The Assistant Commissioner of Income Tax, Hyderabad v. M/s. Kala Jyothi Process (P) Ltd.,, Hyderabad

ITA 854/HYD/2011 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Allowed

Appeal Details

RSA Number 85422514 RSA 2011
Assessee PAN AAACK8353P
Bench Hyderabad
Appeal Number ITA 854/HYD/2011
Duration Of Justice 6 month(s) 21 day(s)
Appellant The Assistant Commissioner of Income Tax, Hyderabad
Respondent M/s. Kala Jyothi Process (P) Ltd.,, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-11-2011
Assessment Year 2007-2008
Appeal Filed On 09-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI H.S. SIDHU JUDICIAL MEMBER AND CHANDRAPOOJARI ACCOUNTANT MEMBER ITA NO.854/HYD/2011 ASSESSMENT YEAR: 2007-08 ACIT CIR-2(1) HYDERABAD. VS M/S KALA JYOTHI PROCESS (P) LTD. RTC X ROADS HYDERABAD. (PAN:AAACK 8353 P) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T. DIWAKAR PRASAD RESPONDENT BY : NONE DATE OF HEARING: 30-11-2011. DATE OF PRONOUNCEMENT: 30 -1 1-2011. O R D E R PER BENCH: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT (A) VIJAYAWADA DATED 28-2-2011 AND IT P ERTAINS TO THE ASSESSMENT YEAR 2007-08. DESPITE NOTICE THERE WAS NO APPEARANCE ON BEHALF OF THE ASSESSEE-RESPONDENT DURING THE COURSE OF HEARING OF THIS APPEAL. HENCE WE PROCEED TO DISPOSE OF THE APPEAL EX PARTE ON MERITS AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATI VE. ITA 854/HYD/2011 KALA JYOTHI PROCESS (P) LTD. L.L ========================== 2 2. THE REVENUE RAISED THE FOLLOWING GROUNDS BEFORE US:- 1. THE CIT (A) OUGHT NOT HAVE DELETED THE ADDIT ION ONT EH SAME SET OF FACTS DESPITE THE FACT THAT THE AO NOT ACCEP TED THE EXPENDITURE AS IT HAD NOT NEXUS WITH THE BUSINESS A ND MORE OF PERSONAL IN NATURE. 2. THE CIT (A) OUGHT TO HAVE OBSERVED THAT THERE WA S NO REQUIREMENT OF SKILL IN OPERATING THE NEW PLANT & M ACHINERY. 3. THE CIT (A) OUGHT TO HAVE OBSERVED THAT THE ADDI TION MADE TO PLANT AND MACHINERY IS ONLY TO INCREASE THE OPER ATING CAPACITY AND THERE IS NO REQUIREMENT OF PERSONAL SKILL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ITS NATURE OF BUSINESS IS MULTI COLOR O FF-SET PRINTING. THE EXPENDITURE OF RS.15 41 944/- TOWARDS FOREIGN TRAIN ING EXPENSES WAS EXPLAINED DURING THE ASSESSMENT PROCEEDINGS AS INCU RRED ON ACCOUNT OF THE DEPUTATION OF MR. ALAPATI JAYADEV WHO WAS THE SON OF MR. ALAPATI DEVENDRANATH A DIRECTOR IN THE ASSESSEE COMPANY T O A GRADUATION COURSE IN PRINTING TECHNOLOGY IN USA. IT WAS CLAIM ED THAT THE SPONSORSHIP AND INCURRING OF THE EXPENDITURE HAD TH E APPROVAL OF THE BOARD OF DIRECTORS AS THE COURSE WAS IN PRINTING TE CHNOLOGY WHICH WAS THE BUSINESS OF THE ASSESSEE. FURTHER IT WAS CLAI MED THAT THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE COMPANY AND MR. JAYA DEV THAT HE SHOULD ON COMPLETION OF THE COURSE RETURN TO INDI A AND WORK FOR A MINIMUM PERIOD OF SIX YEARS WITH THE ASSESSEE COMPA NY FAILING WHICH THE ENTIRE EXPENDITURE WAS TO BE RETURNED. IT WAS ALSO THE CASE OF THE ASSESSEE THAT IT HAD EARLIER DEPUTED BOTH DIRECTORS AND EMPLOYEES FOR ITA 854/HYD/2011 KALA JYOTHI PROCESS (P) LTD. L.L ========================== 3 SIMILAR TRAINING AND FURTHER THAT A SON OF ANOTHER DIRECTOR WAS SENT TO GERMANY FOR AN INTENSIVE COURSE IN PRINTING TECHNOL OGY AND ON COMPLETION HAD JOINED THE COMPANY AS AN EXECUTIVE. 3. THE ASSESSING OFFICER OBSERVED THAT EVEN THOUGH THERE WAS A MOU BETWEEN THE ASSESSEE COMPANY AND MR. JAYADEV IT HA D NO EVIDENTIARY VALUE. HE WAS OF THE VIEW THAT IF THE MOU WAS NOT HONORED IN ALL PROBABILITY NO ACTION WOULD BE TAKEN BY THE ASSESS EE COMPANY. HE FURTHER OBSERVED THAT ANY GAIN IN THE KNOWLEDGE OF MR. JAYADEV WOULD ONLY BE A PERSONAL GAIN AND WOULD NOT BENEFIT THE C OMPANY. RELYING ON CERTAIN DECISIONS THAT IMPARTING EDUCATION TO THE C HILDREN OF DIRECTORS COULD NOT BE TREATED AS BUSINESS EXPENDITURE THE A BOVE DISALLOWANCE WAS MADE IN THE ASSESSMENT ORDER. