TMI Blog2021 (8) TMI 1013X X X X Extracts X X X X X X X X Extracts X X X X ..... e disposal of objections in the impugned proceedings this Court has no hesitation in arriving a conclusion that the respondents have established the reasons to believe for reopening of assessment, which is a pre-condition contemplated under Section 147 of the Act - adjudications with reference to the disputed facts are to be done during the course of reopening proceedings and the High Court cannot venture into an adjudication of such disputed facts with reference to the intricacies in accounting system based on certain original documents in the writ proceedings under Article 226 of the Constitution of India. The power of judicial review under Article 226 of the Constitution of India is to ensure that the processes through which a decision is taken by the Competent Authority in consonance with the provisions of the Act, but not the decision itself. This being the scope of power of judicial review, the High Court is not expected to adjudicate certain disputed facts with reference to original documents and evidences, which is to be done by the Competent Original Authority and thereafter by the Appellate Authority in the manner known to law. Once the adjudications are done by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner with that of its group Companies abroad. Consequently, no transfer pricing adjustments were made by the second respondent. 5. The second respondent passed the assessment order under Section 143(3) r/w Section 92CA of the Act for the assessment year 2010- 2011 on 31.03.2014, certain dis-allowances were made in the assessment order. After making dis-allowances and adjustments, the second respondent assessed the income of the petitioner at ₹ 10,97,21,20,974/- under Section 115JB of the Act as against the returned income of ₹ 10,95,97,24,038/-. Consequently, a demand of ₹ 26,42,620/- was raised vide demand notice dated 31.03.2014 under Section 156 of the Act. 6. The first respondent issued the impugned notice under Section 148 of the Act for reopening of assessment for the assessment year 2010- 2011. The petitioner responded to the notice and requested to furnish the reasons for reopening and the reasons sought for were provided by the respondents. 7. The petitioner submitted its detailed objections, questioning the legal validity of the initiation of reopening proceedings and the said objections were also disposed of by the first respondent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment, it is clarified that the very same materials were initially sought for by the original Assessment Officer, the petitioner in turn submitted the informations and the materials, which were considered by the Assessing officer and a final assessment order was passed on 31.03.2014 for the assessment year 2010-2011. 14. When the very same materials which were furnished, scrutinised, considered and a decision is taken, there is no reason for initiation of reopening proceedings and therefore, the respondents have miserably failed to establish that there is a tangible material for invoking Section 147 of the Act. Thus, the very initiation is in violation of the essential ingredients contemplated under Section 147 of the Act. Regarding the other grounds raised for reopening, depreciation claimed for the unit at Kolkatta Bantala (SEZ), the petitioner has stated that the said issue was also elaborately considered. 15. Relying on the assessment order, more specifically in tax computation form, the learned counsel for the petitioner has stated that the relief under Section 189(1)/under Section 90, under Section 91 of the Act, has been stated as ₹ 2,39,15,527/-, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also to produce a copy of the response filed with Transfer Pricing Officer. * In this regard, the Assessee had provided its responses vide submission dated 28 January 2014 (Para 7) and 7 February 2014 (Para 4, Annexure 5) as to why the stock compensation expenses debited in the profit and loss account shall be treated as an allowable expenditure in computing the income under the head 'profits and gains of business or profession' [copies of the aforesaid submissions are enclosed as Annexure 4(b)]. * The Assessee's submission was accepted and the stock compensation recharge expense was allowed as a deduction in computing the income of the Assessee. 2. Tax holiday deduction to be denied on the gain on restatement of forward contract in the AY 2010-11.