AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (3) TMI 544
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....ividual, filed his return of income on 10.10.2010 declaring total income of Rs. 54,94,370/-. Subsequently, a search and seizure operation U/s 132 of the IT Act was carried out on 05.09.2011 in case of Johari group to which the assessee belongs. Pursuant to notice U/s 153A of the Act, the assessee filed his return of income declaring income of Rs. 54,94,370/- as originally declared in the return filed U/s 139(1) of the Act. During the course of proceedings, on perusal of the profit and loss account of M/s Harshvardhan, a proprietorship concern of the assessee, it was found by the Assessing Officer that the assessee has claimed an amount of Rs. 1,11,35,190/- towards education expenses and a show cause was issued as to why the said expenses should not be disallowed. 3. In response, the assessee submitted that the said claim towards education expenses is in respect of a course in business management pursued by him from CASS Business School, London to acquire business acumen in management, marketing, human recourse management, finance and account etc. which help in conducting his business more efficiently, accordingly the expenditure incurred is wholly and exclusively for the purpose....
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....3 CCH 0048 (Bom), PCIT v. Dipak Panchal [2017] 98CCH 0074 (Guj), PCIT v. Devangi Alias Rupa [2017] 98 CCH 0051 (Guj) and CIT v. Kabul Chawla [2016] 380 ITR 573 (Del). 8. It was submitted that the ld CIT(A) pointed out that in the case of Kabul Chawla, the earlier assessment was completed u/s 143(3) while in the present case, it was only processed u/s 143(1) of the Act. He drew support from the following decisions namely, CIT v Chetan Das Lachman Das [2012] 254 CTR 392 (Delhi), CIT v. Anil Kumar Bhatia [2013] 352ITR 493 (Delhi) and Sunny Jacob Jewellers and Wedding Centre v. Dy. CIT [2014] 362 ITR 664 (Ker). 9. It was submitted by the ld AR that the fact as to whether the earlier assessment was completed u/s 143(3) or u/s 143(1) of the I.T. Act is not material to the issue at hand. It does not, in any way, affect the legal proposition that if no incriminating document has been found during search, no addition can be made, and the returned income has to be accepted. Attention is drawn to the decision of the Delhi High Court in the case of PCIT v. Meeta Gutgutia (2017) 395 ITR 526 (Delhi) wherein it was held that invocation of section 153A to reopen concluded assessments of asse....
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....s [1997] 92 Taxman 316 (MP), Mallige Medical Centre (P) Ltd. v. Jt. CIT [2015] 61 taxmann.com 298 (Kar), Kostub Investment Ltd. v CIT [2014] 45 taxmann.com 123 (Delhi), CIT v. Naidunia News & Networking P. Ltd. [2012] 23 taxmann.com 422(MP), Hindustan Hosiery Industries v. First ITO [1983] 5 ITD 349 (Bom Trib.) and 209 ITR 383 (Bom), and Kashiram Radhekrishan v. CIT [1985] 155 ITR 609 (Raj). In view of the above, it was submitted that the expenses on education of the appellant is driven by commercial expediency and is wholly and solely for furtherance of the business of the assessee. Hence, these expenses may be allowed. 12. The ld. CIT DR is heard who has relied on the order of the lower authorities and submitted that once a search u/s 132 is carried out, it is incumbent upon the AO to assess or reassess the income of the assessee in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. The AO had no discretion but to assess or reassess the total income of the assessee as per the provisions of Section 153A of the Act. It was further submitted that the educational expen....
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....all be based on incriminating material found and seized during the search and seizure action. In the instant case, where the assessment proceedings were pending at the time of search, we therefore donot find any legal infirmity in action of the Assessing Officer in assessing the income of the assessee by making the disallowance of education expenses u/s 37(1) based on enquires conduced during the course of assessment proceedings. Therefore, ground no. 1 of the assessee's appeal is dismissed. 14. Now coming to the merits of addition made by the Assessing officer. As per ld CIT(A), the assessee was pursuing B.Sc(Hons) in business management from CASS business school, London during the period 2006-09 and M.Sc in finance from Imperial college of London during the period 2010-2011 which are not specialized courses per se meant for the trading of bullion and base metals. Further, it was held by the ld CIT(A) that every claim of deduction cannot be allowed U/s 37 of the Act as the assessee's claim falls under the category of personal in nature and the assessee has also failed to provide direct nexus between the general business management courses pursued and trading of bullion and base....
