VISHESH ENTERTAINMENT LTD, MUMBAI v. ACIT CIR 11(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI PRAMOD KUM AR (A.M.) ITA NO. 305/MUM/2009 ASSESSMENT YEAR : 2004-05 M/S VISHESH ENTERTAINMENT LTD. 36 SHUBH JEEVAN GULMOHAR ROAD JVPD SCHEME MUMBAI 400 049. PAN : AABCV0631Q VS. ASSTT. CIT CIRCLE 11(1) 4 TH FLOOR AAYKAR BHAVAN MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : DR. K. SHIVARAM RESPONDENT BY : SMT. ASHIMA GUPTA O R D E R PER D.K. AGARWAL J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 21.10.2008 PASSED BY THE LD. CIT (A) FOR THE A.Y. 2004-05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION OF FEATURE FI LMS AND T.V. SERIALS. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION FOUR FILMS VIZ. SAAYA FOOTPATH INTHIAH AND MURDER WERE RELEASED. DURING THE COURSE OF ASSESSMENT PRO CEEDING IT WAS INTER ALIA OBSERVED BY THE A.O. THAT THE ASSESSEE HAS SPE NT ` 21 43 220/- IN ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 2 FOREIGN CURRENCY FOR THE TRAINING OF MR. VISHESH BH ATT IN U.S.A. MR. VISHESH BHATT IS THE SON OF MR. MUKESH BHATT WHO IS THE MAJOR SHAREHOLDER OF THE ASSESSEE COMPANY. TAKING INTO C ONSIDERATION VARIOUS FACTS SUCH AS QUALIFICATION OF MR. VISHESH BHATT R ELATIONSHIP WITH THE MAJOR SHAREHOLDERS HIS AGE ACADEMIC QUALIFICATION AND PURPOSE OF EXPENSES INCURRED THE ASSESSEE WAS REQUESTED TO EX PLAIN WHY THE EXPENSES SHOULD NOT BE DISALLOWED AS THE SAME WAS N OT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE A SSESSEE INTER ALIA SUBMITTED AS UNDER:- MR. VISHESH BHATT WENT TO STUDY CINEMATOGRAPHY AN D FILM/VIDEO PRODUCTION. - HE IS ALSO A DIRECTOR IN THE COMPANY. - THERE WAS A BOARD RESOLUTION FOR SUCH PURPOSE UP ON WHICH AN AGREEMENT WAS ENTERED INTO WITH THE SAID DIRECTO R. - MR. VISHESH BHATT IS YOUNG IN AGE AND HIS TRAININ G WOULD BE BENEFICIAL TO THE INTEREST OF THE COMPANY. - THE EXPENSE IS NEITHER CAPITAL NOR PERSONAL IN N ATURE. - THE TRAINING WAS NECESSARY IN VIEW OF THE COMPETI TION IN MARKET. SUCH ARGUMENT DID NOT FIND FAVOUR WITH THE A.O. THE A.O. OBSERVED THAT SHRI MUKESH BHATT OWNS 29 206 OUT OF 50 000 SHARES OF THE COMPANY AND 20 788 SHARES ARE OWNED BY VISHESH FILMS PVT. L TD. WHICH IS FULLY OWNED BY MR. MUKESH BHATT AND HIS WIFE SMT. NEELIMA . THEREFORE ALMOST 99.9% OF THE PAID UP EQUITY SHARES OF THE CO MPANY IS OWNED AND CONTROLLED BY MR. MUKESH BHATT AND HIS WIFE. THEIR SON MR. VISHESH ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 3 BHATT IS A NON-SHAREHOLDING DIRECTOR OF THE COMPANY WHO STUDIED UPTO CLASS XII HIS DATE OF BIRTH BEING 7.5.84. HE LEFT FOR TRAINING ABROAD AT THE AGE OF 19 YEARS. HE WAS MADE A DIRECTOR IN THE ASSE SSEES COMPANY IN THE LAST ASSESSMENT YEAR. THE A.O. THEREFORE CONCLUD ED THAT THE EDUCATION OF MR. VISHESH BHATT ABROAD WAS IN CONTINUATION OF HIS STUDIES IN A NORMAL COURSE AFTER XII STANDARD AND