TMI Blog2020 (4) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of Ld. AR. Accordingly, we allow the grounds raised by the assessee. - I.T.A. No. 2041/Mum/2018 - - - Dated:- 10-2-2020 - Shri Pawan Singh, JM And Shri S. Rifaur Rahman, AM For the Appellant : Ms. Hiral D. Sejpal, AR For the Respondent : Shri V. Vinod Kumar, DR ORDER PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER): The present appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-2, Pune, in short Ld. CIT(A) dated 15.02.18 for AY 2014-15. 2. The brief facts of the case are that assessee company is engaged in the business of manufacturing of colorants both architectural as well as industrial. It is also involved in trading of goods and provision of services which are ancillary to its business activities. The assessee filed its return of income for the year under consideration on 28.11.2014 declaring a total income of ₹ 3,36,78,620/- and return was processed u/s 143(1) of the I.T. Act. Thereafter the case was selected for scrutiny under CASS. Notices u/s 143(2) and 142(1) were served upon the assessee. In response, AR of the assessee attended and furnished the details as called from time to ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thereafter the case was selected for scrutiny under CASS. Notices u/s 143(2)1142(1) were served upon the appellant company. In response of the said notices, the authorized representative of the appellant company attended and furnished the details as called from time to time. An assessment was done u/s 143(3,) of the Income Tax Act, 7967 ('the Act') determining the total income at ₹ 3,59, 72,460. The Dy. Commissioner of Income Tax, Circle - 3, Thane (theAO1) disallowed the training expenses which were incurred by the Appellant company for the director, namely, Mr. Jashan Bhumkar s University fee for graduation from Berkeley University of California. As Regards Ground No. 1: The Appellant company has incurred training charges amounting to ₹ 49,39,185/- in the year under consideration of which ₹ 22,33,843/- have been spent for the education fees of Mr. Jashan Bhumkar, the director of the appellant company Mr. Jashan Bhumkar is a director of the appellant company since April 15, 2010. He was pursuing graduation in the field of advanced chemical technology and was specializing in the field which is directly relevant to the current busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred on the director and hence, the same should be allowed keeping in view the principle of consistency. Further, considering the financial position of the family of Mr. Jashan Bhumkar and their returns filed, their annual withdrawal for the AY 2014-15 is-approximately ₹ 2 crore. The education fees of₹ 22,33,843/- of Jashan Bhumkar could have been easily spent by his family, but since the knowledge gained by Jashan Bhumkar was in the interest of the appellant company, his education fees were sponsored by the company keeping in mind the long-term prospects. The company follows a blanket policy in this regard. As regards Ground No. 2: The appellant company, during the assessment proceedings, had verified the invoices, Board Resolution and the 'Education Sponsorship Agreement' with the AO, but the same was not taken on record by the AO. 7. Ld. CIT(A) after considering submission and additional evidences submitted by the assessee, sustained the addition made by AO by relying on following case laws:- i) Echjay Forgings Ltd. vrs. ACIT in 328 ITR 286. ii) Mac Explotec Pvt. Ltd. vrs. CIT in 155 Taxmann 247. iii) CIT vrs. R.K.K.R. Steels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the paper book. She further brought to our notice copy of education sponsorship arrangement which is placed at page no. 2 and she brought to our notice Clause 1.1, 1.2, 4.3 and 4.4 and submitted that executive director has incurred all the expenditure/ fees of graduation and only for the 3rd year of graduation, assessee company has agreed to sponsor only college fees with a condition that Shri Jashan Bhumkar will work with company for a period of 3 years and also at the time of choosing the major subject, Shri Jashan Bhumkar has selected advance study in chemicals, since the line of the business of the assessee also in chemical field. She further submitted that Shri Jashan Bhumkar has joined the company after graduation and still serving as director in the company, holding an important position. She further submitted that Ld. CIT(A) has relied upon various case laws, which is not relevant to the facts of the present case and she relied on the case law as mentioned below:- 11. She submitted that the Hon ble High Courts has distinguished the case law relied by Ld. CIT(A) and as per the facts of the decision of Hon ble Madras High Court in the case of Aswathanarayana Eswara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , wherein it was held as relevant paras No. 2, 3, 10 to 28, which is mentioned below:- 2.The assessee is a professional firm of Consulting Engineers Architects. For the assessment year 2001-02, the appellant filed a return of income admitting loss of ₹ 6,65,428/-. The assessment was completed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) determining the total assessed loss at ₹ 4,20,588/-. The Assessing Officer disallowed a sum of ₹ 2,65,588/- being foreign education and training expenses of partner Shri H.E.Sriprakash Shastry as being not related to the business of the firm and in doing so, followed the decision of this Court in the case of M.Subramaniam Bros. vs. Commissioner of Income Tax reported in (2001) 250 ITR 0769 and the decision in Commissioner of Income Tax vs. R.K.K.R Steels reported in (2002) 258 ITR 0306. 3.The assessee contended that Mr.H.E.Sriprakash Shastry is the son of Shri.Eswara, one of the partners of the firm, who had completed his B.E.Civil Engineering in the year 2000 and became a partner of the firm in April 2000 and he was sent to the University of New South Wales, Sydney, Australia dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to have taken some part in the business activities of the firm. Taking note of the facts and circumstances of the case, the Court held that the expenditure incurred by the assessee-firm on higher education abroad of one of its partners, who was the son of the main partner, was not allowable as deduction as this cannot be regarded as a deputation made by the firm in connection with the business notwithstanding a covenant by the said partner to serve the firm for a period of five years. 13.In the case of R.K.K.R Steels (supra), the facts were that the assessee was engaged in re-rolling and claimed expenditure for meeting the cost of travel to USA and the expenses connected with the education of the son of the Director of the company, who had acquired an M.B.A. Degree. There was no agreement between the company and son before he was sent to abroad. There was no requirement that he should join the company after completing his education. In the said facts and circumstances of the case, the Court held that the expenditure, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were substantial pecuniary advantage earned on the partner acquiring a foreign degree thereby leading to contracts with multinationals some of whom have been named such as Nokia and Leighton (India) Private Limited, who appointed them as architects for the projects near Sriperumbudur. On this factual issue, it would be useful to refer to the decision in the case of Sakal Papers Pvt.Ltd. vs. Commissioner of Income Tax reported in (1978) 114 ITR 0256, wherein the educational expenditure of the daughter of its Directors were held to be deductible under Section 37 of the Act. Learned Standing Counsel for the Revenue pointed out that in the said case prior to the daughter being selected and sent for education aboard, for nearly 5 years she has worked as an apprentice in the firm. 17.In our considered view, the son of the partner had already been inducted as a partner of the firm before he was sent abroad, in the sense that prior to the son being sent to Australia for higher education, he had already been inducted as a partner and there is material to show that on his return, there has been value addition to the business of the firm and he continued with the firm as its partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and the CIT(A) did not choose to discuss any of them (materials placed), for the reasons best known to them. We are satisfied that there was substantial facts placed before the authorities, which were completely ignored. 23.As pointed out by the Hon'ble High Court of Delhi in Kostub Investment Ltd. vs. Deputy Commissioner of Income Tax [(2014) 365 ITR 0436 (Delhi)], there might be a tendency in business concerns to claim deductions under Section 37, and foist personal expenditure, but such a tendency itself cannot result in an unspoken bias against claims for funding higher education abroad of the employees of the concern. 24.We have examined the facts placed before the lower authorities and we find that the assessee is a partnership firm consisting of two brothers, two sons of one brother. All the four partners are duly qualified Engineers (B.E.) and the firm is carrying on Engineering Consultancy Profession for leading Indian Corporate Clients. One of the partner's son, Mr.H.E.Sriprakash Shastri, joined the firm in April 2000 after completing his B.E., degree. He had taken active part in the conduct of the business of the firm from the date of his induct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered view, the assessee cannot be non-suited merely because, he has not used the expression perverse in the grounds of appeals before the CIT(A) as well as before the Tribunal. There is no dispute raised by the Revenue with regard to the factual position that the concerned partner went abroad for completion of the higher studies/education and on his return continued with the firm. Non-consideration of the factual issues, which are germane and which ought to have been considered, leads to perversity. Thus, the Tribunal committed serious error of law thereby vitiating the entire proceedings more particularly, the aspects which goes to the root of the matter. 28.Thus, for the above reasons, we are of the considered view that the authorities concurrently committed serious error of law and failed to address the issues which ought to have been addressed, ignored materials which ought to have been considered and applied the decisions which are wholly distinguishable on facts. 15. We also notice that Hon ble Bombay High Court in the case of Sakal Papers (P.) Ltd. vrs. CIT(supra) has also decided the similar facts to the present case. 16. Therefore, in our considered view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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