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE WENT IN APPEAL BEFO RE THE CIT (A). ON APPEAL THE CIT (A) DELETED THE ADDITION BY HOLDING THAT MR. ALAPATI JAYADEV WHO WAS THE SON OF MR. ALAPATI DEVENDRANAT H A DIRECTOR IN THE ASSESSEE COMPANY CLAIMED THAT THERE WAS AN AGREEME NT BETWEEN THE ASSESSEE COMPANY AND MR. JAYADEV THAT HE SHOULD ON COMPLETION OF THE COURSE RETURN TO INDIA AND WORK FOR A MINIMUM PERI OD OF SIX YEARS WITH THE ASSESSEE COMPANY FAILING WHICH THE ENTIRE EXP ENDITURE WAS TO BE RETURNED AND INCURRING OF SUCH EXPENDITURE WAS APPR OVED BY THE BOARD OF DIRECTORS AS THE COURSE WAS IN PRINTING TECHNOLO GY WHICH WAS THE BUSINESS OF THE ASSESSEE. ON EARLIER INSTANCES EM PLOYEES OF THE ASSESSEE COMPANY WERE SENT ABROAD FOR HIGHER EDUCA TION AT THE ASSESSEES COST AND THE EXPENDITURE INCURRED ON A CCOUNT OF HIGHER EDUCATION ABROAD HAS BEEN ALLOWED IN THE RELEVANT ASSESSMENT YEAR. IN THE CIRCUMSTANCES THE CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE IN ITA 854/HYD/2011 KALA JYOTHI PROCESS (P) LTD. L.L ========================== 4 THE INSTANT CASE. AGAINST THE DECISION OF THE CIT (A) THE REVENUE IS IN APPEAL BEFORE US. 4. AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENT ATIVE WE ARE OF THE OPINION THAT ON BEHALF OF THE DIRECTOR HIS SON WAS SPONSORED FOR HIGHER EDUCATION ABROAD AND IT CANNOT BE CONSIDERE D AS BUSINESS EXPENDITURE. THE EXPENDITURE INCURRED IN THE PRESE NT CASE WOULD RESULT IN PROVIDING THE BENEFIT FOR THE PURPOSE OF PERSONA L GAIN AND NOT FOR THE PURPOSE FOR WHICH SECTION 37 IS MEANT. IN EVERY F AMILY OWNED BUSINESS ALL THE EXPENDITURE INCURRED IN BRINGING UP THE CHILDREN WHO MAY LATER ON BE GIVEN A ROLE IN THE BUSINESS AS PAR TNERS OR DIRECTORS COULD NOT BE CLAIMED AS BUSINESS EXPENDITURE INCURR ED IN GRAINING THE PROSPECTIVE EMPLOYEES AND DIRECTORS OF THE BUSINESS . THE EXPENDITURE PERMISSIBLE FOR DEDUCTION IS EXPENDITURE THAT IS WH OLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSES OF THE BUSINESS. THE EXP ENDITURE WHICH A FATHER INCURS OUT OF HIS NATURAL LOVE AND AFFECTION FOR HIS CHILDREN IN MEETING THE COST OF THEIR EDUCATION CANNOT BECOME A BUSINESS EXPENDITURE MERELY BECAUSE HE IS ALSO THE OWNER OR A DIRECTOR OF A BUSINESS IN WHICH THE SON OR DAUGHTER SUBSEQUENTLY TAKES PART. AFTER CONSIDERING THE FACTS AND THE CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT THERE IS NO NEXUS BETWEEN THE EXPENDIT URE AND THE BUSINESS OF THE ASSESSEE AND THE SAID EXPENDITURE C ANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE BUSINESS INCOME OF TH E ASSESSEE. OUR VIEW IS ALSO SUPPORTED BY VARIOUS JUDICIAL PRECEDEN TS VIZ. IN THE CASES OF R.K.K.R. STEELS PVT. LTD. (258 ITR 306) (MUMBAI) M . SUBRAMANIAM BROS. VS. CIT 250 ITR 769 (MADRAS) AND IN THE CASE OF HINDUSTAN HOSIERY INDUSTRIES 209 ITR 383 (BOMBAY). IN VIEW OF THE ABOVE ITA 854/HYD/2011 KALA JYOTHI PROCESS (P) LTD. L.L ========================== 5 DISCUSSION WE ARE INCLINED TO REVERSE THE FINDINGS OF THE CIT (A) ON THIS ISSUE. 5. IN THE RESULT THE APPEAL FILED BY THE REVENUE S TANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-11-2011 . SD/- SD/- (CHANDRA POOJARI) (H.S. SIDHU) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/- 30 -11-2011. COPY FORWARDED TO: 1. ACIT CIRCLE-2(1) HYDERABAD. 2. 3. M/S KALA JYOTHI PROCESS (P) LTD. MANSION LANE RTC CROSS ROAD HYDERABAD.. CIT (A) VIJAYAWADA. 4. CIT AP HYDERABAD. 5. THE D.R. ITAT HYDERABAD. JMR*