SUJAKO INTERIORS PRIVATE LIMITED V. ASST. COMMISSIONER OF INCOME TAX CIRCLE 4(1)(1)

SCA/16276/2018

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In this case, Sujako Interiors Private Limited challenged the notice and subsequent assessment order issued by the Assistant Commissioner of Income Tax, which sought to reopen the assessment for the year 2013-14. The reopening was based on the claim that an expenditure of Rs.30,10,000 incurred for the management training of a director was of a personal nature and not allowable as a business expense. The petitioner argued that this issue had been previously considered and accepted during the original assessment, and thus, reopening constituted a mere change of opinion. The court agreed with the petitioner, noting that the Assessing Officer had previously accepted the expenditure as a business expense after scrutiny, and thus, the reopening was not justified.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 685268 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-02-2019
• Assessment Year: misc
• Other Referred Cases: CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), Kostub Investment Ltd. V/s. CIT 365 ITR 436 (Del)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: MANISH SHAH
• Keywords: Business purpose; Change of opinion; Reopening of assessment; Management training expenses; Personal nature expenditure
• Section: 147; 148; 143(3); 142(1); 143(2); 37; 149(1)(b)

Judgement Text

"C/SCA/16276/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16276 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI Sd/- and HONOURABLE DR.JUSTICE A. P. THAKER Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ================================================================ SUJAKO INTERIORS PRIVATE LIMITED Versus ASST. COMMISSIONER OF INCOME TAX CIRCLE 4(1)(1) ================================================================ Appearance: MR MANISH J SHAH(1320) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER Date : 05/02/2019 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Leave to amend the prayer clause. 2. Rule. Mrs. Mauna Bhatt, learned Senior Standing Counsel waives service of notice of rule on behalf of the respondent. Page 1 of 10 C/SCA/16276/2018 JUDGMENT Having regard to the controversy involved in the present case, which lies in a very narrow compass, with the consent of the learned advocates for the respective parties, the matter was taken up for final hearing. 4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 31.3.2018 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking to reopen the assessment of the petitioner for assessment year 2013-14. Subsequently, during the pendency of the petition, the Assessing Officer has passed the assessment order on 23.10.2018 and, accordingly, the petitioner has amended the petition challenging the said order. 5. The petitioner had filed the original return of income for the assessment year 2013-14 on 28.9.2013 and had filed a revised return on 22.11.2013, showing total income of Rs.76,19,380/-. In the statement of profit and loss account and the schedules thereto, under the head “Expenses”, a sub- heading “Other Expenses” comprised of an expenditure of Rs.84,90,451/-, which was bifurcated in Schedule 19, wherein an amount of Rs.30,10,000/- had been mentioned as management and training expenses under the title “Administrative Expenses”. This expenditure was incurred by the company on the higher education of one of its directors, Shri Swar Digant Shah, for payment of fees to Indian School of Business (ISB), Hyderabad. Such expense was claimed as a deductible revenue expenditure. It appears that, thereafter, the Assessing Officer called for information by issuing notice under section 143 (2) as well as 142 (1) of the Act, whereby he Page 2 of 10 C/SCA/16276/2018 JUDGMENT called for certain details. After considering the details filed by the petitioner, the Assessing Officer passed the assessment order under section 143 (3) of the Act on 1.3.2016, without making any disallowances assessing the total income at Rs.76,19,380/. 6. Thereafter, the petitioner received the impugned notice dated 31.3.2018 under section 148 of the Act proposing to reopen the assessment of the petitioner for assessment year 2013-14. In response thereto, the petitioner submitted its reply dated 9.4.2018, informing the Assessing Officer regarding having filed its e-return on 7.4.2014 and further requesting the respondent to supply the reasons recorded for reopening the assessment. Such reasons came to be furnished by a letter dated 12.7.2018. Thereafter, the petitioner by a communication dated 27.8.2018 filed its objections. By an order dated 29.8.2018, the respondent disposed of the objections against the notice issued under section 148, by rejecting the same. 7. Mr. Manish Shah, learned advocate for the petitioner invited the attention of the court to the reasons recorded for reopening the assessment to point out that the Assessing Officer seeks to reopen the assessment on the ground that the assessee had debited Rs.30,10,000/- on account of management training expenses incurred for post-graduate programme in management by Indian School of Business, Hyderabad, of Shri Swar Digant Shah, Director of the company, on the ground that such expenditure is of personal nature and not an expenditure for business purpose. It was submitted that the Assessing Officer has