TMI Blog2014 (7) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... e given in this regard was also found to be not acceptable by the AO by giving specific reasons - the onus was on the assessee to establish on evidence that the expenditures were incurred wholly and exclusively for the purpose of it’s business - assessee had failed to discharge the onus. The expenses claimed as a deduction by the assessee for the payment of salary to Mr Krishna Kachalia was rightly disallowed – Mr. Krishna Kachalia was doing a management course with S.P. Jain Institute of Management & Research from October 2003 to April 2005 and therefore it was not possible that he was working for the company in the capacity of a Director at the same time when in fact he was a student - during the time Mr Krishna Kachalia was shown to be in-charge of the marketing activities at the assessee’s Borivali Center, another Director of the assessee was also looking after the marketing activities at the very same place and was paid a remuneration of ₹ 10,00,000/- per annum for the work - in no other Center of the assessee was more than one Director assigned and the fact that Mr Krishna Kachalia was assigned to look after the work at Borivali in addition to another Director, his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccompanied with the Auditor's Report under section 44AB of the Income Tax Act 1961. This return of income was selected for scrutiny by the Assessing Officer who eventually completed the assessment and passed an Assessment Order dated 31st December, 2007 under section 143(3) of the Act determining the total income at ₹ 1,41,67,196/- after making disallowances / additions on various counts. The disallowances for the purposes of the present appeal are ₹ 1,75,000/- for fees paid on behalf of Mr. Krishna Kachalia, a Director of the Appellant- Assessee, to S P Jain Institute of Management Research as well as the salary paid to the said Mr. Krishna Kachalia in the sum of ₹ 3,12,500/-. 5. Aggrieved by this assessment order dated 31st December 2007, the Appellant-Assessee preferred an Appeal before the CIT(Appeals) who, after giving an elaborate hearing to the Appellant-Assessee, passed his order on 9th July 2009 partly allowing the Appeal. However, the CIT (Appeals) upheld the disallowances with reference to the amounts of ₹ 1,75,000/- and ₹ 3,12,500/- respectively. 6. Being dissatisfied with the order of the CIT(Appeals), the Appellant- Assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below, after carefully considering the entire factual matrix have disallowed the aforesaid expenses, and by no stretch of the imagination can it be said that the said findings are perverse or vitiated by an error apparent on the face of the record, and therefore these Appeals have no merit and ought to be dismissed. 9. With the help of the learned counsel for both parties, we have perused the Memo of Appeal and the Annexures thereto as well as the orders passed by the Assessing Officer, CIT(Appeals) and the ITAT. The Assessing officer, in his order dated 31st December, 2007 passed under section 143(3) of the Act found that Mr Krishna Kachalia, who was 26 years old, had completed his graduation in B.Com. in the year 2003 and had been inducted as a Director of the Appellant Assessee on 30th September 2003. After analysing the entire factual matrix, the Assessing Officer came to the conclusion that the said Krishna Kachalia was inducted as a Director at such an early age and immediately after the completion of his B.Com. course only to finance his higher education in Management through the funds of the Appellant-Assessee on which a deduction could be claimed. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther had not filed any details which showed that Mr Krishna Kachalia was under any obligation to serve the Appellant-Assessee after completion of his management studies. As far as the salary paid to him as a Director was concerned, the CIT (Appeals) held that Mr Krishna Kachalia was doing his management course with S.P. Jain Institute of Management Research from October 2003 to April 2005 and therefore it was not possible that he was working in the capacity as a Director at the same time when in fact he was a student. In view of these facts, the CIT (Appeals) upheld the findings of the Assessing Officer. 11. The impugned order of the ITAT also makes note of the entire factual matrix and affirms the orders passed by the Assessing Officer as well as the CIT (Appeals) in disallowing the aforesaid claims. The impugned order in fact records that although an attempt was made on behalf of the Appellant- Assessee to make out a case that Mr Krishna Kachalia was instrumental in acquiring distributorship of VOLVO, no evidence whatsoever had been filed to support and substantiate the same. In fact, the ITAT came to a finding that sending Mr. Krishna Kachalia, who was a Commerce Graduate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prentice, on a salary of ₹ 50/- p.m. and on 24th March 1960 (i.e. after 5 years), the Directors of the Company passed a resolution that the said Ms Leela Parulekar should be sent for specialised education in journalism and business administration in a university of good standing in U.S.A. which the Directors believed would be good for the progress of the paper. On these facts, this Court found that (i) prior to her being selected, the said Ms Leela Parulekar had for five years worked for the paper starting as an apprentice; (ii) the selection of Ms Leela Parulekar was proper, and that her training would be of assistance to the Assessee Company; (iii) she attended the Graduates' School of Journalism at Columbia University in New York, secured a degree of Masters in Journalism and thereafter spent three months obtaining practical training in printing and lithography; and (iv) on her return from U.S.A., the said Ms Leela Parulekar once again joined the Editorial Board of the Company and was still working with the Company. It is on these facts that this Court came to the conclusion that merely because there was no commitment or contract or bond taken from the trainee, the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er associate Advocates working in the firm of the Assessee, none were given an opportunity to go abroad for higher education despite the fact that some were working with him for the last 15 years. Despite the aforesaid, within a period of two to three months, after the daughter Hemali became an Advocate and joined the firm as an Associate, she went abroad. In this view of the matter, the Division Bench of this Court upheld the contention of the authorities below in disallowing the deduction of ₹ 22,25,614/- incurred by the Assessee for the higher education of his daughter, Hemali. The Division Bench in D. C. Mehta s case (supra) in paragraph 5 of the judgment has specifically stated that the judgment in Sakal Papers Pvt.Ltd.'s case must be seen in the peculiar facts and background. After analysing the facts in the case of Sakal Papers Pvt.Ltd. (supra), the Division Bench in D. C. Mehta s case (supra) held that the cumulative impact of all the events circumstances in the case of Sakal Papers Pvt. Ltd. (supra) led this Court to hold that the deduction could not have been disallowed. It is in these circumstances, this Court in Sakal Papers Pvt.Ltd.'s case has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of S.A. Builders Ltd. (supra), the Supreme Court has held as under :- 31. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister-concern from the point of view of commercial expediency ant not from the point of view whether the amount was advanced for earning profits. (emphasis supplied). 16. What can be discerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of salary to Mr Krishna Kachalia was rightly disallowed by the authorities below. In this regard, the authorities below have come to a finding that the said Mr Krishna Kachalia was doing a management course with S.P. Jain Institute of Management Research from October 2003 to April 2005 and therefore it was not possible that he was working for the company in the capacity of a Director at the same time when in fact he was a student. The authorities below have come to a finding that during the time Mr Krishna Kachalia was shown to be in-charge of the marketing activities at the Appellant- Assessee s Borivali Center, another Director of the Appellant-Assessee was also looking after the marketing activities at the very same place and was paid a remuneration of ₹ 10,00,000/- per annum for the said work. The authorities below have also found that in no other Center of the Appellant- Assessee was more than one Director assigned and the fact that Mr Krishna Kachalia was assigned to look after the work at Borivali in addition to another Director, his appointment was only for name sake. Despite the fact that it was sought to be urged that Mr Krishna Kachalia was rendering marke ..... 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