A.K. Garodia, A.M.:— This is an assessee's appeal directed against the order of Ld. CIT (A)-II, Kanpur dated 26.02.2014 for the AY 2005-06.
2. The grounds raised by the assessee are as under:
“1. BECAUSE the learned “CIT(A)-II” has erred in law and on facts in upholding the disallowance of Rs. 2 lacs out of adhoc disallowance of Rs. 10 lacs made by the Assessing Officer, out of “advertisement and circulation expenses”.
2. BECAUSE the “CIT(A)-H” after having himself found that “the Assessing Officer has mentioned that some of the expenses claimed were found to be not allowable or were person in nature. Further the AO has not mentioned instance of any such expense” was not justified either on facts or in law to sustain the disallowance out of “advertisement and circulation expenses”, to the extent of Rs. 2 lacs.
3. BECAUSE the authorities below have erred in law and on facts in disallowing/upholding the disallowance of expenses claimed under the heads;
(Rs.)
i)
Electricity expenses for the Directors residence
7,57,080
ii)
Insurance premium paid for mediclaim policy of the Directors
1,62,591
on the ground that the same were in the nature of represented “personal expenditure of the directors incurred by the assessee”
4. BECAUSE the “appellant” had incurred the said expenditure as per terms of employment of the directors as approved by the Board of Directors, and during the course of and for the purposes of carrying on of its business and no part of the same could have been disallowed.
5. BECAUSE otherwise also, looking to the business exigencies, the directors are required to maintain office at their residences also and the payment made for electricity expenses were liable to be treated as expenses incurred by the “appellant” during the course of carrying on of its business.
6. BECAUSE the premium paid for personal accident and mediclaim insurance policy on the life of directors constituted a legitimate business expenditure of the “appellant” in as much as such an expenditure provided a safeguard to it (the “appellant”) and the CIT(A)-II has erred in law and on facts in upholding the said disallowance.
7. BECAUSE in any case the “appellant” being a body corporate there could not have been any “personal user”/“personal expense” and the expenses referred to above, could not have been disallowed on that ground.
8. BECAUSE the authorities below have erred in law and on facts in disallowing/upholding the disallowance of expenditure aggregating Rs. 23,55,190/- as had been incurred on education and training of Sri Rahul Gupta for his education (MBA course in UK).
9. BECAUSE the expenditure had been incurred on commercial considerations/expediency, which is to be judged from the point of view of the businessman only and the disallowance as has been made/sustained by the authorities below is wholly erroneous.
10. BECAUSE the disallowance of Rs. 23,55,190/- is based on a wholly wrong premise and the same is not sustainable.
11. BECAUSE the order appealed against is contrary t Rs. 9 facts law and principles of natural justice.”
3. Regarding Ground Nos. 1 and 2, Ld. AR of the assessee reiterated the same contentions, which were raised before the Ld. CIT(A).
4. Ld. DR of the Revenue supported the orders of authorities below.
5. We have considered the rival submissions. We find that the Assessing Officer has made disallowance of Rs. 10.00 lakh on adhoc basis out of expenses claimed by the assessee at Rs. 1509.18 Lacs under the head circulation and advertisement promotion expenses. The Assessing Officer noted in Para 10 of the assessment order that the assessee was asked to furnish the complete details in respect of the claim and the required details were filed, which were examined. Thereafter, the Assessing Officer has observed that in the course of checking of the claim, it transpires that significant portion of the claim incurred was incurred in cash and further instances were noticed where the expenses were apparently found to be not allowable. He has further noted that it was explained by the assessee that the expenditure claimed as mentioned here in before were incurred wholly for the business purpose but as per the Assessing Officer, the submission of the assessee were not found convincing as very nature of the expenses mentioned above establishes beyond doubt the same were personal in nature. After making these observations, the Assessing Officer has made adhoc disallowance of Rs. 10.00 lakh but it is surprising that even after stating this that the nature of expenses is personal in nature as per various instances noticed of the Assessing Officer, the Assessing Officer has not mentioned even a single instance of the expenses which are personal in nature. Ld. CIT(A) has deleted the disallowance made by the Assessing Officer to the extent of Rs. 8.00 lakh out of Rs. 10.00 lakh but he confirmed the disallowance of Rs. 2.00 lakh on this basis that Assessing Officer has mentioned that some of the expenses claimed were found to be not allowable or were personal in nature. Ld. CIT(A) has also not pointed out even a single instance of expenses which is not allowable or which is personal in nature. Under these facts, in our considered opinion, adhoc disallowance confirmed by the Ld. CIT(A) is not justified. We, therefore, delete the same, Accordingly, Ground No. 1 and 2 are allowed.