HAD NOTHING TO DO WITH THE BUSINESS OF THE APPELLANT COMPANY. FURTHER THE RES OLUTION OF THE COMPANY CANNOT OVERRIDE THE PROVISIONS OF SECTION 3 7 AND ACCORDINGLY THE A.O. AFTER RELYING ON CERTAIN DECISIONS NAMELY SIDDHO MAL SONS VS. ITO 122 ITR 839 (DEL) BENGAL ENAMEL WORKS LTD. (19 70) 77 ITR 199 (SC) AND SWADESHI COTTON MILLS LTD. 63 ITR 57 (SC) HELD THAT THE EXPENSES INCURRED BY THE ASSESSEE IS NOT EXCLUSIVEL Y FOR THE PURPOSES OF HIS BUSINESS BUT HAVE EXTRA COMMERCIAL CONSIDERATIO N AND THE RESOLUTION IS NOT BONAFIDE IN THE INTEREST OF THE ASSESSEE COM PANY BUT WAS PASSED WITH AN ULTERIOR MOTIVE TO BENEFIT THE SON OF THE D IRECTOR HOLDING 99.99% SHARE OF THE COMPANY AND CONSEQUENTLY HE DISALLOWED THE AMOUNT OF ` 21 43 220/- AND ADDED TO THE INCOME OF THE ASSESSEE . 3. BEFORE THE LD. CIT(A) THE ASSESSEE WHILE RELYIN G ON THE SAME EXPLANATION AS PUT FORTH BEFORE THE A.O. FURTHER SU BMITS THAT MR. VISHESH BHATT HAD GIVEN AN UNDERTAKING TO WORK EXCLUSIVELY FOR THE APPELLANT COMPANY FOR FIVE YEARS AND TO COMPLETE AT LEAST ONE PROJECT EVERY YEAR AND THERE IS ALSO PENAL CLAUSE FOR VIOLATING THE C ONDITIONS OF THE ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 4 AGREEMENT THEREFORE THE EXPENSES CLAIMED BY THE A SSESSEE ARE ALLOWABLE AS BUSINESS EXPENDITURE. THE LD. CIT(A) WHILE OBSER VING THAT SHAREHOLDING POSITION CLEARLY SHOWS THAT THE FATHER AND MOTHER OF MR. VISHESH BHATT ARE 99% SHAREHOLDERS OF THE COMPANY. THE AGE OF MR. VISHESH BHATT ALSO SHOWS THAT HE HAD TO CONTINUE HI S STUDIES AFTER CLASS XII WHICH HE DID. THE PARENTS PERHAPS DESIRED THA T THEIR SON UNDERTAKE STUDY CONNECTED WITH FILM MAKING THEY BEING IN FIL M MAKING BUSINESS FOR WHICH THEY SENT HIM ABROAD. THIS IS A PERSONAL DECISION AND SHOULD HAVE BEEN A POST TAX MATTER. THE ARRANGEMENT MADE T O SHOW THAT THIS WAS A COMMERCIAL DECISION IS NOT ACCEPTABLE. THE LD . CIT(A) RELYING ON THE RATIO OF THE DECISION IN THE CASE OF BENGAL ENAMEL WORKS LTD. [177 ITR 199] WHILE AGREEING WITH THE FINDINGS OF THE A.O. H ELD THAT IT IS CLEARLY A PERSONAL DECISION FOR EDUCATION OF THE CHILD WHICH IS ATTEMPTED TO BE PASSED ON AS A COMMERCIAL DECISION AND ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUND OF APP EAL:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL IN LAW THE LEARNED C.I.T. (A) XI ERRED IN CONFIRMING THE DISAL LOWANCE MADE BY LEARNED A.O. ON ACCOUNT OF TRAINING EXPENSES ` 21 43 220/- OF A DIRECTOR IN THE USA FOR THE COURSE OF CINEMATOGRAPH Y WITH BINDING MEMORANDUM OF UNDERTAKING ENTERED WITH THE DIRECTOR . ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 5 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND LD. CIT(A) DRAWS OUR ATTENTION TO THE BOARDS RESOLUTIO N DTD. 1.4.2003 AND MEMORANDUM OF UNDERTAKING DATED 10.4.2003 BETWEEN V ISHESH ENTERTAINMENT LTD. AND MR. VISHESH M. BHATT APPEARI NG AT PAGE NO. 97 1 & 2 OF THE ASSESSEES PAPER BOOK TO SHOW THAT MR. VISHESH BHATT WENT ABROAD TO STUDY CINEMATOGRAPHY AND FILM/VIDEO PRODU CTION VIDE CERTIFICATE OF ELIGIBILITY FOR NONIMMIGRANT (F-1) S TUDENT APPEARING AT PAGE NO. 12 OF THE ASSESSEES PAPER BOOK. THE LD. COUNSE L FOR THE ASSESSEE WHILE REFERRING TO THE COPY OF LEDGER ACCOUNT OF TR AINING EXPENSES LETTER DATED 28.2.2004 FOR PAYMENT TO NEW YORK UNIVERSITY COPY OF PASSPORT VISA APPEARING AT PAGE NO. 3 TO 27 OF THE ASSESSEE S PAPER BOOK SUBMITS THAT ASSESSEE IS A CORPORATE ENTITY AND THERE IS NO PERSONAL ELEMENT FOR A CORPORATE ENTITY. THE DIRECTOR HAS WORKED FOR FIVE YEARS AS PER THE TERMS OF THE AGREEMENT AND IS STILL WORKING WITH THE COMP ANY. THE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE TRAINING WAS NECESSARY IN VIEW OF THE COMPETITION I N THE MARKET. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SAKAL PAPERS PVT. LTD. VS. CIT [1978] 114 ITR 256 (BOM) WHEREIN THEIR LORDSHIPS WHILE HOLDING THAT T HE EXPENSES INCURRED ON FOREIGN EDUCATION CANNOT BE DISALLOWED MERELY BE CAUSE THE RELATIONSHIP WITH THE DIRECTOR (DAUGHTER OF DIRECTO R) HELD THAT THE EXPENDITURE INCURRED ON THE FOREIGN EDUCATION OF TH E DAUGHTER WAS ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 6 ALLOWABLE AS A DEDUCTION. THE RELIANCE WAS ALSO PL ACED ON THE DECISION IN THE CASE OF CIT VS. KOHINOOR PAPER PRODUCTS [1997] 226 ITR 220 (M.P.) WHEREIN IT HAS BEEN HELD THAT THE EXPENSES INCURRED FOR BETTER EDUCATION AND GREATER EXPERIENCE OF PARTNER ARE ALLOWABLE AS BUSINESS EXPENDITURE. RELIANCE WAS ALSO PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S SEFTECH INDIA P VT. LTD. ITA NO. 4407/M/2003 & 6119/M/2003 DATED 22.7.2005 WHEREIN T HE TRIBUNAL FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN SAKAL PAPERS PVT. LTD. (SUPRA) HELD THAT IN THE INSTANT CASE THE PERS ON WAS WORKING AS A DIRECTOR BEFORE PROCEEDING TO HIGHER STUDIES AND CO NTINUED TO SERVE THE ASSESSEE EVEN AFTER GETTING THE TRAINING WHICH IN T URN HELPED THE ASSESSEE COMPANY IN FURTHERING ITS BUSINESS ALLOWED THE EXP ENSES CLAIMED BY THE ASSESSEE. RELIANCE WAS ALSO PLACED IN THE CASE OF P RABHUDAS LILLADHAR PVT. LTD. VS. DCIT AND VICE-VERSA IN ITA NO. 2042/M UM/2004 AND 2157/MUM/2004 DATED 22.4.2008 WHEREIN IT HAS BEEN H ELD THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IN GIVI NG TUITION FEES OF MR. MIHIR A. SHETH IN PURSUING HIS DEGREE IN MBA IN USA IS AN ALLOWABLE DEDUCTION. THE RELIANCE WAS ALSO PLACED ON THE DECI SION IN THE CASE OF J.B. ADVANI & CO. VS. JCIT [2005] 92 TTJ (MUMBAI) 1 75 WHEREIN IT HAS BEEN HELD THAT THE EXPENSES INCURRED FOR THE EDUCA TION OF THE DIRECTOR ABROAD AND AFTER COMPLETING THE STUDIES WORKING FOR THE COMPANY HELD TO BE FOR THE FURTHERING ITS BUSINESS IS ALLOWABLE EXP ENDITURE. RELIANCE WAS ALSO PLACED IN ACIT VS. M/S PADMAKSHI FINANCIAL SER VICES PVT. LTD. IN ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 7 ITA NO. 4036/MUM/2006 FOR A.Y. 2003-04 DATED 21.10. 