Wp/14551/2018 Of Champ Energy Ventures Pvt. Ltd v. The Income Tax Officer, Ward-1(2) , Pune And Anr

IN THE HIGH COURT OF JUDICATURE AT BOMBAYAPPELLATE SIDE CIVIL JURISDICTION WRIT PETITION NO. 14551 OF 2018 Champ Energy Ventures Pvt. Ltd., ..Petitioner.v/s.The Income Tax Officer, Ward 1 (2)Pune & Another ..Respondents. Mr. Mihir Naniwadekar with Mr. Rohan Deshpande i/b. Alisha Pinto, forthe Petitioner.Mr. Sham Walve, for the Respondents. P.C:- CORAM: AKIL KURESHI & M.S.SANKLECHA, JJ.DATE : 18[th] JANUARY, 2019. Petitioner has challenged a notice of re-opening of assessmentdated 5[th] March, 2018, as at annexure A to the Petition. Petition arises inthe following back-ground:- (a)Petitioner is a company, registered under the Companies Act and isengaged in the business of manufacturing and selling of diesel,petrol and gas generators. For the Assessment Year 2013-14,Petitioner had filed return of income, which was taken in scrutiny by the Assessing Officer;engaged in the business of manufacturing and selling of diesel,petrol and gas generators. For the Assessment Year 2013-14,Petitioner had filed return of income, which was taken in scrutiny by the Assessing Officer; (b)In the return, Petitioner had presented the computation of incomeunder normal provisions of the Income Tax Act, 1961 (for short "theunder normal provisions of the Income Tax Act, 1961 (for short "the wp-14551-2018 (c) Act") as well as under provisions of Minimum Alternate Tax (forshort "MAT"). Petitioner in the normal computation, had claimed anexpenditure of Rs.1.89 Crores towards provision for warranty,which was included in the miscellaneous expenses. In thecomputation for MAT provisions, however, Petitioner had addedback said sum of Rs.1.89 Crores on the ground that, same wasunascertained liability; The return of income filed by the Petitioner was taken in scrutiny bythe Assessing Officer. During the scrutiny, as it would be clear fromthe discussion to follow, the Assessing Officer had examined thePetitioner's claim of the said expenditure of Rs.1.89 Crores towardswarranty liability. During such exercise, Petitioner itself had, whilepresenting computation for MAT provisions, had treatedexpenditure as unascertained liability. 2Be that as it may, the Assessing Officer passed an order ofassessment under Section 143(3) of the Act on 28[th] January, 2016,assessing Petitioner's income under the normal provisions. To re-opensuch assessment, she issued the impugned notice. In order to do so, shehad recorded the following reasons:- “The assessee has filed return of income for A.Y. 2013-14 on30.09.2013 declaring a loss of Rs.1,05,082/-. The assessee is aprivate limited company and is engaged in the businessmanufacturing and selling diesel generators, petrol generators, LP-Gas & Natural gas generators. The case was selected for scrutinythrough CASS. The income was assessed u/s. 143(3) of the Act atloss of Rs.5080/- 28.1.2016. 2.On perusal of the case records it is revealed that the assesseehad debited an amount of Rs.1,89,72,000/- toward provision forwarranty included in miscellaneous expenses under the head otherexpenses to the P & L account. Further on verification of balance sheet that during the year under consideration the assessee hadmade provision for warranty provision of Rs.1,89,72,000/- andalso revealed from the record that the above provision was madefirst time and for the period of four years. Further, computation ofbook profit revealed that the assessee while computing book profitmade addition of Rs.1,89,72,000/- towards unascertainedliability on account provision for warranty. 2.On perusal of the case records it is revealed that the assesseehad debited an amount of Rs.1,89,72,000/- toward provision forwarranty included in miscellaneous expenses under the head otherexpenses to the P & L account. Further on verification of balance sheet that during the year under consideration the assessee hadmade provision for warranty provision of Rs.1,89,72,000/- andalso revealed from the record that the above provision was madefirst time and for the period of four years. Further, computation ofbook profit revealed that the assessee while computing book profitmade addition of Rs.1,89,72,000/- towards unascertainedliability on account provision for warranty. 3.Thus, from the above it transpires that the above provisionwas unascertained and contingent in nature. As the provisions forwarranty was unascertained liability it was required to bedisallowed and added to total income. However, the assessee hasnot disallowed and added to the total income of the assessee. Theamount which is provided for or kept apart cannot be held to beexpenditure, actually incurred and consequently deduction is notadmissible. Hence merely because the assessee is maintaining itsaccount on mercantile basis, it cannot claim that the provisionmade towards warranty is an accrued liability. While computingthe tax obligation under the MAT the assessee company himselfadmitted that provision for warranty expenses is an unascertainedliability and consequently contingent in nature and whilecalculating book profit u/s. 115JB the assesssee has madeaddition of said provision in the book profit. However, computingthe total income, the assessee has not made disallowane ofwarranty provision of Rs.1,89,72,000/-. 