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2016 (1) TMI 786 - GUJARAT HIGH COURT

2016 (1) TMI 786 - GUJARAT HIGH COURT - [2016] 387 ITR 72 - Reopening of assessment - additions made during the course of the original assessment by applying arm's length price u/s.92-C would not qualify for deduction under section 10-A - Held that:- Nowhere the Assessing Officer had recorded that excess deduction was granted to the petitioner due to failure on the part of the assessee to disclose truly and fully all necessary material facts, a prime requirement under the provisions of section 1 .....

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e statute, but to reopen an assessment beyond the period of four years of the assessment order was simply not one of them since the requirement of such income chargeable to tax having escaped assessment must be relateable to the failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment.- Decided in favour of assessee. - Disallowance of expenditures in the form of telecommunication charges, freight and insurance could not be formed part of exp .....

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er words, according to the assessee, if such charges were to be eliminated from the denominator of the ratio by which profit of business is to be multiplied for computing the exemption under section 10-A of the Act, the same would also be eliminated from the denominator. Whatever be the validity of the petitioner's such contention, surely, the petitioner cannot be stated to have not disclosed truly and fully all material facts. - Quite apart from this conclusion, we notice that under communi .....

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nion originally framed. - Decided in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 14571 of 2015 - Dated:- 11-1-2016 - MR. AKIL KURESHI AND MR. MOHINDER PAL, JJ. FOR THE PETITIONER : MR B S SOPARKAR, ADVOCATE FOR THE RESPONDENT : MRS MAUNA M BHATT, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has challenged the notice dated 18.11.2014 as at Annexure-A to the petition issued by the respondent-Assessing Officer seeking to reopen the assessment of the petitione .....

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e impugned notice dated 18.11.2014 came to be issued. The petitioner was supplied with the reasons recorded by the Assessing Officer for issuing such notice, relevant portion of which reads as under: In this case, the return of income for the A.Y.2008-09 declaring income of ₹ 1,76,295/- was filed on 30.09.2008. Assessment u/s.143(3) of the Act was finalized determining the total income at ₹ 26,28,28,351/-. In the assessment order, the assessee was allowed exemption u/s.10A of the Act .....

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er u/s.92C of the Act which resulted in excess deduction of ₹ 3,76,76,042/- As per section 92C(4), where an arm's length price is determined by the A.O. u/s 92C(3), no deduction shall be allowed u/s.10A or section 10AA or section 10B. It is also noticed in the assessment order that, the assessee was allowed exemption u/s.10A of the Act amounting to ₹ 92,48,60,352/- in respect of 100% E.O.U.units: at Pune (Rs.3,84,40,044/-) and Mahape (Rs.92,64,20,308/-). As seen from the P&L .....

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₹ 515.14 lakh for Mahape Unit and ₹ 23.94 lakh for Pune Unit. As per the definition u/s.10A, 'export turnover' does not include telecommunication charges, freight and insurance incurred for export of software. Accordingly, allowable deduction u/s.10A would be ₹ 91.66 crore. Thus there was excess allowance of deduction u/s.10A to the tune of ₹ 1,02,03,278/- (Rs.96,48,60,352/- minus ₹ 95,46,57,074/-). Thus as per the arm's length price is determined by the .....

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ice u/s.92C(3) to the extent of ₹ 3,76,76,042/- is income chargeable to tax and deduction allowed u/s.10A on communication charges and insurance charges to the extent of ₹ 1,02,03,278/- is income chargeable to tax. These have been under assessed to tax on account of failure on the part of the assessee to disclose fully and truly all material facts pertaining to the A.Y.2008-09 and no opinion was formed in the original assessment. In view of the above, I am of the opinion that this is .....

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ness income of the assessee applying arm's length pricing under section 92-C of the Act. In terms of sub-section (4) of section 92-C, this addition made by way of arm's length price would not qualify for deduction under section 10-A of the Act, despite which such deduction was granted by the Assessing Officer in the original assessment. The second reason was that, according to the Assessing Officer, export turn over for the purpose of exemption under section 10A would not include telecom .....

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eopened the original assessment which was framed after scrutiny. 6. With respect to the first reason recorded by the Assessing Officer, counsel contended that there was no failure on the part of the assessee to disclose any of the facts. If at all any deduction granted ignoring the statutory provisions, it was an error on the part of the Assessing Officer. With respect to the second reason, the counsel submitted that not only true and full disclosure by the petitioner of all material facts, the .....

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oted, the Assessing Officer was of the opinion that the additions made during the course of the original assessment by applying arm's length price u/s.92-C of the Act would not qualify for deduction under section 10-A of the Act. Even if that be so, nowhere the Assessing Officer had recorded that excess deduction was granted to the petitioner due to failure on the part of the assessee to disclose truly and fully all necessary material facts, a prime requirement under the provisions of sectio .....

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the statute, but to reopen an assessment beyond the period of four years of the assessment order was simply not one of them since the requirement of such income chargeable to tax having escaped assessment must be relateable to the failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. 9. Coming to the second reason, we may recall, according to the Assessing Officer, various expenditures in the form of telecommunication charges, freight and i .....

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nsel Mr.Soparkar for the petitioner to the return file by the assessee which contained detailed computation of exemption under section 10-A of the Act. It refers to the formula of exemption being equal to profit of business multiplied by export turn over divided by total turn over. A note to this computation contained the following disclosure: Note 1) For the purpose of computing export turnover, telecommunication charges for export of computer software have not been considered as telecommunicat .....

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