2008 HOLDING THAT DIRECTORS EDUCATIONAL EXPENSES ON HIGHER EDUC ATION ARE ALLOWABLE. RELIANCE WAS ALSO PLACED IN THE CASE OF SHAHZADA NA ND AND SONS VS. CIT [1977] 108 ITR 358 (SC) WHEREIN THEIR LORDSHIPS HEL D THAT COMMERCIAL EXPEDIENCY MUST BE TESTED IN THE CONTEXT OF SOCIO E CONOMIC THINKING. THE AMOUNT WAS SPENT FOR THE PURPOSE OF BUSINESS AN D THE TRAINING HAS BEARING ON THE BUSINESS OF THE COMPANY HENCE THE S AME MAY BE ALLOWED AS BUSINESS EXPENDITURE. THE LD. COUNSEL FOR THE AS SESSEE FURTHER SUBMITS THAT THE DECISIONS RELIED ON BY THE A.O. AN D LD. CIT (A) ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN TH E CASE OF SWADESHI COTTON MILLS LTD. VS. CIT [1967] 63 ITR 57 (SC) TH E ISSUE WAS COMMISSION PAID TO THE DIRECTOR THE ASSESSEE WAS N OT ABLE TO ESTABLISH THE COMMERCIAL REASON. THEREFORE THE RATIO IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IN THE CASE OF SIDDHO MAL & SONS VS. ITO [1980] 122 ITR 839 (DEL) THERE WAS AN AGREEMENT WITH MINO R SON FOR THE PURPOSE OF COMMISSION. THERE WAS EVIDENCE TO SHOW T HAT NO SERVICES WERE RENDERED HENCE ON FACTS THE TRIBUNAL HAS CONF IRMED THE ADDITION. THE COURT OBSERVED THAT DEALING WITH RELATIVES IN CONTRAST WITH OR IN PREFERENCE TO STRANGERS IS NEITHER PROHIBITED BY LA W NOR CAN BE TABOOED (PAGE 852). THUS THE RATIO IS IN FAVOUR OF THE AS SESSEE. IN THE CASE OF BENGAL ENAMEL WORKS LTD. [1970] 77 ITR199 (SC) EXT RA REMUNERATION PAID TO DIRECTORS WAS HELD TO BE UNREASONABLE. IT IS ALSO NOT APPLICABLE TO THE FACTS OF THE CASE OF APPELLANT-ASSESSEE. TH E LD. COUNSEL FOR THE ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 8 ASSESSEE FURTHER SUBMITS THE RATIO OF DECISION IN T HE CASE OF CIT VS. HINDUSTAN HOSIERY INDUSTRIES [1994] 209 ITR 383 (BO M) HAS BEEN DISTINGUISHED BY THE MUMBAI BENCH OF THE TRIBUNAL I N THE CASE OF J.B. ADVANI & CO. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT THERE WAS NO AGREEMENT ENTERED UPON BY THE PARTNER WITH THE FIRM IN THE EARLIER CASE WHEREAS THERE IS AN AGREEMENT ENTERED UPON BY THE D IRECTOR WITH THE ASSESSEE COMPANY TO WORK WHOLLY AND EXCLUSIVELY FOR THE COMPANY FOR FIVE YEARS THEREFORE THE SAME IS DISTINGUISHABLE AND HENCE NOT APPLICABLE. RELIANCE WAS ALSO PLACED ON THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUN ENGINEERING [1992] 198 ITR 297 (SC) AT PAGE 320 FOR THE PROPOSITION THAT THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT HAVE TO BE C ONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT AND WHILE APPLYING THE DECISION TO THE LATER CASE COURTS MUST CAREFULLY T RY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION. THE LD. COUNS EL FOR THE ASSESSEE ALSO DISTINGUISHED THE RECENT DECISIONS OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF ECHJAY