4.In view of the above, I have therefore, reason to believe thatthere is an escapement of income to the extent ofRs.1,89,72,000/- within the meaning of section 147 of the IncomeTax Act, 1961.” 3Upon being supplied the reasons, Petitioner raised objectionsto the notice of re-opening of assessment under a communication dated12[th] April, 2018. Such objections were rejected by the Assessing Officer on27[th] November,2018. Hence, this Petition. 4We have heard learned Counsel for the parties for finaldisposal of the Petition. Learned Counsel for the Petitioner submittedthat, sole issue on the basis of which the notice of re-opening is issued, was examined by the Assessing Officer, during scrutiny assessment. Afterbeing satisfied with the explanation of the Petitioner, the claim ofexpenditure was accepted. Assessing Officer now cannot re-open theassessment on the same ground which would be based on a mere changeof opinion. In this context, Counsel relied on the observations made in thejudgment dated 11[th] December, 2018 passed in Income Tax AppealNo.854 of 2016 , in which the Court had stated as under:- 4We have heard learned Counsel for the parties for finaldisposal of the Petition. Learned Counsel for the Petitioner submittedthat, sole issue on the basis of which the notice of re-opening is issued, was examined by the Assessing Officer, during scrutiny assessment. Afterbeing satisfied with the explanation of the Petitioner, the claim ofexpenditure was accepted. Assessing Officer now cannot re-open theassessment on the same ground which would be based on a mere changeof opinion. In this context, Counsel relied on the observations made in thejudgment dated 11[th] December, 2018 passed in Income Tax AppealNo.854 of 2016 , in which the Court had stated as under:- “The Supreme Court in the case of Commissioner of IncomeTax v/s. Kelvinator of India Ltd. (2010) 320 ITR 561 has heldthat even post the amendments in Section 147 of the Act w.e.f.01.04.1989, the concept of change of opinion continues to apply.Learned Counsel for the Revenue however, contended that theAssessing Officer had not specifically raised queries in respect ofproposed dis-allowane as recorded in the reasons. In ouropinion, as long as certain claim made by the assessee wasexamined by the Assessing Officer, whether the Assessing Officerraised correct queries and came to the correct conclusion or not,in the context of reopening of assessment, would be of noconsequence. There is a vital difference between a conclusion ofthe Assessing Officer after scrutiny which may appear to theRevenue to be erroneous and a situation where the AssessingOfficer during the scrutiny assessment does not examine aparticular claim of the assessee altogether. The later will followwithin the purview of reopening of assessment, particularly whenthe notice is issued within a period of 4 years but the former maynot. Since we uphold he Tribunal's decision on the invalidity ofthe re-opening, the other issues on merits need not be gone into.No question of law arises.” 5On the other hand, Shri Walve, learned Counsel for theRevenue opposed the Petition, contending that, the Assessing Officer hadrecorded proper reasons. The impugned notice has been issued within aperiod of four years from the end of the relevant Assessment Year and,therefore, the element of true and full disclosure would not be relevant.He submitted that the Petitioner itself filed for the purpose of computingS.R.JOSHI4 book profit under Section 115JB of the Act, had treated the warrantyliability as unascertained liability. Had this fact been brought to the noticeof the Assessing Officer, her consideration of the Petitioner's claim of saidexpenditure for normal computation, would have been different. 6What emerges from the record is that, the Assessing Officer inthe reasons recorded, has referred to only one element, arising out of theAssessee's return namely - the Assessee's claim of expenditure of Rs.1.89Crores towards provisions for warranty liability. The Assessing Officerpoints out that said liability was unascertained, contingent liability and,therefore, not allowable as an expenditure. The Assessing Officer drewinspiration from the declaration of the Petitioner for the purpose of MATcomputation that the liability was unascertained. Counsel for thePetitioner, however, argued that liability may be unascertained but notnecessarily contingent. The Assessee's treatment of such liability for MATcomputation, therefore, was not relevant in any manner. 