Case: Echjay Forgings Limited Vs. Assistant Commissioner of Income Tax 10(3) & Another

P.C.Heard learned Counsel for the parties.2. Perused appeal memo. The questions said to be substantial questions of law which sought to be raised, read as under:a) On the facts and in the circumstances of the case and in law, whether the Tribunal was right in dismissing the appeal and thereby confirming the disallowance of Rs.11,83,697/- being education expenses incurred in respect of a trainee during the course of appellants business b) On the facts and in the circumstances of the case and in law, whether the Income Tax Appellate Tribunal was right in holding that the expenditure incurred has no nexus with the business of the appellant and the same cannot be allowed under Section 37(1) of the Act FACTS :3. The factual aspects reveal that the appellant is an Engineering Company manufacturing various engineering items like steel forgings, automobile components, various types of rings etc. For the A.Y.1998-99, the appellant firm filed a return of income and the same was accompanied by annual report with audited accounts and tax audit report. During the year under consideration, one of the Directors son Dhananjay Doshi was selected and sent abroad for higher studies said to be in industrial engineering on a condition that he would serve the appellant company for a period of at least five years after the completion of his studies on a reasonable remuneration to be decided by the Board of Directors. Accordingly, the appellant incurred expenses and claimed deduction of expenditure incurred on this account amounting to Rs.11,83,697/- , under Section 37 of the Income Tax Act.4. The Assessing Officer, by referring various judgments on the issue, disallowed the expenses holding it to be expenses not incurred during the course of appellants business and finally completed assessment under Section 143(3) of the Income Tax Act.5. The appeal carried to the Commissioner of Income Tax (A) failed. The order of the Commissioner of Income Tax (A) was confirmed by the Income Tax Appellate Tribunal.6. Being aggrieved by the orders of the authorities below, the appeal under Section 260A of the Income Tax Act is invoked by the appellant.RIVAL SUBMISSIONS:7. Learned Senior Counsel appearing for the appellant urged that the Tribunal committed an error in disallowing the education expenses although the expenses incurred were in relation to the appellants business liable for deduction under Section 37 of the Income Tax Act. In his submission, the Tribunal failed to appreciate that part of the education expenses incurred in the earlier assessment year were not disallowed although the assessment had been completed under Section 143(3) of the Act.8. Learned Senior Counsel submits that the judgment of this Court in the case of Hindustan Hosiery Industries, 209 ITR 383 (Bom) was wrongly relied on by the authorities below. According to him, the said judgment is distinguishable on the facts. He placed heavy reliance on another judgment of this Court in the case of Sakal Papers Pvt. Ltd. Vs. CIT, 114 ITR 256 (Bom) and tried to draw support from the said judgment.9. Per contra, learned Counsel appearing for the Revenue refuted the submissions made and went on to submit that the concurrent findings of fact are recorded by the authorities below and the assessees claim was rightly rejected based on appreciation of facts with which no fault can be found. In his submission, no perversity could be demonstrated by the appellant in the findings of fact recorded by the authorities below. According to him, Dhananjay Doshi was not an employee or Director of the Company. He, being a son of one of the Directors these expenses were incurred by the father taking advantage of the position held by him. He, thus, tried to support the orders of the authorities below and prayed for rejection of appeal.CONSIDERATION:10. Having heard both the parties, it is not in dispute that Dhananjay Doshi was sent abroad for studies, but no evidence is on record know in what capacity he was sent. It is sought to be canvassed that Dhananjay Doshi was appointed as a Trainee. On being asked, the letter of appointment dated 25th April, 1996 was shown to us. The letter has neither any Reference Number nor it is backed by any previous application made by the trainee. The appointment letter refers to the Apprentice Training Scheme with the Company. However, no details thereof were produced either before this Court or before any of the authorities below. We were shown two appointment letters, one is dated 25th April, 1996 and another is dated 10th May, 1996. It is difficult to appreciate that why second letter was issued, when already a letter dated 25th April, 1996 was holding the field. No evidence is on record to show that any other person at any point of time, either prior to 1996 or subsequent thereto till date was appointed as trainee or sent abroad for higher education. During the course of hearing, on being asked, we were informed that in last 13 years, no