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....hed the intention and purpose of sending him to return with better education and greater experience. 9. We are satisfied that the Tribunal committed no error in reaching the conclusion which is not shown to be perverse in any manner. We find that the expenditure so incurred was not in the nature of capital expenditure or for personal purposes. It was expended wholly and exclusively for the purpose of business of the assessee. That being so, such amount was properly allowed in computing the income chargeable under section 28 of the Act." 17. It is thus seen that in the aforesaid case, the assessee is an existing partnership firm which was carrying on business and one of its partners who has acquired basic education in field of B.Sc and M.Sc and was working with the firm has proceeded aboard for higher studies and after completion of study, he has come back and his education experience proved beneficial to the firm. In the instant case, we find that the facts are distinguishable and therefore, the decision doesn't support the case of the assessee. As submitted by the assessee before the ld CIT(A) and as we have noted above, we find that the assessee joined the graduation ....
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....hat is therefore relevant is not just the ultimate benefit or utilization of such expenditure for business purposes but what is equally relevant is that the point in time when the expenditure was incurred, the business of the assessee should have been set up which however, is not the case in the instant case. 18. Looking at the matter from perspective of allowability under section 35D, we find that even the provisions of section 35D doesn't come to the aid of the assessee. The provisions of section 35D which talks about expenditure before commencement of business, though applies equally to an assessee, being a company and an assessee, other than a company, however, it talks about specified catergories of expenditure as defined in sub-section 2 to section 35D and the present expenditure in form of education expenditure doesn't fall in such specified expenditure. 19. Once the business has been set up even though in an individual sole propertership capacity and thereafter, where the assessee wishes to pursue higher studies with an objective of gaining enhanced knowledge which will eventually help him in advancement of his business, one may argue that the expenditure has the nexu....
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....nt is that the point in time when the expenditure was incurred, the business of the assessee should have been set up. In the instant case, the assessee has not even started his business when we joined the B.Sc (Hons) course and therefore, the expenditure relating to the period prior to the start of the business cannot be allowed and that too, in the impugned assessment year. Therefore, this decision again does not support the case of the assessee. 21. In case of Kostub Investment Ltd. (supra), the assesee company incurred expenditure on higher education on an employee, who happens to be the son of one of the directors of the assessee's company, for undertaking an MBA course in UK. The assessee explained to the AO that the said person was a graduate having completed his B.Sc (Hons) from Delhi University and working with it for a salary of Rs. 10,000 and since he was a brilliant student, and the company was in need of Manager (marketing) who could study the mood of investment market and the prospects taking into consideration the economy of India and other advanced countries and also an individual who could also take decisions with respect to investment in shares and securities, t....
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....t there may be some grain of truth that there might be a tendency in business concerns to claim deductions 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 assessees 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 statute which prescribes that only expenditure strictly for business can be co....
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.... to be the daughter of the Managing Director and the Chief Executive, it cannot be said that the money is spent by her parents out of love and affection for higher education of their daughter. She was an employee of the assessee, in the field, in which, she has acquired degree. They wanted her to specialize in Radiological Investigations and therefore, she was sent abroad for acquiring the knowledge. After acquiring the additional knowledge, she has come back and she is working with the assessee. Therefore, there is a direct nexus between the expenses incurred towards her education, with the business, which the assessee is carrying on. In that view of the matter, following the aforesaid judgment, we hereby set-aside the impugned orders passed by all the three authorities and direct the assessing authority to allow deduction of the said expenses. The substantial questions of law is answered in favour of the assessee and against the revenue." 24. In the aforesaid case, it is again a case of an existing employee which has acquired the basic degree and the company which is enaged in medical business wanted her to specialize in Radiological Investigations and therefore, she ....