TaxTMI 
TaxTMI 
2013 (2) TMI 92
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....of education expenses of assessee's son and Ground Nos. 8 to 11 pertain to the addition made in respect of personal drawings. 4. Ground Nos. 1 to 4: Issue of disallowance of interest income: 5. Assessee is in the business of export of readymade garments and films. He has claimed an amount of Rs.22,46,118/- as interest expenditure in the business of export. As assessee's balance sheet indicated that assessee has advanced interest free amounts to an extent of Rs.72,76,060/-, AO asked why proportionate interest could not be disallowed out of the interest claimed. It was the submission that assessee has received interest free loans and advanced interest free loans out of the funds mostly from the family members except in two/three outside loans. It was the submission that his own credit balance in the capital account is to the tune of Rs.91.76 lakhs and unsecured loans were received from his father for which no interest was paid. AO without seeing the nexus of the borrowed funds and loans & advances given estimated 12% interest chargeable on interest free loans at Rs.8,73,127/- and disallowed the same. Before the CIT (A) assessee reiterated the same and submitted that interest pa....
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....aper book, assessee has proprietary capital account to the extent of Rs91.76 lakhs and interest free unsecured loans to an extent of Rs 20.96 lakhs totaling to Rs1.12 crores. Assessee also had investments of Rs43.60 lakhs sundry debtors to an extent of Rs2.89 crores and cash and bank balance to an extent of Rs 29.64 lakhs. Closing stock also involved at Rs65.34 lakhs. Therefore, moneys advanced interest free to the family members and other concerns, which has come down from Rs98.65 lakhs to Rs72.76 lakhs during the year, cannot be equated with the funds availed from the Banks for the purpose of business. 8. We have also perused the banking statements placed in the paper book. Most of the interest amounts are either for the foreign bills discounted or packing credit availed. As rightly submitted assessee is available overdraft a/c, packing credit a/c and bill discounting facility with the Punjab National Bank. The packing credit is sanctioned by the banks against the export orders where the Bank finances the maximum 75% of the order value. There is no dispute with reference to assessee's export business and the entire interest as seen from the statements filed is only pertaining ....
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....competitive world only the fittest person will survive. We have to sharpen our techniques and method of doing business. World is changing very fast. New technicians for doing business is very essential in this ever changing economy. The globalization of Indian economy has forced us to arm our employee with latest technology and knowledge. By doing this we can not only withstand the competition but also increase our share in this ever changing global business. So education expenses incurred on Mr. Bhavin Savani is nothing but business expenses, which will definitely give very good return in the near future. So this expenses are incurred are for the furtherance of our business and same is allowable as business expenses. It was held in Argade Shyam & co. (ITA Nos. 742 & 743/B/85 reported in CTR Vol. 72, issue 37 page 78) education expenses financed by the firm to a partner who is closely related to other partner are allowed as allowable expenses" The facts of the case is that Mr. Bhavin Savanl, on whom the educational expenditure is stated to have been incurred by the firm, is the son of Mr. Ashwin M. Savani, proprietor of M/s. Bhavin International. Mr. Bhavin Sa....
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.... studies. This was so because Mr.Bhavin Savani was the son of Mr. Ashwin Savani and not because he was the employee of the appellant. 4.1. I have considered the rival submissions and the materials on record. We have noted the facts. Mr. Bhavin Savani is the son of Mr. Ashwin Savani. Bhavin Savani completes graduation in Mumbai and goes to England for Post-Graduation. This is a normal progression of Mr. Bhavin's career as a student. Mr. Bhavin Savani happens to be the son of Mr. Ashwin Savani. Mr. Ashwin Savani sent his son in a normal course for Post Graduate Studies. His studies could, as well, been in India. Incidentally, in this case, it was in England. I do not see any business proposition being made of expenses relating to such studies abroad to be allowed as expenses. There is nothing on record to suggest that other employees were also sent for such education abroad. It should rightly have been post-tax affair of a father. The disallowance deserves to be upheld". 11. Learned Counsel referring to the claim of educational expenses submitted the following details in support of the claim. "Details of UK Education: Date of joining Bhavin Internationa....
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....essee mainly relied is in the case of Sakal Papers Pvt. Ltd vs. Cit 114 ITR 256 (Bom.). In that case the issue before the Hon'ble Bombay High Court was that in the absence of any agreement or bond the expenditure is allowable or not. In that context the Hon'ble Court considered that merely because there is no appointment or contract or bond taken from the person, the expenditure which was otherwise properly allowable cannot be disallowed. As seen from the facts of this case assessee has not sent any other person for training and immediately after completing his graduation from local college, he was taken as an employee for a nominal sum of Rs.5000/- p.m. sponsored for a MBA course abroad. The facts more or less fall under the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Hindustan Hosiery Industries, 209 ITR 383. In the above said case assessee firm was a family concern of mother and four sons among whom V was one of the sons. Assessee firm carried on the business of hosiery. During the previous year relevant to the assessment year 1976-77, V was 21 years of age was sent to USA for higher studies and had obtained a degree on management from an American University....
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.... considering that the amount claimed is a reasonable, we are of the opinion that there is no need for estimating any personal expenditure. Accordingly the addition of Rs.2,40,000/- sustained by the CIT (A) stands deleted. 16. In the result, appeal in ITA No. 2445/Mum/2009 is partly allowed. ITA No. 2971/Mum/2010, AY 2004-05 17. Assessee has raised two grounds in this appeal one is with reference to disallowance of expenditure and the second one being the claim of expenditure on education of son. In the course of the arguments, Ground No.1 was not seriously argued. Therefore, this ground on disallowance of expenditure being personal in nature is rejected. Ground No.2 is on the issue of claim of education expenses of Rs.5,57,865/- on assessee son abroad as business expenditure. This issue is considered in Ground No.5 to 7 in assessment year 2003-04 in ITA No. 2445/Mum/2009 above. For the reasons stated therein, we uphold the order of AO and the CIT (A) and reject assessee's ground. 18. In the result appeal in ITA No.2971/Mum/2010 is treated as dismissed. ITA No: 2446/Mum/2009 - Assessment year 2005-06: 19. Assessee has raised fourteen grounds on various additions ma....
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.... and on that reason the CIT (A) confirmed. After considering the facts and the reconciliations placed on record, we are of the opinion that this issue require examination by AO afresh. AO is advised not to get prejudiced by the earlier orders and examine the issue on facts afresh. Assessee should be given due opportunity to explain its stand. In case there is no explanation from assessee after giving due opportunity, then AO is free to make the conclusions as required on the facts of the case. However, when assessee is furnishing the necessary confirmation, they cannot be simply ignored for the sake of making addition as was done in this case. With these directions the issues in this appeal are restored to the file of AO to do the re assessment de novo as per law and facts. The orders of AO and CIT(A) are set aside. 23. Appeal in ITA No. 2446/Mum/2009 is allowed for statistical purposes. ITA No.2970/Mum/2010 - A.Y 2003-04 24. This appeal is on the issue of levy of penalty under section 221(1). AO levied penalty of Rs.57,600/- being 10% of the amount of tax payable by assessee. The assessment in this case was completed on a total income of Rs.26,81,310/- against the return ....