Conclusion: AO correctly concluded that there was no nexus between the higher education expense daughter and the business of the assessee and accordingly disallowed the entire sum holding that it was not an expenditure incurred wholly and exclusively for the purpose of business.

Disallowance of expenditure incurred towards the educational expenses in respect of daughter of one of the Directors of the assessee company – allowable revenue expenditure.

It was held that in the present case daughter of one of the directors was barely 18 years of age without any relevant education, qualification or experience when she was inducted as a whole time Director of the Company. The agreement with the company wherein she undertook to remain in the employment of the assessee company for a period of not less than one year from the date of completion of higher education/training was executed on 20.03.2000, the date when she was inducted as the Director of the Company. The terms of the said agreement also defy logic.

It is highly improbable that a Company which would incur expenditure to the tune of ? 70 lacs approximate on overseas education, agreed to have Ms. Esha Arya make a commitment to work for the Company only for a period of one year and, in the event she were to leave the Company before the expiry of the said period, she was required to pay only ? 50,000/- as default money, which too could also be waived off at the discretion of the Director of the assessee.

When these contradictions were pointed out, the assessee produced the supplemental agreement dated 01.11.2000 wherein she agreed to serve the Company for not less than two years and in the event of default, reimburse 50% of the expenditure incurred on higher education. These facts cannot be ignored, and one can easily infer that the expenses were not incurred wholly and exclusively for the business of the company.

In the first round of a challenge, the assessee, despite opportunity failed to produce the evidence that would justify the expenditure, as noted in the impugned order. The assessee could not produce any evidence to show that the assessee company had sponsored the application of Ms. Esha Arya from the beginning. AO thus correctly concluded that there was no nexus between the higher education expense of Ms. Esha Arya and the business of the assessee and accordingly disallowed the entire sum holding that it was not an expenditure incurred wholly and exclusively for the purpose of business.

Verdict: Decided against assessee.