FORGINGS LTD. VS. ACIT & ANOTHER [20 10] 328 ITR 286 (BOM) AND OCEAN CITY TRADING (INDIA) P. LTD. VS. CI T [2010] 328 ITR 290 (BOM) FOR THE REASONS THAT THE FACTS OF THOSE CASES ARE DISTINGUISHABLE TO THE FACTS OF THE ASSESSEES CASE. IN THE LIGHT OF THE ABOVE HE SUBMITS THAT THE EXPENSES OF ` 21 43 220/- INCURRED BY THE ASSESSEE FOR TRAINING OF THE DIRECTOR ABROAD WAS FOR THE BENEFIT OF THE ASSESSEE THEREFORE THE SAME ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 9 BE ALLOWED AS BUSINESS EXPENDITURE AND THE A.O. AND THE LD. CIT(A) HAVE ERRED IN NOT ALLOWING THE SAME. 6. ON THE OTHER HAND THE LD. D.R. WHILE RELYING ON THE ORDER OF THE A.O. AND THE LD. CIT(A) FURTHER SUBMITS THAT FOR TH E REASONS AS MENTIONED IN THE ORDER OF THE A.O. AND LD. CIT(A) THE LD. CI T(A) WAS FULLY JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF TRAINING EXPENSES OF ` 21 43 220/- NOT ALLOWABLE AS BUSINESS EXPENDITURE AND ACCORDINGLY T HE ORDER PASSED BY THE A.O. BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT ACCORDING TO THE ASSESSEE THE ASSESSEE COMPANY HAS PASSED BOARD RESOLUTION DATED IST APRIL 2003 AS UNDER:- THAT MR. VISHESH BHATT BE SENT FOR TRAINING IN NEW YORK UNIVERSITY FOR A MAXIMUM PERIOD OF THREE YEARS. AND THAT COMPANY SHOULD BEAR HIS ALL EXPENSES TO AND FRO FAR E ON ALL HIS VISITS HIS TUITION FEES LODGING BOARDING EXPENSES DURING HIS STAY TOGETHER WITH OTHER INCIDENTAL EXPENSES. AND THAT MR. VISHESH BHATT BE BOUND BY AN AGREEMENT FOR EXCLUSIVE ENGAGE MENT FOR FIVE YEARS. 8. WE FURTHER FIND THAT PURSUANT TO THE ABOVE MEMO RANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE COMPANY M/S VISH ESH ENTERTAINMENT LTD. AND MR. VISHESH M. BHATT HAS BEE N ENTERED INTO ON 10.4.2003 WHEREIN IT HAS BEEN AGREED UPON:- ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 10 (1) THAT THE COMPANY WILL BEAR ALL THE EXPENSE PERT AINING TO THE FULL PERIOD OF TRAINING I.E. (I) OCCASIONAL TO AND FRO FARE FROM MUMBAI TO THE VENUE OF THE TRAINING (II) THE FEES AND OTHE R EXPENSES OF THE UNIVERSITY (III) BOARDING AND LODGING EXPENSE DURIN G HIS STAY. (2) THAT THE DIRECTOR SHALL DILIGENTLY WORK TO ACQU IRE THE KNOWLEDGE AND WILL KEEP THE COMPANY REPORTED AND IN FORMED OF ALL THE PROGRESS IN THE TRAINING AT THE END OF EACH SEM ESTER. (3) THE DIRECTOR SHALL DEVOTE TIME TO THE ACTIVITIE S OF THE COMPANY DURING HIS VACATIONS AND VISITS TO INDIA. (4) THE DIRECTOR SHALL SHARE ALL HIS KNOWLEDGE GAIN ED AT THE UNIVERSITY WITH OTHER EMPLOYEES OF THE COMPANY WITH A VIEW TO UPDATING THEM REGULARLY. (5) THE DIRECTOR SHALL NOT WORK IN FILM OR PROJECTS OUTSIDE THE COMPANY EXCEPT WITH THE PERMISSION OF THE COMPANY. (6) THE DIRECTOR SHALL EXCLUSIVELY WORK FOR THE COM PANY FOR A PERIOD OF FIVE YEARS AFTER HIS TRAINING AND WILL CO MPLETE ATLEAST ONE PROJECT EVERY YEAR. THE DIRECTOR WILL ACCEPT A MONT HLY REMUNERATION OF ` 30 000/-. (7) IN THE EVENT OF ANY DEFAULT BY THE DIRECTOR OF THE TERMS AND BREACH OF COMMITMENT OF WORK THE DIRECTOR AGREES AN D UNDERTAKES TO REPLENISH & PAY BACK 20% EVERY YEAR TO THE COMPA NY OF ALL THE EXPENSES INCURRED BY THE COMPANY ON HIS TRAINING. 