6What emerges from the record is that, the Assessing Officer inthe reasons recorded, has referred to only one element, arising out of theAssessee's return namely - the Assessee's claim of expenditure of Rs.1.89Crores towards provisions for warranty liability. The Assessing Officerpoints out that said liability was unascertained, contingent liability and,therefore, not allowable as an expenditure. The Assessing Officer drewinspiration from the declaration of the Petitioner for the purpose of MATcomputation that the liability was unascertained. Counsel for thePetitioner, however, argued that liability may be unascertained but notnecessarily contingent. The Assessee's treatment of such liability for MATcomputation, therefore, was not relevant in any manner. 7For the present, we are not required to comment on thevalidity of the Petitioner's claim of expenditure of Rs.1.89 Crores. This isso, because, we are concerned with the question of validity of re-openingof assessment and in this context, relevant consideration before us wouldbe – whether the impugned notice is based on mere change of opinion. Inother words, if the Assessing Officer had formed a belief on this issueduring the original scrutiny, in the absence of any additional materialavailable to her, it would not be open for her to re-open the assessmentmerely on the ground that, there had been an error in her consideringAssessee's claim. 8In this context, we may refer to the material on record.During scrutiny assessment, the Assessing Officer had placed multiplequeries, to which the Petitioner had replied. In one such reply dated 6[th]January, 2016, Petitioner in the context of claim of warranty liability had made following representation:- “5Note on provision for Warranty Expenses-During the year under consideration, company received the bulkorder of 1054 generator sets from Educomp Solutions Ltd. The saidorder was placed on certain terms and conditions as laid down inwritten agreement between the said company and us. The orderwas for 1054 generator sets to be installed in 1054 schools inAssam. Generally our company provide for one year free after sales service.However as per the agreement with Educomp, our company isliable to give five year free after sales service at respective schools inAssam. Accordingly, our company is liable to give four extra years of freeservice against normal period of one year. To meet the extendedwarranty period and probable warranty expenses to be incurred forEducomp, we charged generator sets at higher price to EducompSolutions Ltd. The generator which was priced at Rs.28,500/- in normal course ofbusiness, was sold at Rs.46,636/- to Educomp Solutions Ltd. Thatexcess amount charged per genset was on account of additional 4year warranty. ….….….….…. 7Miscellaneous ExpensesMiscellaneous Expenses for the FY 12-13 are Rs.2,06,91,882.25whereas Miscellaneous Expenses for FY 11-12 wereRs.9,20,538.00. Major difference is on account of warrantyexpenses provided during the year of Rs.1,89,72,000.00.” 9The Assessing Officer had thus, called upon the assessee tojustify the expenditure towards provision for warranty and the assesseehad made a detailed representation. According to the assessee, such claim was genuine. After such exercise, Assessing Officer passed the order ofassessment,in which, she made non-disallowance towards the expenditurein question. In other words, the assessee's claim was accepted. In absenceof any tangible material out side of assessment record, it would not beopen for the Assessing Officer to re-open the assessment on the saidground. Any attempt on her part would be based on a mere change ofopinion as held by the Hon'ble Supreme Court in the case of CIT v/s.Kelvinator of India Ltd., 320 ITR 561 has held that even post theamendments in Section 147 of the Act w.e.f. 01.04.1989, the concept ofchange of opinion, continues to hold the field. In the result, theimpugned notice is quashed and set aside. 10Petition is disposed of. was genuine. After such exercise, Assessing Officer passed the order ofassessment,in which, she made non-disallowance towards the expenditurein question. In other words, the assessee's claim was accepted. In absenceof any tangible material out side of assessment record, it would not beopen for the Assessing Officer to re-open the assessment on the saidground. Any attempt on her part would be based on a mere change ofopinion as held by the Hon'ble Supreme Court in the case of CIT v/s.Kelvinator of India Ltd., 320 ITR 561 has held that even post theamendments in Section 147 of the Act w.e.f. 01.04.1989, the concept ofchange of opinion, continues to hold the field. In the result, theimpugned notice is quashed and set aside. 10Petition is disposed of. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)