stated therein that during the course Page 3 of 10 C/SCA/16276/2018 JUDGMENT of assessment proceedings, while the assessee had submitted details in respect of the said post-graduate programme, it had not submitted any details proving nexus between the expense of course fees and the relevance of the same wholly and exclusively for business purpose. Mr. Shah referred to the income tax return filed by the petitioner to point out that under the heading of “Other Expenses”, the petitioner has specifically shown, management training expenses of Rs.30,10,000/-. It was pointed out that during the course of scrutiny assessment, the Assessing Officer had called for various details from the petitioner in respect of the expenditure incurred by the petitioner towards management training expenses of Rs.30,10,000/- and that the petitioner had submitted all details in that regard. The attention of the court was further invited to the fact that Board of Directors of the petitioner-company had resolved to bear the expenses of training of Rs.6,95,000/-, which was to be borne by the company for the training of the Director, Shri Swar Digant Shah on the condition that he would work with the company for a minimum period of five years from the completion of the course. Reference was made to the communication dated 19.2.2016 (Annexure-M to the petitioner), whereby the petitioner had submitted the details called for by the Assessing Officer, wherein, in paragraph 6 thereof, all details with regard to the management training expenses of Rs.30,10,000/- debited in the profit and loss account during the year under consideration had been given. It was also stated that the company has benefitted a lot on account of the qualification obtained by the said Director, due to which, the turnover of the company had increased tremendously. Page 4 of 10 C/SCA/16276/2018 JUDGMENT 7.1 It was pointed out that further details had been submitted to the Assessing Officer by a communication dated 26.2.2016 in respect of the management training expenses of Rs.30,10,000/- to indicate that the training expenditure was wholly and exclusively for the purpose of business. It was after considering all the details furnished by the petitioner, that the Assessing Officer passed the assessment order dated 1.3.2016. It was submitted that the Assessing Officer, having gone through all the details on this issue at the time of scrutiny assessment and having accepted the same, the reopening of assessment in respect of the same issue is, therefore, nothing but a mere change of opinion and therefore, impermissible in law. In support of his submission, the learned counsel placed reliance upon the decision of the Supreme Court in the case of CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). 7.2 In conclusion, it was submitted that, in the aforesaid premises, the reopening of the assessment by the Assessing Officer is without authority of law and as such the impugned notice as well as the assessment order passed pursuant thereto, deserves to be quashed and set aside. 8. On the other hand, Mrs. Mauna Bhatt, learned Senior Standing Counsel for the respondent has placed reliance upon the averments made in the affidavit-in-reply filed on behalf of the respondent to submit that the reopening is not based on a mere change of opinion, inasmuch as, the petitioner has failed to furnish evidence to prove that the expenses incurred for the post-graduate programme is wholly and exclusively for business purpose. Page 5 of 10 C/SCA/16276/2018 JUDGMENT 9. In the aforesaid backdrop, reference may be made to the reasons recorded by the Assessing Officer for reopening the assessment, which read as under:- “REASONS FOR ISSUE OF NOTICE U/S. 148 OF THE ACT In this case, the return of income was filed on 28/09/2013 declaring total income at Rs.64,36,610/-. The assessee filed revised return of income declaring total income Rs.76,19,380/-. Assessment u/s. 143(3) of the Act was completed on 01/03/2016 determining assessed income at Rs.76,19,380/-. 2. Security of Note 19 of profit and loss account revealed that the assessee had debited Rs.30,10,000/- on account of management training expense the said expenditure were incurred for Post Graduate programme in management by Indian School of Business, Hyderabad of Shri Swar Digant Shah, Director of the company. The said expenditure is of personal nature and not allowable expenditure for business purpose. Therefore, in view of section 37 the same is not allowable expenditure as per the provision of the Act. 3. During the course of assessment proceedings, assessee merely submitted details of expenses regarding post graduate programme fees, course completion certificate and minutes of meeting Assessee did not submit any details proving nexus between expense of course fees and relevance of the same wholly and exclusively for the business purpose. Assessee did not give any documentary evidence in support of his claim other than rise in turn over which can be observed in the past years without Mr.Swar Digant Shah’s post graduate. 