9. BASED UPON THE ABOVE DOCUMENTS THE ASSESSEE COM PANY HAS SENT MR. VISHESH BHATT TO USA FOR STUDY IN NEW YORK UNIV ERSITY IN CINEMATOGRAPHY AND FILM/VIDEO PRODUCTION. IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE COMPANY IS A CORPORATE ENTITY AND THERE IS NO PERSONAL ELEMENT FOR A CORPORATE ENTITY. THE DIRECTOR HAS W ORKED FOR FIVE YEARS AS PER THE TERMS OF THE AGREEMENT AND STILL WORKING FO R THE COMPANY. THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS AS THE TRAINING WAS NECESSARY IN VIEW OF C OMPETITION IN THE MARKET. ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 11 10. PER CONTRA THE CASE OF THE REVENUE IS THAT ALM OST 99.9% OF PAID UP EQUITY SHARES OF THE COMPANY IS OWNED AND CONTROLLE D BY MR. MUKESH BHATT AND HIS WIFE. THEIR SON MR. VISHESH BHATT I S A NON-SHAREHOLDING DIRECTOR OF THE COMPANY WHO HAD STUDIED UP TO CLASS XII. HIS DATE OF BIRTH IS 7.5.84. HE LEFT FOR TRAINING ABROAD AT TH E AGE OF 19 YEARS. HE WAS MADE A DIRECTOR IN THE IMMEDIATELY PRECEDING ASSTT. YEAR. IT WAS HELD BY THE A.O. THAT EDUCATION OF MR. VISHESH BHATT ABROAD WAS IN CONTINUATION OF HIS STUDIES IN NORMAL COURSE AFTER XII STANDARD AND HAD NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE COMPANY. FURTHER THE RESOLUTION OF THE COMPANY CANNOT OVERRIDE THE PROVISIONS OF SECTI ON 37 AND HENCE THE EXPENSES INCURRED BY THE ASSESSEE ON THE EDUCATION OF HIS SON/DIRECTOR ARE NOT ALLOWABLE AS BUSINESS EXPENDITURE AND THE L D. CIT(A) WHILE UPHOLDING THE VIEW OF THE A.O. CONFIRMED THE DISALL OWANCE MADE BY THE A.O. 11. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TO THE DATE-WISE DETAILS OF FOR EIGN VISITS BY MR. VISHESH BHATT FOR STUDY IN NEW YORK UNIVERSITY APPE ARING AT PAGE NO. 91 OF THE ASSESSEES PAPER BOOK WHICH IS REPRODUCED AS UNDER:- DATE PARTICULARS PAGE NO OF ASSESSEES PAPER BOOK 25.8.2003 DEPARTURE FROM MUMBAI 18 ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 12 25.8.2003 ARRIVED IN ITALY 26.11.2003 DEPARTURE FROM ITALY 18 26.11.2003 ARRIVED IN UK 18 30.11.2003 ARRIVED IN ITALY 26 13.12.2003 DEPARTURE FROM ITALY 18 14.12.2003 ARRIVED IN MUMBAI 23 18.1.2004 DEPARTURE FROM MUMBAI 24 18.1.2004 ARRIVED IN ITALY 21 14.3.2004 DEPARTURE FROM MUMBAI 19 14.3.2004 ARRIVAL IN ITALY 26 29.3.2004 DEPARTURE FROM MUMBAI 22 29.3.2004 ARRIVED IN ITALY 26 19.5.2004 DEPARTURE FROM ITALY 19 19.5.2004 ARRIVAL IN MUMBAI 19 29.8.2004 DEPARTURE FROM MUMBAI 20 30.8.2004 ARRIVAL IN NEW YORK 20 19.12.2004 DEPARTURE FROM NEW YORK 20 19.12.2004 ARRIVAL IN MUMBAI 20 5.6.2005 DEPARTURE FROM MUMBAI 20 5.6.2005 ARRIVAL IN LOS ANGELES 25 ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 