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TMI Blog2017 (12) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... oper verifications which ought to have been made to have come to the conclusion that these are business expenses allowable u/s 37(1) being incurred wholly and exclusively for the purposes of business of the assessee, which has certainly rendered AO assessment order as erroneous as well prejudicial to the interest of Revenue amenable to interference by learned Pr. CIT by invocation of revisionary powers u/s 263 as the said expenses stood allowed as business expenses despite being absence of relevant and tangible material on record before the AO. Thus CIT has rightly invoked the provision of Section 263 - Decided against assessee. - I.T.A. No.3475/Mum/2017 - - - Dated:- 4-12-2017 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. Pradeep Sharma For The Revenue : Shri. Rahul Raman,CIT DR ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Assessee, being ITA No. 3475/Mum/2017, is directed against the order dated 30.03.2017 passed by learned Principal Commissioner of Income Tax-10, Mumbai (hereinafter called the Pr.CIT ), for assessment year(A.Y.) 2012-13 u/s 263 of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein income assessed was ₹ 52,60,730/- . There were two additions made by the AO in the assessment framed u/s 143(3), firstly w.r.t. disallowance u/s 14A and secondly due to mismatch in information contained in AIR Report . Since the tax on book profit of ₹ 94,74,556/- u/s 115JB was more than the tax on the assessed income under normal provisions, the assessee was assessed by the AO u/s 115JB. On perusal of the record, the learned Pr. CIT noticed that assessee has paid an amount of ₹ 29,80,200/- as training expenses to University of Pennsylvania, USA and on verification it was observed by ld. Pr. CIT that these are expenses incurred towards tuition fees, rent, clinical fee, health insurance and recreation fee for undergraduate studies of Shri Arnav Kasliwal, Director of the assessee company. The Pr. CIT observed that the assessment framed by the AO u/s.143(3) vide orders dated 27.03.2015 for AY 2012-13 was erroneous and prejudicial to the interest of the revenue as the said expenses under the head training expenses of ₹ 29,80,200/- were allowed as business expenses which were not properly verified by the AO to bring correct facts on record to examine t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be erroneous as also prejudicial to the interest of Revenue. It was observed by the learned Pr. CIT that the AO has stated in his report that it is only because of lack of time, the A.O could not make any enquiry subsequent to the date of filling of the details regarding the expenses incurred for remittance of fees to the University of Pennsylvania, USA. The learned Pr. CIT observed that on enquiry made by him during the course of proceedings u/s 263 revealed that the said Sh. Arnav Kasliwal had just completed his 18 years of age (D.O.B 11.04.1992) and he has been allotted PAN only on 18.05.2010 . The learned Pr. CIT observed that he was inducted as Director into the company on 05.05.2010 just on completion of 18 years with an intention of claiming education expenses as business expenses of the assessee company. Thus, learned Pr. CIT in exercise of power conferred on him u/s 263 set aside the assessment to the file of the AO and directed A.O. to verify the details with regard to the Director s Training expenditure amounting to ₹ 29,80,200/- keeping in view provisions of Section 37(1) and AO was directed by learned Pr. CIT vide orders u/s 263 to frame fresh assessment de- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arnav Kasliwal was 18 years of age (DOB 11.04.1992) when he was inducted as Director in the assessee company on 05.05.2010 . On being asked by the Bench, It was submitted that there was no business conducted by the assessee during the year as revenue from operations are NIL while there was other income earned from interest on fixed deposits during the year ( paper book/page 5 contains the audited profit and loss account) and it was also submitted that these were educational expenses leading to graduation of Arnav Kasliwal from University of Pennsylvania, USA rather than training expenses of the assessee. The learned counsel for the assessee relied upon the decision of Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. 243 ITR 83(SC) and also decision in the case of CIT v. Gabriel India Ltd. 203 ITR 108(SC). It was submitted that A.O has duly examined this issue while framing assessment u/s 143(3) and learned Pr. CIT has no jurisdiction after the A.O has examined the issue . It was submitted that vide order dated 30.03.2017 passed u/s. 263, learned Pr. CIT has invoked Explanation 2 to section 263 which has come into effect w.e.f. 01-06 2015 and cannot be invoked ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for pursuing regular graduation course. It was submitted that smoke screen is created to claim these education expenses as business expenses on education of Sh. Arnav Kasliwal which were personal expenses towards regular education of Sh. Arnav Kasliwal. The learned CIT-DR relied upon the decision of Hon ble Madhya Pradesh High Court in the case of Simran Farms Limited v. CIT reported in (2008) 300 ITR 270(MP HC) . The learned CIT-DR also relied upon decision of Hon ble Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products Camphor Works (1998) 231 ITR 53(SC). The Ld. AR in rejoinder submitted that the assessment order passed by the AO is a quasi judicial order and the learned Pr. CIT can not sit on the judgment of the AO. The ld Pr. CIT can not substitute his opinion over the view taken by the AO, if the view of the AO is permissible in law. It was submitted that the A.O had sufficient time to frame assessment u/s. 143(3) . Our attention was also drawn to page no. 21 of the paper book wherein details of training expenses as were sought by the A.O vide questionnaire enclosed with notice dated 27-01-2015 issued by the AO u/s. 142(1) . Our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/-, the assessment u/s 143(3) was framed by learned assessing officer (hereinafter called the AO ) vide assessment order dated 27th March 2015, wherein income assessed was ₹ 52,60,730/- . Since the tax on book profit of ₹ 94,74,556/- u/s 115JB was more than the tax on the assessed income under normal provisions, the assessee was assessed by the AO u/s 115JB. The learned Pr. CIT on perusal of records as defined u/s. 263, issued show cause notice dated 29.10.2015 u/s 263 to the assessee, as under:- Perusal of records shows that assessment for AY 2012-13 was completed u/s. 143(3) on 27.03.2015. Records show that during the assessment proceedings A.O has not correctly verified the claimed expenses under the head training expenses so as to bring correct facts on record to examine the allowability of these expenses appointed for the period falling in the financial year relevant to the assessment year 2012-13 renders the orders passed by the A.O is erroneous and prejudicial to the interest of revenue. The assessee was asked to explain by learned Pr. CIT as to why provisions of Section 263 be not invoked as due to improper verification of the expenses t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat these training expenses are related to the business of assessee and was allowed u/s. 37(1) as business expenses incurred wholly and purposes of the business of the assessee, the same cannot be interfered by learned Pr. CIT by invoking his extraordinary revisionary powers by initiating proceedings u/s. 263 . It is also claimed that it is not necessary that the AO shall mention everything in the assessment order passed u/s 143(3) as it is only when the AO does not agree with the contentions of the assessee and come to adverse findings leading to addition to the income, necessity arises to give detailed reasoning for adverse finding but where after enquiry AO is satisfied and proceeds not to make any additions to income, there arises no need to give reasons for acceptance of the assessee contentions and claims. We have observed from the audited financial statements of the assessee company which are placed in paper book/page 1-12A that the assessee s income from operation during the previous year relevant to the impugned assessment year was NIL . The assessee has only earned other income on account of interest on fixed deposit to the tune of ₹ 1.47 crores during the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Sh. Arnav Kasliwal is also not on record whether it will extend beyond his period of education at University of Pennsylvania, USA is also not on record . It is also not on record as to the commitment/bond executed by said Mr Arnav Kasliwal, Director to serve the assessee company exclusively post his education for certain period of time so that the assessee company can recoup its expenses on his education and reap the benefits of his education for companies business post completion of his education with University of Pennsylvania, USA for certain number of years. Even business plans to develop the assessee company and role which Sh Arnav Kasliwal, Director after completion of his education in USA can play in developing the assessee company s business were submitted. No Vision statements/ projections of the future plans of the assessee company s business were placed. Even what happened post completion of education of said Sh. Arnav Kasliwal in USA was not on record as to whether he came back to India and joined the assessee company to play a larger role to enhance business of the assessee company was not put on record by the assessee. On perusal of the audited financial statements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o award of formal MBA degree in favour of Shri Arnav Kasliwal by University of Pennsylvania, USA. The dictionary meaning of both the words viz. Education and training are different, wherein Education is defined as the system of teaching people, usually at a school or college, while dictionary meaning of training is the process of learning the skills that is needed for a particular job or activity. Thus, as could be seen there is a vast difference in the meaning of both, while education is more concerned with formal education at school or college leading to award of degree etc in favour of pupil which permanently enhances the intellectual trait of a person, while training is for improving skills related to a job. In this case, the expenses were incurred for formal education leading to formal degree being MBA awarded in favour of Mr Arnav Kasliwal, the expenses were incurred by the assessee which definitely required greater scrutiny by the AO before allowing the same as business expenses of the assessee and to see that mandate of Section 37(1) is satisfied . Since, relevant and tangible material was not placed before the AO by the assessee during the course of assessment proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year is an independent assessment year and principles of Res judicata is not applicable to the income-tax proceedings although principles of consistency has to be followed. In the impugned year, the proceedings u/s 263 are invoked by learned Pr.CIT on the grounds that the AO has not done proper verification before allowing these expenses paid to University of Pennsylvania, USA as business expenses during assessment proceedings u/s 143(3) r.w.s. 143(2). The proceedings u/s 143(3) r.w.s. 143(2) are proceedings to compute income of the assessee as per scheme of the 1961 Act, while proceedings u/s 201(1) and 201(1A) are proceedings to determine default w.r.t. deduction and payment of tax at source and hence both are independent proceedings and not mutually exclusive. Merely because in one year proceedings were initiated u/s 201(1) and 201(1A) does not debar scrutiny proceedings u/s 143(3) r.w.s. 143(2) for other years as these are not mutually exclusive proceedings. The contention is also raised by learned counsel for the assessee that since assessee became liable to pay tax u/s 115JB as book profit was higher as per scheme of the 1961 Act, there is no loss to Revenue and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be material before the learned CIT to come to conclusion that the assessment order passed by the AO was erroneous in so far as it is prejudicial to the interest of the Revenue. It must be an order which is not in accordance with the law or which has been passed by the AO without making any enquiry in undue haste. We are of the view in the instant case circumstances exists for invocation of revisionary powers by the learned Pr. CIT u/s 263 as the AO could not have reached to the conclusion based on the material on record during assessment proceedings that these expenses incurred by the assessee were business expenses incurred wholly and exclusively for the purposes of business of the assessee company satisfying the mandate of Section 37(1) as unfortunately there are large number of unanswered question which are absolutely necessary to arrive at decision that these expenses satisfy the mandate of Section 37(1), which are listed by us above . The AO even did not have course content with him before arriving at the conclusion that these are business expenses. Thus, there was complete lack of application of mind by the AO before allowing these education expenses as business expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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