High Court Of Bombay
Echjay Forgings Ltd. vs. Assistant Commissioner Of Income Tax
Section 37
Asst. Year 1998-99
V.C. Daga & J.P. Devadhar, JJ.
IT Appeal No. 584 of 2009
12th June, 2009
Counsel Appeared :
P.J. Pardiwalla with V.S. Hadade, for the Appellant : P.S. Sahadevan, instructed by Suresh Kumar, for the Respondents
JUDGMENT
BY THE COURT :
Heard learned counsel for the parties.
2. Perused the appeal memo. The questions said to be substantial questions of law which sought to be raised, read as under : “(a) On the facts and in the circumstances of the case and in law, whether the Tribunal was right in dismissing the appeal and thereby confirming the disallowance of Rs. 11,83,697 being education expenses incurred in respect of a trainee during the course of the appellant’s business ?
(b) On the facts and in the circumstances of the case and in law, whether the Tribunal was right in holding that the expenditure incurred has no nexus with the business of the appellant and the same cannot be allowed under s. 37(1) of the Act ?” Facts
The factual aspects reveal that the appellant is an engineering company manufacturing various engineering items like steel forgings, automobile components, various types of rings, etc. For the asst. yr. 1998-99, the appellant-firm filed a return of income and the same was accompanied by annual report with audited accounts and tax audit report. During the year under consideration, one of the directors’ son Dhananjay Doshi was selected and sent abroad for higher studies said to be in industrial engineering on a condition that he would serve the appellant- company for a period of at least five years after the completion of his studies on a reasonable remuneration to be decided by the board of directors. Accordingly, the appellant incurred expenses and claimed deduction of expenditure incurred on this account amounting to Rs. 11,83,697, under s. 37 of the IT Act.
The AO, by referring various judgments on the issue, disallowed the expenses holding it to be expenses not incurred during the course of the appellant’s business and finally completed the assessment under s. 143(3) of the IT Act.
The appeal carried to the CIT(A) failed. The order of the CIT(A) was confirmed by the Tribunal. Being aggrieved by the orders of the authorities below, the appeal under s. 260A of the IT Act is invoked by the appellant. Rival submissions
7. Learned senior counsel appearing for the appellant urged that the Tribunal committed an error in disallowing the education expenses although the expenses incurred were in relation to the appellant’s business liable for deduction under s. 37 of the IT Act. In his submission, the Tribunal failed to appreciate that part of the education expenses incurred in the earlier assessment year were not disallowed although the assessment had been completed under s.
143(3) of the Act.
Learned senior counsel submits that the judgment of this Court in the case of CIT vs. Hindustan Hosiery Industries (1994) 209 ITR 383 (Bom) was wrongly relied on by the authorities below. According to him, the said judgment is distinguishable on the facts. He placed heavy reliance on another judgment of this Court in the case of Sakal Papers (P) Ltd. vs. CIT 1978 CTR (Bom) 318 : (1978) 114 ITR 256 (Bom) and tried to draw support from the said judgment.
Per contra, learned counsel appearing for the Revenue refuted the submissions made and went on to submit that the concurrent findings of fact are recorded by the authorities below and the assessee’s claim was rightly rejected based on appreciation of facts with which no fault can be found. In his submission, no perversity could be demonstrated by the appellant in the findings of fact recorded by the authorities below. According to him, Dhananjay Doshi was not an employee or director of the company. He, being a son of one of the directors these expenses were incurred by the father taking advantage of the position held by him. He, thus, tried to support the orders of the authorities below and prayed for rejection of appeal. Consideration
10. Having heard both the parties, it is not in dispute that Dhananjay Doshi was sent abroad for studies, but no evidence is on record know in what capacity he was sent. It is sought to be canvassed that Dhananjay Doshi was appointed as a trainee. On being asked, the letter of appointment dt. 25th April, 1996 was shown to us. The letter has neither any reference number nor is it backed by any previous application made by the trainee. The appointment letter refers to the apprentice training scheme with the company. However, no details thereof were produced either before this Court or before any of the authorities below. We were shown two appointment letters, one is dt. 25th April, 1996 and another is dt. 10th May, 1996. It is difficult to appreciate that why the second letter was issued, when already a letter dt. 25th April, 1996 was holding the field. No evidence is on record to show that any other person at any point of time, either prior to 1996 or subsequent thereto till date was appointed as trainee or sent abroad for higher education. During the course of hearing, on being asked, we were informed that in the last
13 years, no other person was sent for training.
11. In the aforesaid backdrop, if the findings recorded by the CIT(A) is read, one cannot find fault with the same. The findings in this regard read as under : “2.3 I have considered the submission of the appellant-company. To my mind, in the present case, the issue is related to pure appreciation of facts and no law point is involved. The appellantcompany’s shares are closely held. There is no evidence that Shri Dhananjay D. Doshi was recruited as ‘trainee’ by some open competitive examination or through some other regular selection process. It is also not clear as to in what capacity, Mr. Dhananjay D. Doshi was a ‘trainee’, as relevant documents have not been furnished either at the time of assessment or at the time of appellate proceedings. It is thus apparent that only consideration, for incurring Rs. 11,83,697 on Mr. Dhananjay Doshi is because, he being son of one of the directors of the appellant-company. Thus, the only logical conclusion which could be drawn on these facts of the case is that there is no nexus in between education expenses incurred abroad for Mr. Dhananjay D. Doshi and the business of the appellant-company. As such, these expenses cannot be considered as allowable expenses under s. 37(1) of the IT Act. The appeal is dismissed.
12. The aforesaid finding is confirmed by the Tribunal. The Tribunal has rightly distinguished the case of Sakal Papers (P) Ltd. vs. CIT 1978 CTR (Bom) 318 : (1978) 114 ITR 256 (Bom), on which heavy reliance was placed. No support can be drawn from this case. As a matter of fact, factual matrix in the present case reveals that the issue involved revolve around finding of fact based on pure appreciation of evidence. No documentary evidence with respect to appointment of trainee was produced before the Tribunal or before the assessing authority. For the first time, they were shown to this Court which do not inspire any judicial confidence as stated above.
13. In the aforesaid facts and circumstances of the case, the appeal is dismissed in limine for want of substantial question of law, with no order as to costs.
[Citation : 328 ITR 286]