(Point 2 of the letter dated 28 August 2015) * Statement of computation of total income (under provisions other than Section 115JB of the Act) and Notes to accounts of Financial Statements (Note No.6) wherein the Assessee has disclosed the gain on restatement of forward contracts. * In Point No.1(g) of the notice under Section 142(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion'. * In Point No.11 of the notice under Section 142(1) dated 15 January 2014 the Assessee was asked to furnish necessary reconciliation for unrealised loss on forward contracts disallowed in AY 2009- 10. * In this regard, the Assessee had provided its response vide submission dated 0l6 March 2014. The statement of computation of total income for the AY 2009-10 wherein the said sum has been added back to arrive at the income under the head profits and gains of business or profession had been enclosed as Annexure 6 thereto [copy of the submission enclosed as Annexure 4(e)]. * Given that the amount of loss not claimed as a deduction in AY 2009-10 has now not been offered to tax in AY 2010-11 (when the same was reversed/credited to profit and loss account), the same was accepted by your goodself's predecessor and no adjustment was made. 5. Relief granted under Section 90 of the Act towards tax paid in foreign countries amounting to ₹ 2,39,15,527/- to be withdrawn due to absence of details regarding the same and appropriate disallowance of deduction under Section 10A/10AA to be made. (Point 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by the petitioner were rejected. It is contended that the reasons furnished for reopening of assessment is verbatim reproduced and no findings are made available with reference to the objections raised by the petitioner. Thus, the said order impugned cannot be construed as a speaking order for the purpose of complying with the directives issued by the Apex Court of India. 22. In support of the grounds raised, the petitioner relied on the judgment in the case of Commissioner of Income Tx vs. Pentasoft Technologies Ltd [(2013) 33 Taxmann.com 570 (Madras)] , wherein the Hon'ble Division Bench of this Court considered the question whether due to diminish in rupee value, the respondnet-Assessee gained a higher sum in rupee value while earning foreign exchange and the said difference in rupee value was allowable as a deduction under Section 10A of the Income Tax Act, 1961. 23. In the present case also, regarding the foreign trade transactions, the petitioner was not subjected themselves to value fluctuations and as per the agreement, they are protected from such fluctuations. Therefore, the presumption created by the first respondent in this regard is far beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction was speculative but only disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar (supra) in the Revenue's favour would not by itself govern the issues arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that the facts in S. Vinodkumar (supra) are identical/similar to the present facts, then reliance would have been placed by the Revenue upon it at the hearing before the Tribunal. The impugned order does not indicate any such reliance. It appears that in S. Vinodkumar (supra), the Tribunal held the forward contract on facts before it to be speculative in nature in view of Section 43(5) of the Act. However, it appears that the decision of this court in CIT v. Badridas Gauridas (P) Ltd. [(2003) 261 ITR 256] was not brought to the notice of the Tribunal when it rendered its decision in S. Vinodkumar (supra). In the above case, this court has held that forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, the re-opening of the assessment stands quashed by following the principles laid down by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd., referred to supra. In the circumstances, the appeal of the Revenue is dismissed. 26. In the case of Commissioner of Income Tax-8 vs. I-Flex Solutions Ltd [(2014) 46 Taxmann.com 88 (Bombay)] , the High Court of Bombay held that Income Tax Rules computed software was clubbed with computers as the depreciable asset enjoying rate of depreciation at 60% . The High Court of Bombay, in paragraph-5 of its judgment, observed as under:- 5. The question is therefore for a prior year was the position as understood otherwise. In the facts and circumstances of the Assessee's case, both the Commissioner of Income Tax (Appeals) and the Tribunal found that the software cannot be seen in isolation and delinked from the computer. The reasons that are assigned is that what has been always understood as obvious is now apparent by the amendment. The Commissioner of Income Tax (Appeals) found that in the case of the present Assessee, the software cannot be worked in isolation. It has to be loaded on the computer. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. We find that Part B of New Appendix I is a general entry whereas Entry 5 of Part A of New Appendix I is a specific entry read with Note 7. In the instant case, the Tribunal, in our considered view, rightly held that the assessee is eligible to claim depreciation at 60%. 