6. Regarding Ground Nos. 3 to 7, issue involved is disallowance of Rs. 7,57,080/- on account of electricity expenses of Directors' residence and disallowance of Rs. 1,62,591/- in respect of insurance premium paid for mediclaim policy of the Directors. Regarding the expenses incurred in respect of electricity expenses for the residence of the Directors, the judgment of the Hon'ble Gujarat High Court rendered in the case of Sayaji Iron and Engg. Co. v. CIT reported in 253 ITR 749 supports the case of the assessee because it was held in this case that for the alleged personal use by Directors, expenditure cannot be disallowed in the hands of the assessee company although the claim may be added in the hands of the concerned Directors/employees as perquisite. Respectfully following this judgment of the Hon'ble Gujarat High Court, we delete the disallowance of Rs. 7,57,080/-.
7. Regarding the disallowance of Rs. 1,62,591/-, we find that it is noted by the Assessing Officer in Para 12 of the assessment order that this much amount was incurred on account of payment to New India Assurance Co. Ltd. on behalf of the Directors in respect of insurance premium for personal accident policy and Mediclaim Policy. The Assessing Officer disallowed this claim by holding that these are personal expenses. This is not the case of the Revenue that such insurance premium was not payable by the assessee company as per the terms of appointment of the Directors. Hence, as per this judgment of the Hon'ble Gujarat High Court rendered in the case of Sayaji Iron and Engg. Co. v. CIT (Supra), this amount also cannot be disallowed in the hands of the assessee company although the same may be considered for taxation in the case of concerned Directors as per law and therefore, this disallowance of Rs. 1,62,591/- is also deleted. Accordingly, Ground Nos. 3 to 7 are allowed.
8. Regarding Ground Nos. 8 to 10 involving disallowance of expenditure aggregating of Rs. 23,55,190/- being the expenses incurred on education and training of Shri Rahul Gupta for his education of MBA course in UK, it was submitted before the Assessing Officer as has been noted by the Assessing Officer in Para 13 of the assessment order that on his return to India Mr. Rahul Gupta under obligation to provide solution based support for marketing/distribution/circulation strategies of Danik Jagran in general and the tabloid bilingual I-next in particular. But as per Para 14 of the assessment order, disallowance was made by the Assessing Officer on this basis that Shri Rahul Gupta is no way associated with the assessee company. Ld. AR of the assessee placed reliance on the judgment of the Hon'ble Allahabad High Court in the case of CIT v. U.P. Asbestos Ltd. reported in 79 DTR 105 (Alld.) it was held by the Hon'ble High Court in this case held that being a legal entity a company can take a decision to secure its interest by sending anyone on contract basis for higher education and training abroad who is to join the company after returning back to the country. He also submitted an affidavit under Rule 10 of the Income Tax (Appellate Tribunal) Rules, 1963 that in the present case Mr. Rahul Gupta is providing consultancy to the assessee company free of charge after returning back to the country and therefore, the issue involved in the present case is covered in favour of the assessee by this judgment of the Hon'ble Allahabad High Court.
9. Ld. DR of the Revenue supported the orders of the authorities below.
10. We have considered the rival submissions. We find that in the case of CIT v. U.P. Asbestos Ltd. (Supra), the issue involved was regarding expenditure incurred of education abroad of Mr. Priyank Tayal, son of the Managing Director in July, 2001. In that case, after coming back from USA, Mr. Tayal joined the company as Director on 23rd June, 2004. The assessment year involved in that case was Assessment Year 2001-02 and 2004-05 i.e. before joining of the assessee company by Mr. Tayal after returning back from USA. It was held by Hon'ble High Court that the public Ltd. Company is a legal entity or the legal person and has got right to manage its affairs in accordance with its memorandum of association or related rules. It was held by legal entity the company can take a decision to secure its interest by sending anyone on contract basis for higher education and training to abroad and after completion of training return back to the country and the person may join the company itself.
11. In the present case, facts are similar because in the present case also, after returning to India after completion of study abroad, Mr. Rahul Gupta is providing consultancy to the assessee company free of charge and therefore, respectfully following this judgment of the Hon'ble Allahbad High Court, we delete the addition made by the Assessing Officer. Accordingly, Ground Nos. 8 to 10 are also allowed.
12. In the result, appeal of the assessee is allowed.
I.T.A. No. 515/Lkw/2014
13. This appeal is preferred by the Revenue against the order of Ld. CIT(A)-II, Kanpur. During the course of hearing, Ld. counsel for the assessee has invited our attention to the Circular of the CBDT bearing No. 21 of 2015 dated 10 December, 2015 in which the CBDT has taken a decision to withdraw all the appeals filed by the Revenue in which tax effect involved is less than Rs. 10 lac.
14. On a careful perusal of the grounds of appeal, raised in this appeal, we find that the tax effect involved in this appeal is less than Rs. 10 lacs and therefore, this appeal of the Revenue is not maintainable in view of the aforesaid Circular of CBDT. Though the Revenue was directed by the Board to withdraw this appeal but no steps have been taken by the Revenue till date. We, therefore, are of the view that this appeal of the Revenue is not maintainable in the light of the aforesaid circular of CBDT and therefore, we dismiss the same being not maintainable.
15. In the result, the appeal of the Revenue stands dismissed.
16. In the combined result, appeal of the assessee is allowed and of revenue stands dismissed
(Order was pronounced in the open court on the date mentioned on the caption page)