other person was sent for training.11. In the aforesaid backdrop, if the findings recorded by the Commissioner of Income Tax (A) is read, one can not find fault with the same. The findings in this regard read as under:"2.3. I have considered the submission of the appellant company. To my mind, in the present case, the issue is related to pure appreciation of facts and no law point is involved. The appellant companys shares are closely held. There is no evidence that Shri Dhananjay D.Doshi was recruited as "trainee" by some open competitive examination or through some other regular selection process. It is also not clear as to in what capacity, Mr.Dhananjay D.Doshi was a "trainee", as relevant documents have not been furnished either at the time of assessment or at the time of appellate proceedings. It is thus apparent that only consideration for incurring Rs.11,83,697/- on Mr.Dhananjay Doshi is because, he being son of one of the Directors of the appellant company. Thus, only logical conclusion which could be drawn on these facts of the case is that there is no nexus in between education expenses incurred abroad for Mr.Dhananjay D.Doshi and the business of the appellant company. As such, these expenses can not be considered as allowable expenses under Section 37(1) of the Income Tax Act. The appeal is dismissed."12. The aforesaid finding is confirmed by the Tribunal. The Tribunal has rightly distinguished the case of Sakal Papers Pvt.Ltd. Vs. CIT, on which heavy reliance was placed. No support can be drawn from this case. As a matter of fact, factual matrix in the present case reveals that the issue involved revolve around finding of fact based on pure appreciation of evidence. No documentary evidence with respect to appointment of trainee was produced before the Tribunal or before the Assessing Authority. For the first time, they were shown to this Court which do not inspire any judicial confidence as stated above.

Decision:
0[ds]10. Having heard both the parties, it is not in dispute that Dhananjay Doshi was sent abroad for studies, but no evidence is on record know in what capacity he was sent. It is sought to be canvassed that Dhananjay Doshi was appointed as a Trainee. On being asked, the letter of appointment dated 25th April, 1996 was shown to us. The letter has neither any Reference Number nor it is backed by any previous application made by the trainee. The appointment letter refers to the Apprentice Training Scheme with the Company. However, no details thereof were produced either before this Court or before any of the authorities below. We were shown two appointment letters, one is dated 25th April, 1996 and another is dated 10th May, 1996. It is difficult to appreciate that why second letter was issued, when already a letter dated 25th April, 1996 was holding the field. No evidence is on record to show that any other person at any point of time, either prior to 1996 or subsequent thereto till date was appointed as trainee or sent abroad for higher education. During the course of hearing, on being asked, we were informed that in last 13 years, no other person was sent for training.11. In the aforesaid backdrop, if the findings recorded by the Commissioner of Income Tax (A) is read, one can not find fault with the same. The findings in this regard read as under:"2.3. I have considered the submission of the appellant company. To my mind, in the present case, the issue is related to pure appreciation of facts and no law point is involved. The appellant companys shares are closely held. There is no evidence that Shri Dhananjay D.Doshi was recruited as "trainee" by some open competitive examination or through some other regular selection process. It is also not clear as to in what capacity, Mr.Dhananjay D.Doshi was a "trainee", as relevant documents have not been furnished either at the time of assessment or at the time of appellate proceedings. It is thus apparent that only consideration for incurring Rs.11,83,697/on Mr.Dhananjay Doshi is because, he being son of one of the Directors of the appellant company. Thus, only logical conclusion which could be drawn on these facts of the case is that there is no nexus in between education expenses incurred abroad for Mr.Dhananjay D.Doshi and the business of the appellant company. As such, these expenses can not be considered as allowable expenses under Section 37(1) of the Income Tax Act. The appeal is dismissed."12. The aforesaid finding is confirmed by the Tribunal. The Tribunal has rightly distinguished the case of Sakal Papers Pvt.Ltd. Vs. CIT, on which heavy reliance was placed. No support can be drawn from this case. As a matter of fact, factual matrix in the present case reveals that the issue involved revolve around finding of fact based on pure appreciation of evidence. No documentary evidence with respect to appointment of trainee was produced before the Tribunal or before the Assessing Authority. For the first time, they were shown to this Court which do not inspire any judicial confidence as stated above.