28. The grounds raised regarding the depreciation, the case of Assistant Commissioner of Income Tax vs. Ashima Syntex Ltd [2000 SCC OnLine Guj. 470] , wherein the Gujarat High Court, in paragraph-16 of its judgment, observed as under:- 16. Learned counsel for the Revenue placed strong reliance on the decision in the case of Additional CIT v. Speciality Paper Ltd., [1982] 133 ITR 879 (Guj) (Appex.) which is an appendix to the decision in the case of Hotel Alankar v. CIT, [1982] 133 ITR 866 (Guj). In the case of Speciality Papers Ltd., [1982] 133 ITR 879 (Guj), the question referred for opinion of the court was under (page 879): Whether, on the finding of the Tribunal that the assessee had been equipped with all the plant and machinery including wet press found necessary to produce the requisite quality of paper and substantial quantity of raw materials necessary for the manufacture of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft Technologies Ltd (cited supra), the Hon'ble Division of this Court considered the order passed by the Income Tax Appellate Tribunal (ITAT), wherein the question was raised whether on the facts and circumstances of the case, the ITAT was right in law in holding that gains on account of foreign exchange fluctuation held to have direct nexus with the export sales of the Assessee. In the present case also no doubt, the petitioner has stated that its foreign exchange transactions are protected by virtue of an agreement. However, those facts are to be adjudicated elaborately by the Assessing Officer in the present case. In the case of Pentasoft Technologies Ltd (cited supra), also was the tax case appeal, which was decided by the Division Bench and therefore, the said case cannot be applied without complete adjudication of facts and circumstances in the present case on hand. 32. In the case of Computer Age Management Services (P) Ltd (cited supra), the Hon'ble Division Bench of this Court considered the findings of the Income Tax Appellate Tribunal that the nature of items, on which, the Assessee claimed depreciation at 60%, has been listed out and they are 17 in num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of an opinion that the judgments, relied on by the petitioner, are of no avail to the petitioner. 34. The learned Senior Standing Counsel, appearing on behalf of the respondents, disputed the grounds raised on behalf of the petitioner and contended that the reopening was not made based on change of opinion. It is a case where the Assessing Officer has reason to believe for reopening of assessment. The reasons were furnished as per the directives of the Apex Court in the case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and Others [(2003) 1 SCC 72] has been scrupulously followed. The objectives submitted by the petitioner were also considered by the Assessing Officer as required under law and therefore, there is no infirmity as such and the reopening proceedings initiated may be allowed to be concluded by following the procedures as contemplated under the Act. 35. To substantiate the said contention, the learned Senior Standing Counsel directly referred to the reasons furnished for reopening of assessment. The reasons furnished would establish that in computing the total income of the Assessee for the assessment year 2010-2011, part of the expenses amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is that the Assessing Officer must have reason to believe for reopening of assessment and therefore, the contentions raised in this regard by the petitioner that the objections were not considered in entirety is far beyond the truth. 40. The Assessing Officer, while disposing of the objections filed by the petitioner, considered the same and passed orders. However, adjudication of the disputed facts on merits need not be done at the stage of disposing of the objections filed with reference to the reasons furnished for reopening of assessment. The petitioner/Assessee would be getting further opportunity to furnish further documents and informations for the purpose of completing the reassessment proceedings. Therefore, what is required is to submit objections on the reasons to believe and such objections are to be disposed of objectively. The disposal of the objections submitted by the Assessee on the reasons furnished cannot be compared with the final assessment/reassessment orders to be passed after complete adjudication of disputed facts and the materials available on record. 41. Drawing distinction in this regard, the learned Senior Standing Counsel pointed out the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into at that stage. In this context, the spirit of the directives issued in GKN Driveshafts case (cited supra) is to be looked into and applied. 44. Considering the arguments advanced in this regard, it is necessary to understand the spirit of the directives issued by the Hon'ble Supreme Court of India in GKN Driveshafts case (cited supra). As per the directives, the Assessing Officer is bound to furnish the reasons for reopening within a reasonable time. On receipt of the reasons, the Noticee is entitled to file objections, if any, to the Assessing Officer, who is bound to dispose of the same by passing a speaking order. 45. The Hon'ble Supreme Court of India formulated procedures for disposing of the objections in order to ensure that the principles of natural justice has been complied with. Thus, the directives in GKN Driveshafts case (cited supra) must be understood in its context and certainly not beyond the context in which the directives are issued. Admittedly, the Income Tax Act, 1961 itself contemplates an opportunity to be provided to an Assessee. Such an opportunity provided is elaborated by the Apex Court to ensure the compliance of principles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the very reopening itself. 