TMI Blog2019 (6) TMI 1261X X X X Extracts X X X X X X X X Extracts X X X X ..... ion allowed u/s 10A based on the assessment order relating to the assessment year 2007-08 is without application of mind and nothing but change of opinion, which tantamounts to review and the same is not permissible to initiate the proceedings u/s 147/148 of the Act. This Court is of the opinion that there was no material on record before the Assessing Authority to establish failure on the part of the assessee to disclose truly and fully the relevant material while passing the original assessment order u/s 143(3) and as such the respondent authority had no jurisdiction to invoke Section 147 and 148 of the Act for the assessment years in question. - Writ petitions are allowed. - WRIT PETITION No.29828/2011 c/w W.P.No.14424/2013 AND W.P.No.53886/2013 (T – IT) - - - Dated:- 17-6-2019 - MRS. S. SUJATHA J. PETITIONER: (BY SRI T. SURYANARAYANA, ADV.) RESPONDENT: (BY SRI E.I. SANMATHI, ADV.) O R D E R S. SUJATHA J., These petitions involving similar and akin issues, have been considered together and are disposed of by this common order. 2. Petitioner has challenged the proceedings initiated by the respondent under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of deduction under Section 10-A was in appeal, is against the third proviso to Section147 and is without jurisdiction. The re-assessment proceedings are time barred as the petitioner has not failed to disclose any material facts for the assessment and the reasons recorded for issuing notice under Section 148 were furnished to the petitioner only after the expiry of extended period of six years. 6. Learned counsel Sri.T.Suryanarayana appearing for the petitioner has raised four grounds, namely, 1. All material facts were fully and truly disclosed by the assessee. Initiation of proceedings by the Assessing Officer under Section 147/148 of the Act is without jurisdiction. 2. The re-assessment notices issued under Section 147 r/w 148 of the Act are barred by limitation and it is only change of opinion of the Assessing Officer. 3. Reasons recorded by the Assessing Officer indicates that there was no independent application of mind but it was only a borrowed satisfaction based on the assessment order of the year 2007-2008 passed under Section 143(3) of the Act. 4. The issues relating to Section 10-A were pending before the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for deductions under Section 80HHE of the Act and could not be included as an eligible activity under Section 10-A and 10-AA of the Act. The petitioner s company had claimed the revenue receipt from such DTM as software development activity and deductions were allowed under Section 10-A as claimed which being wrongly allowed, the same called for initiation of reassessment proceedings. It was argued that the subject mater of the appeal which was pending before this Court was on a different issue, not related to the issue on hand. The Assessing Officer being of clear satisfaction that there is reason to believe the escapement of tax during the relevant assessment years, proceeded with the re-assessment proceedings. Preliminary order was passed rejecting the objections. The assessment order passed for the assessment year 2007-2008 disallowing the deductions under Section 10-A for this DTM activities has been confirmed by the first Appellate Authority. Thus, it was argued that the writ petition is not maintainable. 10. Both the learned counsel have placed reliance on host of judgments in their support. 11. I have carefully considered the rival submissions of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the pricing of the projects that are billed to the clients. The major heads of expenditure under this category are as follows: a) Maintenance allowance paid to employees who are deputed abroad, b) Company s contribution to social security and taxes on the maintenance allowances paid to employees, c) Medical insurance costs of the employees, d) Expenditure on travel abroad, e) Data communication costs, f) Software for own use that are required for specific projects, g) Other expenses. b] Expenditure incurred on sales and marketing general administrative activities abroad: In order to support and market the software development projects, it is necessary for the company to incur expenditure on administrative and sales and marketing activities. These activities are critical for providing support to the execution of software development projects and maintaining the competitive edge of the company in a highly competitive global market environment. The major heads of expenses under this category are as follows: a) Maintenance allowances paid to employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from other Sources :₹ 83.24 crores Gross total income :₹ 105.76 crores 80HHE ₹ 76.69 lakhs 80G ₹ 5.71 crores Total Income ₹ 99.21 crores Deduction claimed u/s. 10A Profits of business ₹ 1426.95 crores Export Turnover ₹ 4678 crores Total Turnover ₹ 4732 crores Deduction claimed ₹ 1410.50 crores 2. The said return had been taken up for scrutiny and an order u/s 143[3] dated 29.12.2006 had been passed arriving at a total income of ₹ 426,24,51,540/-. The various issues of additions and disallowances made in the assessment order as below: 1. Payment made to foreign companies tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct finding it had also been detected that the assessee company is in the business of deputing technical man power (DTM) of providing short duration technical man power abroad. Such business activity commonly known as Body Shopping was eligible for deduction u/s 80HHE of the I.T. Act and was not included as an eligible activity u/s 10A/10AA of the I.T. Act. It had been noticed from the contracts and invoices that the assessee company had substantial revenue from such DTM activity and it claimed the revenue receipt from the same as software development activity. It had been detected that assessee had made similar claims for earlier Assessment Year also. c) Assessee was also seen claiming capital expenses incurred on DG installation, landscaping done for first time, curtain glazing and similar such civil expenditure as revenue expenses under the head repair and maintenance of buildings. This had been detected as capital expenses as treated as such thereby reducing the revenue expenses claimed. During the course of assessment for A.Y. 2007-08, it had been clearly detected that similar issues of additions/disallowances were there for previous Assessment Year also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to fully and truly disclose all material facts necessary for the assessment for assessment year 2002-03. The assessment was sought to be reopened after the expiry of a period of four years from the end of the relevant assessment year. In such a case the jurisdictional condition precedent stipulated by the proviso to Section 147 is a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment for that assessment year consequent upon which income chargeable to tax has escaped assessment. That has not been fulfilled. The notice does not even purport to state