TMI Blog2020 (3) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of education expenses u/s 37(1) based on enquires conduced during the course of assessment proceedings. Therefore, ground no. 1 of the assessee s appeal is dismissed. Addition of education expenditure - education of daughter of managing director - Held that:- What is relevant is not just the ultimate benefit or utilization of such expenditure for business purposes but what is equally relevant is that the point in time when the expenditure was incurred, the business of the assessee should have been set up which however, is not the case in the instant case. The claim of education expenditure has been rightly disallowed by the Assessing officer and confirmed by the ld CIT(A) and we donot see any infirmity in the said orders and no interference is called for. The matter is accordingly decided against the assessee and in favour of the Revenue. In the result, ground no. 2 of assessee s appeal is dismissed. - ITA. No. 654/JP/2017 - - - Dated:- 11-3-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Dileep Shivpuri (Adv.) For the Revenue : Shri Varinder Mehta (CIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at total assessed income of ₹ 1,66,29,560/-. 5. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). It was contended before the ld. CIT(A) that the Assessing Officer has erred in disallowance of education expenses as no incriminating material was found during the search proceedings and the assessment proceeding were not abated besides submissions on merits of the case. 6. As per the ld. CIT(A), the action of the Assessing Officer was justified as the original return filed on 10.10.2010 U/s 139 of the Act was only processed U/s 143(1) and processing U/s 143(1) is neither assessment nor completed assessment, therefore, it is not a case of abated assessment as per the provisions of Section 153A of the Act on merits. The ld. CIT(A) further held that the assessee was pursuing B.Sc(Hons) in business management from CASS business school, London during the year 2006-09 and M.Sc in finance from Imperial college of London in the year 2010-2011 which is not specialized course per se meant for the trading of bullion and base metals. Further, it was held by the ld CIT(A) that every claim of deduction cannot be allowed U/s 37 of the Act as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ann.com 32 (Jodhpur-Trib.) wherein also the same sentiments have been expressed. In view of the cases cited above, it was submitted that the assessment framed by making an addition u/s 153A when no incriminating document was found during search, should be set aside and the AO directed to complete the assessment at the returned income. 10. Regarding ground no. 2, it was submitted by the ld. Counsel for the assessee that on merits, this addition was confirmed by the ld. CIT(A) on two grounds- that interest paid on education loan is a specific deduction, and that no business purpose is served by obtaining a B.Sc. (Hons) degree in business management and M.Sc. in Finance , and this expenditure falls in the category of personal expense. It was submitted that the question of taking a loan and claiming deduction on the interest paid on that loan does not arise in the present case as the assessee has spent his own money on education purposes. Therefore, there is no question of claiming deduction on interest paid. The ld CIT(A) seems to have mixed up the facts of this case and the reason given by him is fallacious, based on wrong facts, and is accordingly to be dismissed. 11. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2011. The original return of income for the financial year 2009-10 relevant to impugned assessment year 2010- 11 was filed on 10.10.2010 and the last day of issuing notice section 143(2), being six months from the end of the financial year in which return has been filed, has not expired on the date of search i.e. 5.09.2011. Thus, it is clear that the assessment proceedings were pending as on 5.09.2011 i.e. the date of search as the time limit for issuance of notice u/s 143(2) has not expired. As per section 153A of the Act, once a search and seizure action is carried out, the AO has to assess or reassess the total income of the assessee in respect of 6 years immediately preceding the assessment year relevant to the previous year in which a search is conducted or requisition is made. In case the assessment is pending on the date of search, the same shall be abated as per proviso to U/s 153A(1) of the Act and the AO is free to assess the income of the assessee as regular assessment. However, in case of completed assessment and not abated due to initiation of search u/s 132 or making of requisition u/s 132A, the AO has to reassess the total income of the assessee and therefore, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consideration therefore is where the assessee, an individual, who is engaged in the business of trading in bullion and base metal through his sole proprietorship concern, incurs expenditure on his own education whereby he pursues graduate i.e, B.SC (Hons) course in management during the period 2006-09 and post graduate course i.e, M.Sc during 2010-11, whether such expenditure can be allowed as expenditure incurred wholly and exclusively for the purposes of his business for the impugned assessment year 2010-11 or the same is in nature of personal expenditure, which is not allowable while computing taxable business income from such sole proprietorship concern, in terms of provisions of section 37 of the Act which reads as under: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . 16. In case of Kohinoor Paper Products (supra), one of the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the first two years of the basic graduation course, the business of the assessee was not even set-up and commenced its operations. Therefore, the very basis of claiming the whole expenditure for the 3 years graduation course in the year under consideration is not clear where the business of the assessee has not even started and therefore, the question of establishing nexus with his business doesn t arise for consideration. Further, it is unclear as to how the whole of expenditure for three years graduation course has been claimed during the year under consideration as typically, the course fee is deposited at the beginning of the academic session and two of the academic years clearly falls prior to year under consideration. Further, post graduate course i.e, M.Sc in finance was pursued during the period 2010-11. It is again unclear as to how the assessee was running his business and at the same time, pursuing the course. Further, what is the basis of claim of such an expenditure during the impugned assessment year i.e, 2010- 11 where the claim prima facie suggest that it relates to subsequent assessment year 2011-12 going by the fact that the course was pursued during the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal intangibles, the same will not result in re-characterising the business expenditure as personal in nature. However, this is not the case before us as at the relevant point of time when the expenditure was incurred, the business of the assessee has not even started. However, the same may be relevant in context of post graduate course i.e, M.Sc in finance which was pursued during the period 2010- 11 and therefore, relevant for subsequent assessment year and not for the impugned assessment year which the assessee may pursue, if so advised. 20. Now, coming back to another decision relied upon by the ld AR in case of Naidunia News and Networking (P) Ltd. (supra). In that case, facts of the case were that the assessee company was engaged in the business of printing and distribution of newspapers and magazines. The assessee claimed expenses on foreign travelling and higher studies in printing technology for one of its employees who was working as an Assistant Manager (Printing) who was also son of Ex-director of the company. The Tribunal allowed the claim of the assessee holding that the person was an employee of the assessee and he was sent abroad to acquire the advance knowl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch reads as under:- 8. This Court has considered the materials on record. There can be no doubt that the burden of showing that expenditure would be wholly and exclusively for the purpose of business under Section 37(1) is upon the assessee and that personal expenditure cannot be claimed as business expenditure. The question is whether these twin requirements are said to have been satisfied in the circumstances of this case. The first is what are the materials on record? The assessee furnished its resolution authorizing disbursement of the expenses to fund Dushyant Poddar s MBA. It secured a bond from him, by which he undertook to work for five years after return within a salary band and he had in fact worked after graduating from the University for about a year before starting his MBA course. In Natco Exports (supra), the student had applied directly when she was pursuing her graduation. There was a seamless transition as it were between the chosen subject of her undergraduate course and that which she chose to pursue abroad. In the present case, the facts are different. Dushyant Poddar was a commerce graduate. The assessee s business is in investments and securities. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriately deductible under Section 37(1). 22. In the aforesaid case, the employee was working with the assessee company and went abroad for pursuing MBA course which the Court held to have an intimate and direct connection with the assessee s business. However, the facts are clearly distinguishable in the instant case, where the assessee pursued the graduation course when even the business has not started and what to speak about intimate connection with the business. Thus, this decision again doesn t support the case of the assessee. 23. In case of Mallige Medical Centre (P.) Ltd.(supra), the assessee company claimed a sum of ₹ 5,00,000/- spent on the education of daughter of the managing director of the company. It was submitted that she was committed to work for the assessee after successful completion of her studies and after successful completion of studies, she came back and worked in the assessee company. She was paid a sum of ₹ 20,000/- per month as salary before she was sent for higher studies and after returning, she is being paid ₹ 30,000/- per month. In that factual background, the Hon ble Karnataka High Court has held as under:- 6. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States for training in business management. The ITO disallowed the claim on the ground that the training had nothing to do with the business of manufacture and sale of hosiery goods carried on by the assessee firm which was affirmed by the ld. Commissioner (Appeals) and on further appeal, the Coordinate Bench at Mumbai allowed the claim of the assessee holding that training in modern business management would be beneficial to carrying on the business of assessee firm. We have gone through this decision and this decision again doesn t support the case of the assessee as the facts are clearly distinguishable in the instant case. What is relevant is not just the ultimate benefit or utilization of such expenditure for business purposes but what is equally relevant is that the point in time when the expenditure was incurred, the business of the assessee should have been set up which however, is not the case in the instant case. 26. In light of above discussions and in the entirety of facts and circumstances of the case, the claim of education expenditure of ₹ 1,11,35,190/- has been rightly disallowed by the Assessing officer and confirmed by the ld CIT(A) and we donot see an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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