Failure to Substantiate Expenditure Incurred Exclusively for Business: ITAT Disallows Education Expenditure u/s 37(1) of Income Tax Act [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has disallowed the education expenditure under Section 37(1) of the Income Tax Act 1961 as the assessee failed to substantiate the expenditure had incurred exclusively for the purpose of business.

The assessee, HVD Distributors Pvt. Ltd. was a company engaged in the business as importer and exporter of bearings and components.

During the assessment proceedings, the assessee was asked to submit documents in support of its claim of education expenses, such as details of the Director who had undertaken the course, copy of the board’s resolution, course attended, the benefit derived by the company from such course, bank statement reflecting such payments, certificate of completion of such course, etc.

On perusal of the details, it was observed that the expenses were incurred for the further study of the Director from the Royal Holloway University of London. In support of the claim, the assessee submitted that the course was sponsored with the condition that to work for at least 5 years for the assessee company.

Therefore, it was claimed that the expenses were allowable as business expenditure under section 37(1) of Income Tax Act. The Assessing Officer (AO) held that the assessee failed to prove that the expenses were incurred “wholly and exclusively‟ for the business purpose to be allowed under Section 37(1) of the Income Tax Act.

Ketan Vijani, on behalf of the assessee submitted that the financial support by the assessee company was subject to the condition that Mr. Harsh Dhami will serve the company for a minimum period of 5 years after completing the study and shall be part of the company’s growth and increasing the sale and expenditure incurred wholly and exclusively for the purpose of business.

Rameshwar P. Meena appeared on behalf of the revenue.

The two-member Bench of B.R. Baskaran, (Accountant Member) and Sandeep Singh Karhail, (Judicial Member) dismissed the appeal filed by the assessee as no sufficient basis was brought on record to show how the financial support provided by the assessee to its Director to pursue MSc in International Business Management was wholly and exclusively for assessee’s business purpose and has a direct relationship with the assessee’s business activity.

The bench affirmed the disallowance of the Director’s education expenditure under Section 37(1) of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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