47. As the case on hand is falling within the period of four years, the other conditions contemplated under the proviso clause, is not required. What is required is reasons to believe. The reasons furnished by the respondents in the present case, are elaborate in nature and the relevant portions of such reasons are extracted as under:- It is observed from Schedule 13 to the Profit and Loss Account for the year ended March 31, 2010 that the Assessee claimed a sum of ₹ 6,73,37,94,692/- towards stock compensation expenses, the year wise details of which with a difference of ₹ 53 are as under:- Particulars AY 2009-10 (Rs.) AY 2010-11 (Rs.) Total (Rs.) Towards ESO 2,42,35,33,959 4,11,60,05,775 6,53,95,39,734 Towards RSU 1,33,88,420 18,08,66,486 19,42,54,906 Total 2,43,69,22,379 4,29,68,72,261 6,73,37,94,639 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39,734 Towards RSU 1,33,88,420 18,08,66,486 19,42,54,906 Total 2,43,69,22,379 4,29,68,72,261 6,73,37,94,639 It is seen from the Notes on Account that in September 2009, the company entered into an agreement with the holding company (Cognizant Technology Solutions Corporation) for recharge of stock issued by the holding company to settle stock awards exercised by or distributed to employees of the Assessee Company as compensation. The recharge expense is equal to the difference between fair market value on the date of exercise for stock options or distribution date for the stock awards as reduced by the grant price. Based on this agreement, the holding company has recharged an amount of ₹ 6,73,37,94,639/- for the equity compensation expense relating to all the exercise made by the employees of the company during the period April 1, 2008 till March 31, 2010. In this connection, it is to be pointed out that with effect from AY 2010-11, sub-clause (vi) was introduced to Section 17(2), to tax the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement the unrealised foreign exchange gain was ₹ 25.04 crores and there was no evidence to state that the Assessee entered into a forward contract and sustained a loss of ₹ 50.38 crores in the previous year relevant to AY 2009-10. But in the cash flow statement of the P L account for the year ended 31.03.2010, the above foreign exchange gain of ₹ 25.04 crores was shown as a loss of ₹ 50.38 crores as on 31.03.2009. Detailed reason for the variation was not furnished by the Assessee before claiming such deduction of loss amounting to ₹ 50.38 crores in AY 2010-11. It is seen from the statement of income that while computing the tax payable under Section 115JB, the Assessee had claimed a sum of ₹ 1,02,96,469/- at the rate of 16.995% as relief under Section 90, evidently on an income of ₹ 6,05,85,284/- which was doubly taxed. But, in the income tax computation from which is appended to the assessment order, relief under Section 90 was allowed to the extent of ₹ 23,91,75,527/-, resulting in excessive allowance of relief under Section 90 to the tune of ₹ 1,36,19,058/-. .. ... ... ... ... ... ... In the computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfined to less than 180 days only, the Assessee was not entitled to claim depreciation at full rates for the value of assets amounting to ₹ 1,91,33,85,319/- which were stated to have been added to the block of asset in the first half of the assessment year. The incorrect claim of depreciation has resulted in the excess claim depreciation of ₹ 10,42,42,894/- (50% of ₹ 20,84,85,787/-) with resultant overstatement of the loss of the undertaking to like amount. This has also resulted in incorrect set off of loss to an extent of ₹ 10,42,42,894/- against the income of the non-tax holiday units. 48. The reasons recorded by the Assessing Officer as stated abvoe would reveal that certain informations and materials within or not were considered by the Assessing Officer or not, shall be taken into consideration while passing the assessment order. 49. The petitioner, undoubtedly, submitted its objections in detail with reference to the point adjudicated by the original Assessing Authority by citing the reasons furnished for reopening of assessment. However, the Assessing Officer relying on certain intricacies in accounting has reason to believe that the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 147 that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso. 53. The Competent Authority even considered the directives of the Apex Court in GKN Driveshafts case (cited supra), the scope of Section 147 was also elaborated and this Court is of an opinion that reopening of assessment proceedings required that the Assessing Officer must have reason to believe and such reasons must have live link with the materials relied upon. 54. It is not necessary that the tangible material as required for reopening of assessment must be understood as the new materials which were not considered by the original Assessing Authority and subsequently brought to the notice for initiation of Section 147 proceedings. The provision unambiguously denotes that from and out of the materials, account books informations already furnished by the Assessee during the course of original assessment proceedings may also form reasons to believe for reopening of assessment. