Income Tax Appellate Tribunal - Delhi
M/S. Dharampal Satyapal Sons (P) Ltd., ... vs Dcit, New Delhi on 9 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'B' NEW DELHI
BEFORE SH.G.D.AGRAWAL, HON'BLE PRESIDENT
AND
SH.K.N.CHARY, JUDICIAL MEMBER
ITA No. 5918/Del/2014
(ASSESSMENT YEAR: 2010-11)
Dharampal Satyapal Sons (P) Ltd., vs DCIT,
C/o-Kapil Goel, Adv., Central
F-26/124, Sector-7, Rohini, Circle-4,
New Delhi-110085. New Delhi.
PAN-AABCD9090K
(Appellant) (Respondent)
Appellant by Sh. Kapil Goel, Adv.
Respondent by Ms. Rachna Singh, CIT DR
Date of Hearing 26.10.2017
Date of Pronouncement 09.11.2017
ORDER
PER K.N.CHARY, JUDICIAL MEMBER
The assessee preferred this appeal challenging the order dated 02.07.2014 in Appeal No.26-28/13-14/1179 passed by the Commissioner of Income Tax (Appeal) [in short "CIT(A)"]-XXXIII, New Delhi for Assessment Year 2010-11 on the following ground:-
That on the facts and in the circumstances of the case and in law, learned CIT-A erred in not deleting the wrongful addition made by Ld. AO (for Assessing Officer) amounting to Rs.25,89,354/- erroneously treating the fully allowable business expense as inadmissible under section 37 of the Act whereas Fringe Benefit Tax (FBT) stands paid on relevant portion during applicable period and duly substantiated by written contract."
2. Briefly stated facts are that during the scrutiny of the return of income of the assessee filed in response to the notice u/s 153A of the Act, it was ITA No. 5918/Del/2014 found that in the relevant previous year, the assessee claimed to have incurred an expenditure of Rs.25,89,354/- on account of foreign travel and education of Sh. Chitresh Gupta who was allegedly appointed to the post of General Manager on 04.08.2006. From the related party disclosure made in the financial statement of various concerns of the assessee group, AO found that Sh. Chitresh Gupta is the son of Sh. Rajesh Gupta, who was one of the Directors of M/s Dharampal Satyapal Ltd., a close relation of Sh. Rajiv Kumar & Sh. Ravinder Kumar who controlled all the management of the group. It was explained by the assessee that the said expenditure was incurred on the study of Sh. Chitresh Gupta for Bachelor Degree in Mechanical Engineering at Southern Methodist University, USA and according to the assessee, it was useful for meeting upon the over all activity and productivity of the assessee's concerns. However, AO opined that appointment of the Sh. Chitresh Gupta to the post of General Manager and sending him to the study at Southern Methodist University, USA is a farce and has nothing to do with the business activity of the assessee company. AO followed the decision reported in CIT vs Navsari Cotton & Silk Mills Ltd. [1982] 135 ITR 546 (Guj.) and proceeded to disallow the said expenditure of Rs.25,90,354/-. In appeal, by way of impugned order, Ld.CIT(A) confirmed the addition on the same grounds recorded by the AO. Hence, this appeal filed by the assessee before us.
3. It is the submission of the Ld.AR that Sh.Chitresh Gupta is primarily involved in improvement of the manufacturing process in up keeping of machinery & utilities and also advising the assessee on issues of strategic planning of management resulting in the over all improvement in the Page | 2 ITA No. 5918/Del/2014 activity and the productivity of the company. Ld.AR further asserted that Sh. Chitresh Gupta is not related to any Director or Member of the company. Ld. AR placed reliance in the decision of Hon'ble Jurisdictional High Court in the case of M/s Kostub Investment Ltd. vs CIT vide order dated 25.02.2014 in ITA No.10/2014. Ld.AR further submitted that the remuneration given to Sh. Chitresh Gupta is as per the contract of appointment dated 04.08.2006 i.e. below the actual remuneration being offered to other professional on similar position of designation by the company.
4. Per contra, it is the argument of the Ld. DR that candidate without having any formal degree and at a tender age will not be appointed to the post of General Manager and the appointment is only make belief story to claim the deduction expenses of Sh. Chitresh Gupta who is one of the Directors of the assessee company. It is further argued by the Ld.DR in CIT vs Navsari Cotton & Silk Mills Ltd. (supra) that certain tests are formulated by Hon'ble Jurisdictional High Court for considering the allowability of expenses and in this case, the assessee failed to meet the criteria that the expenditure was wholly and exclusively connected with the business of the company.
5. We have carefully gone though the record. As per the assessment order, the AO gathered the information that the candidate, Sh. Chitresh Gupta is son of Sh. Rajesh Gupta, one of the Directors of the assessee company and a close relation of Sh. Rajiv Kumar & Sh. Ravinder Kumar who have the control of the management of various concerns of M/s. Dharampal Satyapal Group. From the beginning, it appears from the record that the assessee has been contending that Sh. Chitresh Gupta is not a relation of any Director or Member of the company. The assessment order does not Page | 3 ITA No. 5918/Del/2014 reveal as to any attempt made by the AO to get clarity on this aspect. It has been contended on behalf of the assessee that after the completion of the deduction, Sh. Chitresh Gupta is working with the assessee's company on a remuneration that was fixed by the terms of contract of appointment dated 04.08.2006 and such a remuneration is below the actual remuneration offered to other professionals appears to other designation by other companies. Reliance is placed on the the decision reported in M/s Kostub Investment Ltd. vs CIT (supra) and in this decision vide para 9, the Hon'ble Jurisdictional High Court observed as follows:-
9. "Whilst there may be some grain of truth that there might be a tendency in business concerns to claim deduction under section 37, and foist personal expenditure, such a tendency itself cannot result in an unspoken bias against claims for funding higher education abroad of the employees of the concern.
As to whether the assessee would have similarly assisted another employee unrelated to its management is not a question which this Court has to consider. But that it has chosen to fund the higher education of one of its Director's sons in a field intimately connected with its business is a crucial factor that the Court cannot ignore. It would be unwise for the Court to require all assesses and business concerns to frame a policy with respect to how educational funding of its employees generally and a class thereof, i.e. children of its management or Directors would be done. Nor would it be wise to universalize or rationalize that in the absence of such a policy, funding of employees of one class- unrelated to the management-would qualify for deduction under Section 37(1). We do not see any such intent in the statue which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case-dependent."
6. When we look at the things from the light of the observation of the Hon'ble High Court coupled with the submissions of the Ld.AR that after completion of the deduction, Sh. Chitresh Gupta is working with the assessee's company on a remuneration that was fixed by the terms of contract of appointment dated 04.08.2006 and such a remuneration is below the actual remuneration that is offered to other professionals appears to other designation by other companies. If the appointment of Mr. Chitresh Page | 4 ITA No. 5918/Del/2014 Gupta is a devise only to camouflage his foreign education expenses it is unlikely that after completion of study, he would not have joined the assessee company with the remuneration offered at the inception. Continuing the service pursuant to the earlier appointment and utilization of the knowledge gained by Mr. Gupta in the assessee's company after completion of the studies is one of the factors that support the contention of the assessee. It, therefore, appears that the verification of these facts would throw a greater light on the aspect of the allowability or otherwise of the expense. We, therefore, are of the opinion that it is a fit case to set aside the issue to the file of the AO for verification as to whether Sh. Chitresh Gupta is in relation within the meaning of the Act or whether he has been working with whether he joined the assessee company after completion of the deduction at the remuneration fixed by the letter of the appointment. With this view, the assessee will submit the material in support of his contention before the AO to get their just tax liability adjudicated. With this view of the matter, we set aside the ground for verification to the end of the AO as indicated above.
7. In the result, the appeal of the assessee is allowed for statistical purposes.
The order is pronounced in the open court on 09th November, 2017.
Sd/- Sd/-
(G.D.AGRAWAL) (K.N.CHARY)
PRESIDENT JUDICIAL MEMBER
*Amit Kumar*
Date:- 09.11.2017
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ITA No. 5918/Del/2014
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
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