so. The ground furnished in the notice for reassessment would at the highest indicate that according to the Assistant Commissioner of Income Tax, allocation of expenses as between the petitioner and the foreign principal ought to have been originally considered by the Assessing Officer when the order of assessment was passed under section 143(3). That however would not give a valid reason to reopen the assessment beyond a period of four years, even assuming that the Assessing Officer had erred in not doing so, unless there was a failure on the part of the assessee to fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer has reason to believe that income chargeable to tax has escaped assessment. The Assessing Officer had taken the decision after considering all the facts and reopening proceedings on account of the opinion of another Assessing Officer and came to the conclusion that the opinion of the Assessing Officer cannot replace the opinion of another Assessing Officer. In such a case, law does not permit re-assessment on change of opinion and it was a borrowed satisfaction under the opinion of the Assessing Officer at Mumbai, not sufficient to confer power on the Assessing Officer at Rajasthan to initiate re-assessment proceedings. It is observed that if the Assessing Officer at Mumbai had not allowed depreciation allowance to the lessee based on the very lease deeds, the re-assessment proceedings would not have been initiated at Rajasthan. 27. The Division Bench of this Court in the case of Commissioner of Income Tax another Vs. Hewlett-Packard Global soft Pvt. Limited (2016)380 ITR 386 (Kar), while considering the substantial question of law that, Whether on the facts and circumstances of the case, the Tribunal was correct in holding that the reopening of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the independent satisfaction of the assessing officer in as much as the reason to believe that income chargeable to tax has escaped assessment. The fact that the petitioner was rendering technical services was considered by the assessing officer at the time of original assessment. It is observed in the assessment order as thus: Hence, the telecommunication charges attributable to the delivery of computer software outside India and expenses in foreign exchange in providing technical services outside India are to be reduced from the export turnover. The assessee company submitted that in its own case, the Bangalore Tribunal in ITA No.50/793 to 795, 742 and 732 to 734 has confirmed that Infosys is not involved in rendering of technical services and therefore, no exclusion can be made of any expenditure incurred in foreign currency is to be made other than that already excluded by the assessee company. However, the contention of the assessee company is not acceptable since on the same issue, the department has appealed before the Hon ble High Court in the assessee s own case. Also the assessee company stated that there is no element of technical services involved. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to disclose fully and truly all material facts necessary for the purpose of assessment, income has escaped assessment, he may assess or reassess the income. But when the primary facts necessary for assessment are fully and truly disclosed, he is not entitled on change of opinion to commence proceedings for the reassessment. 31. It is beneficial to refer to the case Indi an Oil Corporation Vs. Income Tax Officer, Central Circle V, Calcutta and Others (1986) 159 ITR 957(S.C.), wherein the Hon'ble Apex Court has observed thus: As is well-settled now by the several authorities of this court and of several High Courts, there must be materials to come to the conclusion that there was omission or failure to disclose fully and truly all material facts necessary for the assessment of the year . It postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, an obligation is to disclose facts; secondly, those which are material; thirdly, the disclosure must be full and, fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment though wide are not plenary. The words of the statute are reason to believe and not reason to suspect . The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi- judicial proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1st April 1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989, ([1990] 182 ITR (St.), 1, 29), which reads as follows: 7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe in Section 147.-A number of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under s. 148 r/w s. 147[a]. But under the substituted s. 147 existence of only the first conditions suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to s. 147. The case at hand is covered by the main provision and not the proviso. So long as the ingredients of s. 147 are fulfilled, the AO is free to initiate proceeding under s. 147 and failure to take steps under s. 143[3] will not render the AO powerless to initiate reassessment proceedings even when intimation under s.143[1] had been issued. 35. The present case falls within the ambit of the proviso to Section 147 and hence both the conditions must be fulfilled to confer jurisdiction under Section 147 of the Act. The Hon ble Apex Court was dealing with the case of an intimation under Section 143[1][a] and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word change of opinion implies formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. 13) The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice dated 10.02.2005 reflects the ground for reassessment in the present case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of ₹ 57,36,811. In the order in question dated 17.08.2005, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of accounts for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re-assessment proceedings were initiated, was we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le unit should not be denied benefits under sections 10A, 10AA and 10B provided such deputation of manpower is for the development of such software and all the prescribed conditions are fulfilled. 39. Though the aforesaid circular was not available before the Assessing Authority at the time of issue of notice under Section 147/148 of the Act, the same throws light on the aspect of deployment of technical manpower vis- -vis deduction under Section 10A of the Act. This circular clarifies that the profits earned as a result of deployment of technical manpower at the client s place specifically for software development work pursuant to contract between the client and the eligible unit should not be denied benefits under Section 10A of the Act provided such deputation of manpower is for the development of such software. It is not in dispute that the notices impugned were issued during the pendency of the appeals relating to the assessment years in question. 40. To sum up, it is held that Note on Software development projects and the various stages of software development placed by the assessee before the Assessing Authority discloses the stages wherein the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