13 6.8.2005 DEPARTURE FROM L.A. 22 6.8.2005 ARRIVAL IN MUMBAI 22 5.9.2005 DEPARTURE FROM MUMBAI 19 5.9.2005 ARRIVAL IN NEW YORK 19 18.12.2005 DEPARTURE FROM NEW YORK TO MUMBAI 18.12.2005 ARRIVAL IN MUMBAI 22 (EMPHASIS SUPPLIED) 12. FROM THE ABOVE DETAILS IT IS OBSERVED THAT DUR ING THE F/Y 2003-04 RELEVANT TO A.Y. 2004-05 UNDER CONSIDERATION MR. V ISHESH BHATT WENT TO ITALY AND U.K. AND HAS NOT GONE TO NEW YORK. FROM THE COPY OF THE PASSPORT APPEARING AT PAGE NO. 15 TO 27 OF THE ASSE SSEES PAPER BOOK IT IS ALSO OBSERVED THAT AT PAGE NO. 20 MR. VISHESH BH ATT GOT VISA OF USA ON 23 RD JULY 2004 WHICH FALLS IN THE FINANCIAL YEAR 2004- 05 RELEVANT TO THE ASSTT. YEAR 2005-06 AND NOT IN THE YEAR UNDER C ONSIDERATION I.E. A.Y. 2004-05. THEREFORE IT CANNOT BE SAID THAT DURING T HE YEAR UNDER CONSIDERATION THE MR. VISHESH BHATT HAS GONE ON TOU R TO NEW YORK U.S.A. FOR STUDY IN NEW YORK UNIVERSITY PASSED IN THE BOARD RESOLUTION (SUPRA). WE FURTHER FIND THAT THE ASSESSEE IN HIS LETTER DATED 28.2.04 ADDRESSED TO MANAGER THOMAS COOK (INDIA) LTD. MUM BAI HAS STATED THAT OUR DIRECTOR MR. VISHESH BHATT IS PRESENTLY ST UDYING AT NEW YORK UNIVERSITY AND HAS TILL DATE AVAILED $21171/- TOWAR DS HIS FEES AND LIVING EXPENSES WHEREAS THERE IS NO SUPPORTING MATERIAL TO SHOW AS TO HOW MR. VISHESH BHATT IS STUDYING IN NEW YORK UNIVERSITY IN THE ABSENCE OF ANY ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 14 VISA AND PERMISSION OF ADMISSION IN THE NEW YORK UN IVERSITY. THERE IS ALSO NO ANY MATERIAL ON RECORD TO SHOW AS ON WHAT B ASIS THE ASSESSEE HAS SENT THE DRAFTS TO NEW YORK UNIVERSITY. FROM T HE LETTER/CERTIFICATE OF ELIGIBILITY FOR NON-IMMIGRANT (F-1) STUDENT OF THE NEW YORK UNIVERSITY APPEARING AT PAGE NO. 12 OF THE ASSESSEES PAPER BO OK IT IS OBSERVED THAT MR. VISHESH BHATT HAS SIGNED THE SAID LETTER ON 3 RD SEPTEMBER2005 WHEREAS HE WAS ASKED BY THE UNIVERSITY TO REPORT TO THE SCHOOL NO LATER THAN 06.09.2005 AND COMPLETE STUDIES NOT LATER THAN 21.12.07. SINCE THE DATES IN THE LETTER/CERTIFICATE DO NOT FALL IN THE YEAR UNDER CONSIDERATION HENCE THE SAME IS NOT RELEVANT FOR TH E YEAR UNDER CONSIDERATION. THE IDENTITY CARD OF MR. VISHESH BHA TT OF NEW YORK UNIVERSITY IS DATED AUGUST 2007 NOT RELEVANT FOR T HE YEAR UNDER CONSIDERATION AND SIMILARLY THE OTHER IDENTITY CARD ISSUED TO MR. VISHESH BHATT BY UNIVERSITY OF SOUTHERN CALIFORNIA DOES NOT HELP TO THE ASSESSEE AS IT IS NOT THE CASE OF THE ASSESSEE THAT MR. VISH ESH BHATT WAS ALLOWED TO STUDY OTHER THAN NEW YORK UNIVERSITY. THERE IS N O MATERIAL ON RECORD AS TO WHEN MR. VISHESH BHATT HAS COMPLETED HIS STUD IES AND GOT CERTIFICATE/DEGREE/DIPLOMA FROM NEW YORK UNIVERSITY . IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT SINCE MR. VISHESH B HATT HAS NOT GONE TO USA IN THE YEAR UNDER CONSIDERATION AS PER VISA ISS UED ON 23 RD JULY 2004 AND KEEPING IN VIEW THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THAT SENDING OF MR. VISHESH BHATT FOR TRAINING ABRO AD DURING THE YEAR ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 15 WAS FOR THE BENEFIT OF THE BUSINESS OF THE ASSESSEE THE EXPENSES INCURRED FOR FOREIGN TRAINING ARE DEVOID OF ANY MERIT AND AR E NOT DEDUCTIBLE. 