4. I therefore, have reason to believe that income chargeable to tax amounting Rs.30,10,000/- (which is more than Rs.1,00,000/-) as per section 149(1)(b) escaped assessment within the meaning of section 147 of the Income-tax Act due to failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment.” Page 6 of 10 C/SCA/16276/2018 JUDGMENT 10. On a perusal of the reasons recorded for reopening the assessment, it is apparent that the Assessing Officer seeks to reopen the assessment on the ground that income chargeable to tax amounting to Rs.30,10,000/- incurred for post-graduate programme in management by Indian School of Business, Hyderabad, of Shri Swar Digant Shah, Director of the company, being personal in nature is not an allowable expense for business purpose. According to the Assessing Officer, as reflected in the reasons recorded, during the course of regular assessment proceedings, the assessee had submitted details of expenses, however, it had not submitted any details proving the nexus between the expense of course fees and the relevance of the same wholly and exclusively for the business purpose. 11. In this regard, a perusal of the record of the case clearly shows that during the course of scrutiny assessment, the Assessing Officer called for various details from the petitioner, which had been furnished from time to time. Vide communications dated 19.2.2016 and 26.2.2016, the petitioner had furnished details in connection with expense of Rs.30,10,000/- incurred towards management training expenses of the Director. In paragraphs 4 and 5 of the communication dated 26.2.2016, the petitioner stated thus: “4. Shri Swar Digant Shah came in April 2013 after undergoing the training at ISB, Hyderabad and also after under going the practical training in Germany. He is working for the company so nice that the turnover of the company has increased considerably because of his hard efforts as can be seen from the figures of turnover given in the following table: Page 7 of 10 C/SCA/16276/2018 JUDGMENT Assessment Year Rs. in lacs 2013-2014 857 2014-2015 980 2015-2016 1104 Till 31-03-2016 1200 From the above, it may please be seen that in the course of three years, the turnover has increased from RS.857 lacs to Rs.1200 lacs gradually year by year. This speaks of the value of services and his training at ISB, Hyderabad. 5. It may pleased be noted that the education qualification of Shri Swar Digant Shah is B.E. in Computer Engineering from Nirma Institute of Technology, Ahmedabad and MS in Computer Engineering from San Jose State University, USA and that he has been working with the company since 2003 to 2012 looking after marketing. Therefore, he was sent for training to ISB, Hyderabad for post graduate management programme with specialization in marketing. He has been drawing remuneration of Rs. 6,60,000 per annum which was allowed as deduction. The board passed a resolution taking a commitment from Shri Swar Digant Shah that he would work at least for five years after the completion of training. In fact, after the completion of training, he has been working with the company since three years i.e. April 2013 to till date and that he will at least work for further two years for the company. His training proves boon to the company in as much as the turnover of the company has increased considerably as can be seen from the table given in Para No.4. This proves that the training expenditure incurred for Shri Swar Digant Shah is wholly and exclusively laid out for the purpose of business. The assessee placed reliance on Delhi High Court judgment in the case of Kostub Investment Ltd. V/s. CIT 365 ITR 436 (Del).” 12. Thus, from the details furnished in the above communication, it is evident that the expense of Page 8 of 10 C/SCA/16276/2018 JUDGMENT Rs.30,10,000/- incurred by the petitioner for the management training expenses of its Director was wholly and exclusively for the purpose of business and that the petitioner had been benefited on account of the qualification obtained by the Director, in respect of which such expenses have been incurred. 13. From the facts as emerging from the record, it is evident that at the time of scrutiny assessment the Assessing Officer had duly considered this issue in detail and upon being satisfied with regard to the nexus between the expenses incurred by the petitioner for the management training of its Director and the business of the petitioner, had allowed such expenditure. The Assessing Officer now seeks to reopen the assessment on the very same ground, which is clearly, nothing but a mere change of opinion. It is, by now, well settled that the Assessing Officer cannot sit in appeal over the opinion expressed by his predecessor in the assessment order. In the present case, as recorded by the respondent in the reasons recorded, the predecessor of the respondent had gone into the issue and therefore, in effect and substance, the respondent seeks to sit in appeal over the opinion expressed by his predecessor, and, therefore, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act, which is based on a mere change of opinion, is invalid and without authority of law. The impugned notice as well as the impugned assessment order, therefore, cannot be sustained. 16. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated 31.3.2018 as well as the assessment order dated 23.10.2018 passed under section 144 read with section 147 of the Act are hereby Page 9 of 10 C/SCA/16276/2018 JUDGMENT quashed and set aside. Rule is made absolute accordingly with no order as to costs. ORDER ON CIVIL APPLICATION 17. In the light of the order passed in the main petition, this application for stay no longer survives and is disposed of accordingly. Sd/- (HARSHA DEVANI, J) Sd/- (A. P. THAKER, J) R.S. MALEK Page 10 of 10 "