A.K. Garodia, AM. - (1.) BOTH these appeals are assessee's appeals directed against two separate orders of learned Commissioner (Appeals)-I, Mumbai dated 30-7-1992 for assessment year 1989-90 and dated 20-7-1993 for assessment year 1990-91; and since, one issue in both the appeals is common, both these appeals are disposed off by this common order for the sake of convenience.
(2.) Ground Nos. 1 and 2 in both the years is regarding not allowing the expenses incurred for the training of Shri Vinay Kumar Mohota under section 37(1) of Income Tax Act, 1961 being Rs. 1,27,526 in assessment year t989-90 and Rs. 81,387 in assessment year 1990-91. Briefly stated, the facts of the case are that Shri Vinay Kumar Mohota, son of Joint Managing Director of the assessee-company was appointed as an apprentice by the assessee-company from 1-4-1986 at a monthly stipend of Rs. 300 as per the agreement dated 1-8-1986 between the assessee-company and Shri Vinay Kumar Mohota and the assessee company agreed to send Mr. Mohota for training abroad in United States of America at Rhode Island University for a period of five years and, company agreed to bear and pay cost of good lodging, boarding, training fee, if any, washing and other sundry expenses of the apprentice for the term of five years and as per this agreement, the company agreed to pay a maximum of US$ 15,000 per year during this period of five years of apprenticeship. It was also provided in the agreement that Mr. Mohota will join the assessee-company after his return from abroad for a period of five years and in case, he fails or declines to serve the assessee-company for the said period, he had to reimburse the entire educational and living expenses, air passage and other monies paid to him for the said purpose and also pay to the company Rs. 20,000 as liquidated damages for nonfulfilment of the contract. This agreement is appearing on page Nos. 1 to 4 of the paper book. This agreement with Mr. Mohota was approved by the Board in the meeting held on 22-10-1986 and copy of this Board resolution is appearing on page No. 5 of the paper book. These expenses were claimed by the assessee-company as revenue expenditure; but the same were disallowed by the assessing officer in both the years by holding that these expenses are not related to the business of the assessee-company. On appeal, order of the assessing officer was upheld by learned Commissioner (Appeals) by holding that the expenditure was not laid out wholly and exclusively for the purpose of business and, therefore, not allowable under section 37(1). Now, the assessee is in further appeal before us.
(3.) IT was contended by learned AR of the assessee that as per agreement between the assessee-company and Mr. Mohota as appearing on page Nos. 1 to 4 of the paper book, Mr. Mohota was sent for higher studies abroad with an understanding that he will come back and join the assessee- company for minimum five years; and it was submitted that in fact also, Mr. Mohota has come back in September 1992, and is serving in assessee-company from November 1992 till date at a paltry salary of Rs. 3, 100 per month during November 1992 to April 1993; Rs. 4,500 per month during May, 1993 to December, 1996 and Rs. 7,000 per month from January, 1997 till date and in support af this contention, the affidavit of Mr. R.S, Kothari, Chief Executive of the assessee-company was submitted and kept on record. IT was also submitted that after joining of Mr. Mohota, the turnover and cash profit of the assessee-company has increased from Rs. 42.93 crores and Rs. 1.26 crores respectively in the year 1993 to Rs. 90.42 crores and Rs. 6.40 crores respectively in the year 1998; and in support of this contention, our attention was drawn to page No. 4 of the affidavit dated 7-5-2003. Reliance was placed on the following judicial pronouncements : Sakal Papers (P.) Ltd. v. CIT (1978) 114 ITR 256 (Bom.) CIT v. Kohinoor Paper Products (1997) 226 ITR 220 (MP). IT was also submitted that as per para No. 3 of the assessment -order for assessment year 1989-90, the assessing officer has proceeded on thebasis that as per the agreement, Mr. Mohota was to pay liquidated damages of Rs. 20,000 for violation of the contract, but as per the agreement, this liquidated damage of Rs. 20,000 was in addition to refund of entire expenses incurred by the assessee-company on his education. IT was also submitted that the assessing officer has proceeded by considering that the total expenditure involved is Rs. 18 lakhs; but in fact only ITs. 5,21,548 was incurred during four years, out of which expenses in two earlier years i.e. in assessment years 1987-88 and 1988-89 were allowed and only a sum of Rs. 1,27,526 incurred in assessment year 1989-90, a sum of Rs. 81,387 incurred in assessment year 1990-91 were disallowed. IT was submitted that the case of the assessele is fully covered by the Judgment of Hon'ble Jurisdictional High Court rendered in the case of Sakal Papers (P.) Ltd. (supra) and by the judgment of Hon'ble M.P. High Court in the case of Kohinoor Paper Products (supra); and hence, disallowance in both the years should be deleted.;