13. THERE IS NO QUARREL ON THE RATIO OF DECISIONS R ELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. HOWEVER THE FACTS OF TH E PRESENT CASE ARE ENTIRELY DIFFERENT INASMUCH AS THE ASSESSEE HAS FAI LED TO ESTABLISH THAT MR. VISHESH BHATT DIRECTOR OF THE COMPANY HAS GONE TO U.S.A. FOR TRAINING IN NEW YORK UNIVERSITY DURING THE YEAR UND ER CONSIDERATION. AS A MATTER OF FACT THE FACTUAL MATRIX IN THE PRESENT CASE REVEALS THAT THE ISSUE INVOLVED REVOLVE AROUND THE FACTS BASED ON PU RE APPRECIATION OF EVIDENCE WHICH IS AGAINST THE ASSESSEE IN VIEW OF O UR FINDING RECORDED IN PARA 12 OF THIS ORDER. THEREFORE THE DECISIONS REL IED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLIC ABLE TO THE FACTS OF THE PRESENT CASE. 14. IN ECHJAY FORGINGS LTD. (SUPRA) IT HAS BEEN H ELD (HEAD NOTE):- HELD DISMISSING THE APPEAL THAT THERE WAS NO EVI DENCE OR 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. NO DOCUMENTARY E VIDENCE WITH RESPECT TO APPOINTMENT OF WAS PRODUCED BEFORE THE T RIBUNAL OR BEFORE THE ASSESSING AUTHORITY. THE EXPENDITURE WAS NOT DEDUCTIBLE. 15. OCEAN CITY TRADING (INDIA) P. LTD. VS. CIT (SUP RA) IT HAS BEEN HELD (HEAD NOTE):- ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 16 THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THA T SENDING A PERSON FOR TRAINING ABROAD WAS FOR THE BENEFIT OF T HE BUSINESS OF THE ASSESSEE. THE EXPENSES INCURRED IN TRAINING WERE N OT DEDUCTIBLE. 16. FOR THE AFORESAID REASONS WE ARE OF THE VIEW T HAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF ` 21 43 220/- CLAIMED AS TRAINING EXPENSES OF A DIRECTOR SENT TO U.S.A. FOR THE COURSE OF CINE MATOGRAPHY AND FILM/VIDEO PRODUCTION AND ACCORDINGLY WE ARE INCLIN ED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) IN SUSTAINING THE DISALL OWANCE MADE BY THE A.O. BUT WITH DIFFERENT REASONS. THE GROUND TAKEN BY TH E ASSESSEE IS THEREFORE REJECTED. 17. IN THE RESULT ASSESSEES APPEAL STANDS DISMISS ED. ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY 2011. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI DATED 25 TH FEBRUARY 2011. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XI MUMBAI 4. COMMISSIONER OF INCOME TAX - XI- MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH F MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI ITA NO.305/MUM/2009 M/S VISHESH EN TERTAINMENT LTD. 17 1 DRAFT DICTATED ON 18.2.11 22.2.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 21.2.11 23.2.11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS