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Hunumesh Realtors P. Ltd. Versus PR CIT 10, Mumbai

2017 (12) TMI 308 - ITAT MUMBAI

Revision u/s 263 - allowable business expenses - training expenses incurred on the director of the Appellant company - Held that:- In this case, the expenses were incurred for formal education leading to formal degree being MBA awarded in favour of Mr Arnav Kasliwal [director of the Appellant company], 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( .....

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3(2). Thus, in the absence of relevant and vital information as detailed above, the AO could not have made proper 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 revi .....

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s 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 Act, 1961 (hereinafter called the Act ). 2. The grounds of appeal raised by the Assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. The Hon'b .....

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of the Income Tax Act, 1961. Further Order u/s 263 is also passed without any conclusion merely setting aside the assessment to the file of the learned assessing officer which is unjustified. It is therefore submitted that the order passed u/s 263 should be cancelled. 2. Without prejudice to ground No. 1 The CIT has erred in directing the Assessing officer to verify the details relating to training expenses incurred on the director of the Appellant company, Mr. Arnav Kasliwal of ₹ 29,80,20 .....

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explanation filed during the 263 proceedings and mere set aside of the order to such extent is unjustified. Accordingly, the necessary direction should be given in this regard. 3. Your appellant craves to add, alter, or amend any of the grounds of appeal on or before the date of hearing of appeal. 3. The Brief facts of the case are that the assessee is Builder & Developer. The assessee filed its return of income for A.Y. 2012-13 on 25.09.2012 declaring income of ₹ 13,37,679/-, wherein .....

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ions, 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 asses .....

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ng proceedings u/s 263, the assessee was asked by learned Pr. CIT to explain course details, directorship details in years involved . The assessee in reply submitted details but no course details were submitted by the assessee . However, it was submitted by the assessee that it was a graduation course and no other documents are available . The learned Pr. CIT observed that these training expenses were related to undergraduate programmes being undergone by Shri. Arnav Kasliwal in USA. The learned .....

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at it did not reflect that said Sh. Arnav Kasliwal was the Director of the assessee company. It was observed by learned Pr. CIT that it was only because of non verification of records and lack of proper enquiry by the A.O that resulted in allowing such expenditure which could not have been allowed. The learned Pr. CIT observed that the A.O. has clearly failed to make proper enquiries on this specific claim made by the assessee . The learned Pr. CIT held that the assessment order dated 27-03-2015 .....

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e.f. 1st June, 2015. It was observed by learned Pr. CIT that the AO has failed to make any verification or enquiry on the claim made by the assessee and hence the assessment order dated 27-03-2015 passed by the AO u/s 143(3) was held to 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 r .....

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ation 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-novo, keeping in view aforesaid directions/observations, vide orders .....

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ness expenses by the AO vide assessment order dated 27-03-2015 passed u/s 143(3). It was submitted that there is no discussion in the A.O. s assessment order w.r.t. this claim of the assessee towards training expenses. Our attention was drawn to paper book / page no. 12B /12C wherein the notice u/s 142(1) along with questionnaire dated 09-01-2015 issued by the AO are placed . It was submitted that details of all the Directors with their PAN, addresses, email contact details as were asked for by .....

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page no. 16/paper book wherein the reply dated 10.02.2015 to the A.O. is enclosed wherein all the details being ledger account of training expenses incurred by the assessee were given to the AO., which is at page no. 18 being ledger account for incurring of training expenses of ₹ 29,80,200/- . Our attention was also drawn to page no. 28 of the paper book wherein all the details of training expenses to be paid to the University of Pennsylvania, USA are placed. Our attention was also drawn .....

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at 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 .....

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nd cannot be invoked retrospectively. It was submitted that learned Pr. CIT is asking A.O to make further inquiry. It was submitted that no prejudice is caused as income is still assessed u/s. 115JB and there is no loss to Revenue . It was submitted that assessment on which tax was payable was computed u/s 115JB, while framing assessment order u/s 143(3). It was submitted that department has invoked Section 201(1)/201(1A) for default in deduction of taxes at source by the assessee on such paymen .....

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liwal leading to award of graduation from University of Pennsylvania, USA . The attention of the Bench was drawn to the Resolution passed by the assessee company on 07-05-2010 which is placed in paper book/page 24 wherein the Board of Directors approved incurring of education expenses of Sh. Arnav Vikas Kasliwal being paid to University of Pennsylvania SA . It was submitted that the assessee is claiming that the A.O had made enquiries but the A.O did not make any enquiry as to the training expen .....

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earned CIT-DR submitted that said Sh Arnav Kasliwal was born on 11-04-1992 and he was inducted as Director of the assessee company on 05-05-2010 when he was of 18 years of age . It was submitted that he was sent to USA for studies at the age of 18 years immediately after being inducted as Director. It was submitted that had it been training it would not have run for several years rather these are educational expenses incurred for pursuing regular graduation course. It was submitted that smoke sc .....

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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 .....

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ted 02.03.2015, with regard to your honour query regarding the training expenses incurred on the Mr. Arnav Kasliwal of ₹ 29,80,200/-, it is submitted that Mr. Arnav Kasliwal is the director of the assessee company. It is further submitted that copy of board resolution authorising the payment of training expenses is already submitted to your honour vide our submission date 18.02.2015 . It is submitted that Mr. Arnav Kasliwal had gone for training and completing the internal baccalaureate fr .....

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Kasliwal was pursuing MBA course with University of Pennsylvania, USA for which education expenses were borne by the assessee company which were claimed as business expenses since May, 2010 . Our attention was also drawn to page 24/paper book wherein Resolution passed by the Board of Directors of the assessee company on 07.05.2010 is placed wherein the education expenses of Shri Arnav Kasliwal to be incurred was being approved to be paid to University of Pennsylvania, USA by the assessee company .....

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3,37,679/-, 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 .....

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l 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 towards training expenses by the AO has rendered the impugned assessment order u/s 143(3) dated 27-03-2015 as erroneous and prejudicial to the interest of Revenue which made it amenable to revisionary jurisdiction of learned Pr. CIT u/s. 263. Further notices were also issued by learned Pr. CIT u/s 263 on 17.11.2015, .....

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-2010 approving such expenses, along with supporting bills issued by University of Pennsylvania, USA were submitted before the AO in the course of assessment proceedings u/s 143(3) r.w.s. 143(2), which are placed in paper book filed with the tribunal. It was claimed by the assessee that A.O has duly verified all the training expenses and allowed the same after making necessary enquires during the course of assessment proceedings u/s 143(3) r.w.s 143(2) . It was also claimed that assessee has inc .....

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ss expenses. It was submitted that the assessment order u/s 143(3) was passed by the AO after making due enquiries, thus the same cannot be called as erroneous or prejudicial to the interest of revenue and hence the same could not be interfered by learned Pr. CIT by invoking revisionary powers u/s. 263 of the Act. The assessee had also submitted that during the course of proceedings u/s. 263 complete list of Directors including details of Sh. Arnav Kasliwal was also submitted. It was claimed tha .....

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assed 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 .....

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. There are no employees employed by the assessee company and it has three Directors on the Board of which one is Sh Arnav Kasliwal . The said Shri Arnav Kasliwal was inducted as Director of the assessee company on 05.05.2010. On 07.05.2010 i.e. just two days post his induction as Director of the assessee company, Resolution was passed by Board of Directors of the assessee company approving education expenses of Shri Arnav Kasliwal, Director of the assessee company to be incurred by the assesse .....

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ny being paid to University of Pennysylvania by the company. RESOLVED FURTHER that copy of the resolution duly certified as True by the any one of the Directors is given to the Bank CERTIFIED TRUE COPY BY ORDER OF THE BOARD SD/- Director On the strength of the above Board Resolution and invoices issued by University of Pennsylvania, USA, it is claimed by the assessee that the said expenses incurred on education of said newly appointed Director namely Sh. Arnav Kasliwal at University of Pennsylva .....

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are the roles esponsibilities and job profile of the said Director, Sh. Arnav Kasliwal. The period of appointment of said 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 .....

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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, it could not be found that any remuneration was paid to the said Director, Sh Arnav Kasliwal during the year under consideration as no salary is found debited in the audited P&am .....

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tment as well likely benefit to arise to the assessee from these education expenses paid by the assessee company to University of Pennsylvania, USA for education of Sh Arnav Kasliwal are brought on record. It is not shown by the assessee what are the roles, responsibility and job profile of Sh Arnav Kasliwal being performed for the assessee company and on what terms and conditions he was brought in as Director of the assessee company .Even course content of the course being studied by said Mr Ar .....

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ses in the audited financial statements as also before the AO it was claimed that these expenses are towards training of the said Director, but these expenses are pertaining to the formal education of Shri Arnav Kasliwal, Director which will lead to the award of MBA degree from USA in favour of Sh. Arnav Kasliwal on the successful completion of education programme . The assessee has used the nomenclature of these head of expenses as training expenses in the books of accounts and audited financia .....

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ile 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 educa .....

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er in the absence of relevant material on record as the AO could not have made proper verifications. Even, the course content of the said course was not produced before the AO despite been asked by the AO during the course of assessment proceedings u/s 143(3) r.w.s. 143(2). Thus, in the absence of relevant and vital information as detailed above, the AO could not have made proper verifications which ought to have been made to have come to the conclusion that these are business expenses allowable .....

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such crucial and vital information on record in the absence of which and based on material which was on record, the AO could not have formed an opinion and have come to the conclusion that these are business expenses incurred wholly and exclusively for the purposes of business satisfying the mandate of Section 37(1), making assessment order being erroneous and prejudicial to the interest of Revenue liable to revisionary powers u/s 263 by learned Pr. CIT. In our considered view, the learned Pr. .....

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and 201(1A) for AY 2011-12 declaring assessee to be an assessee in default for non deduction of tax at source u/s 195 on these payments towards training expenses being sent to University of Pennsylvania, USA as the payments were considered to be fees for technical services rendered by a foreign entity. Every assessment 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 th .....

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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 Rev .....

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ccurred to the Department as the assessee got taxed u/s 115JB is not correct in view of eligibility to carry forward tax credit to be knocked off against future taxes as per scheme of the 1961 Act which will certainly cause loss of Revenue to the Department in years to come if the said educations expenses are not disallowed and brought to tax, which of course the AO will now decide after due verifications as is mandated by learned Pr. CIT vide orders dated 30-03-2017 u/s 263. The assessee has re .....

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t invoke powers u/s 263 to substitute his views unless the view of the AO is unsustainable in law. In the instant case before us, the material placed by the assessee before the AO was not sufficient to come to the conclusion that the expenses incurred by the assessee on education of newly inducted Director were for the business purposes allowable u/s 37(1) . The view which was adopted by the AO based on material available on record could not have been adopted by the AO as material was not suffic .....

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ssed 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 .....

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