialavailable on record in the light ofarguments advanced by the ld. D.R. in thelight of written submissions made by theassessee and the findings of the CIT(A) it isfound that the assessee has claimedRs.33,27,116/- spent on account of studyas well as salary paid to Mr. NaveenKansara during his stay at Australia for hiseducation. The assessee has not placed 3 any agreement that was entered into withMr. Naveen Kansara nor the appointmentletter given to Mr. Naveen Kansara by theassessee taking him as employee of theassessee when he was sponsored forhigher education. It is undisputed that Mr.Naveen Kansara has passed 12[th] standardat the time of approaching the assessee forhis sponsorship to Australia for education.That means the said Mr. Naveen Kansara isonly of maximum 17 years only which willnot allow him to be taken on employmentby anybody, as he is not even a major.Apart from that, the assessee has notplaced any material before the departmentor Tribunal to show that it is the methodfollowed by it while taking any employee.So also, the assessee has not placed anymaterial showing that the said Mr. NaveenKansara as its employee as per Payment ofWages Act. The assesee has madeavailable the copies of Mr. Naveen KansaraE.T. Account for the period 11.2.1999 to31.3.2000 and F.Y. 200-01 and 2003-04.On perusal of these accounts, nowhere itwas written that the said Mr. NaveenKansara waspaid salary as per theresolution passed by the Board of Directorsrelied on by the assessee. This accountdiscloses the amounts spend for obtainingDDs and Cheques issued on SBBJ cashcredit account, etc. Accordingly, no entryin these accounts disclosed that theamount is paid for meeting out theeducational expenses of Mr. NaveenKansara even assuming but not acceptingthe contention of the assessee that the saidMr. Naveen Kansara was sent by theassessee for higher education to itsbenefit. It is pertinent to note that afterreturn from Australia, the said Mr. NaveenKansara has joined the assessee, from1.1.2004 on a monthly salary of Rs.7,350/-which is quite contrary to the approval ofthe Board of the assessee that is relied bythe assessee. Though, the assessee hasfiled the copy of Academic Transcript ofShri Naveen Kansara, it has not filed anyconfirmation from him supporting the plea of the assessee nor the appointment letterissued to Mr. Naveen Kansara or joiningreport of Mr. Naveen Kansara in order toestablish that Mr. Naveen Kansara is anemployee of the assessee. Considering theabove undisputed facts of in total, it isclear that the assesee has a entertained theidea of meeting education expenses of Mr.Naveen Kansara because he happens to bethe son of Managing Director Shri NavratanKansara in order to have a personal benefitfor himself under the guise of training ofemployees. Under these facts andcircumstances of the case, the action of theAssessing Officer in disallowing the claimof the of 33,27,116/- as expenses foreducational training of employee is verymuch right whereas the decision taken bythe ld. CIT(A) otherwise is unsustainablefor legal scrutiny. The various authoritiesrelied on by the assessee aredistinguishable as in those cases there areclear findings that they were first employedand during their employment only theywere sent for training or advance studies inthe sphere of their work with the employer.That was allowed as expenditure fortraining and higher education of theemployees. Therefore, the assessee cannotclaim the support of those judicialpronouncements as the facts are entirelydifference and distinguishable.” 8.Learned counsel for the appellant (assessee)placing reliance on several authorities, contended that theview taken by the Tribunal is not correct and hence it shouldbe reversed and that of the one taken by the Commissioner ofAppeal be restored which has held that the amount inquestion spent by the assessee is an allowable deduction asbusiness expenditure. It is this submission that waselaborated by the learned counsel by pointing out the factualmatrix of the case as to how and why the expenditure claimedshould be allowed as business expenditure. 5 9.Having heard the learned counsel for the appellantand on perusal of the record of the case, we are of the viewthat the reasoning and conclusion arrived at by the Tribunal iscorrect and hence does not call for any interference. In otherwords, on the reasoning and conclusion of the Tribunal, nosubstantial question of law arise within the meaning of Section260-A ibid. 10.In our view, on facts found proved as were takennote of by the Tribunal, the expenditure alleged to have beenspent by the assessee (company) for Master Naveen for hishigher studies in Australia can not be said to be the one spentby the assessee (company) wholly and exclusively for runningthe business of the assessee Company. The fact that MasterNaveen was the son of one of the Director of the assessee(company), that it was a family concern ( company ) of the saiddirector, that Master Naveen was not sent as an employee ofthe company for any higher studies, that on his return hewas to serve the assessee on a salary of less then Rs.15,000were indicative of the facts that assessee was not spendingthis sum for the benefit of the company’s business in itsreality but was just giving colour to the transaction of itbeing a genuine one so that they were able to debit all suchexpenditure in the company’s account. Had it been a casewhere a person sent abroad was in the employment ofassessee, and had entered into an agreement with theassessee company to serve with them on his return so as togive his expertise knowledge and skill for agumentingassessee's business, then one could have understood that theassessee really spent the money for the benefit of theirbusiness. Such was not the case here. With our theseobservations, we do not mean to say that case of father andson relation could never be made basis to claim the deductionof this nature. All that we wish to say is that in the facts relied 6 upon by the assessee, the expenditure claimed by theassessee, as business expenditure cannot be allowed. 11.Expenditure once proved to be incurred by theassessee wholly and exclusively for running his business, canbe claimed as business expenditure by such assessee underSection 37 ibid in the year in which it was incurred dependingupon the system of accountancy adopted by them. In everycase, it would depend upon the facts involved, such as natureof business in which assessee is engaged, the nature ofexpenditure incurred and claimed as business expenditure, itsproximity with the business, for whom, it was incurred,whether it can be regarded as bonafide and genuine etc.? Inthe facts of this case, these tests were not found proved. 12.Learned counsel for the assessee relied upon thecase law on the subject. We have perused the case law reliedupon. In our view, they are distinguishable on facts becauseon the facts found proved, the expenditure was allowed asbusiness expenditure. In this case, we do not find such factsto be present and hence no benefit can be derived from thesecases relied upon by the learned counsel for the appellant. Wethus do not wish to deal with these case showing theirdistinguishing factual features. 13.In view of foregoing discussion, we find no merit inthe appeal that does not involve any substantial question oflaw within the meaning of Section 260-A of the Income TaxAct. The appeal thus fails and is accordingly dismissed inlimine. No costs. 12.Learned counsel for the assessee relied upon thecase law on the subject. We have perused the case law reliedupon. In our view, they are distinguishable on facts becauseon the facts found proved, the expenditure was allowed asbusiness expenditure. In this case, we do not find such factsto be present and hence no benefit can be derived from thesecases relied upon by the learned counsel for the appellant. Wethus do not wish to deal with these case showing theirdistinguishing factual features. 13.In view of foregoing discussion, we find no merit inthe appeal that does not involve any substantial question oflaw within the meaning of Section 260-A of the Income TaxAct. The appeal thus fails and is accordingly dismissed inlimine. No costs. [C.M. Totla ], J. [A .M. Sapre],J. /Anil/