2014 (1) TMI 1140 - AT - Income Tax

Tribunal allows appeals for assessment years 2005-08, upholds bad debts disallowance for 2006

M/s Jet Speed Audio Pvt. Ltd. Versus The Assistant Commissioner of Income Tax

M/s Jet Speed Audio Pvt. Ltd. Versus The Assistant Commissioner of Income Tax - TMI Issues Involved:1. Disallowance of Education Expenses.2. Ad-hoc Disallowance of Vehicle Expenses & Depreciation on Vehicle.3. Disallowance of Claim of Bad Debts.Issue 1: Disallowance of Education ExpensesThe primary issue in these appeals concerns the disallowance of education expenses amounting to Rs. 29,05,488/- incurred for two directors of the assessee company who completed MBA courses abroad. The assessee argued that these expenses were business expenditures as the education enhanced the directors' ability to manage the company more effectively. The Assessing Officer (A.O.) denied the claim, suggesting the expenses were personal since the directors were sons of the promoter directors. The CIT(A) upheld this disallowance, agreeing that the expenses were personal.The assessee contended that the education was specific to Marketing & Finance and technical courses, directly benefiting the company. They cited agreements where the directors committed to rejoining the company post-education. They referenced the Sakal Paper Pvt. Ltd. Vs CIT case, where similar education expenses were deemed revenue expenses. Additionally, they pointed out that Fringe Benefit Tax (FBT) was paid on these expenses for the years 2006-07 and 2007-08, which the A.O. accepted.The Tribunal noted that the A.O. accepted the FBT paid, meaning the expenses were scrutinized and accepted. They referenced a similar case, Hansraj Mathuradas Vs ITO, where FBT payment implied acceptance of the expenses as business-related. The Tribunal concluded that the education expenses were indeed for professional enhancement and thus allowable as business expenditures. They cited the Sakal Papers Pvt. Ltd. case, emphasizing that the relationship between the directors and the company justified the expenses without a formal bond. Thus, the Tribunal deleted the disallowance and decided in favor of the assessee.Issue 2: Ad-hoc Disallowance of Vehicle Expenses & Depreciation on VehicleFor the assessment year 2005-06, the assessee challenged the ad-hoc disallowance of Rs. 48,138/- related to vehicle expenses and depreciation. The A.O. disallowed 20% of these expenses, citing a personal element without providing specific evidence. The CIT(A) upheld this disallowance.The Tribunal found that the A.O. and CIT(A) failed to present specific incidents or evidence indicating personal use of the vehicles. They noted that in a company, if personal use is identified, it should be considered a perquisite for the employee. The Tribunal found no justification for the ad-hoc disallowance and deleted it.Issue 3: Disallowance of Claim of Bad DebtsFor the assessment year 2006-07, the assessee claimed Rs. 33,445/- as bad debts, which was an advance given to an ex-employee. The A.O. disallowed this claim, stating it did not qualify as bad debts. The CIT(A) upheld this decision.The assessee argued that the amount should be allowed as a business loss since it was irrecoverable. However, the Tribunal noted that the assessee failed to establish the business purpose of the advance. They concluded that since the loan had no nexus with the business activities, it could not be allowed as bad debts or business loss. Thus, the Tribunal upheld the disallowance.Conclusion:The Tribunal allowed the appeals for the assessment years 2005-06 and 2007-08, deleting the disallowance of education expenses and ad-hoc vehicle expenses. However, for the assessment year 2006-07, the appeal was partly allowed, with the disallowance of bad debts being upheld. The order was pronounced on December 11, 2013.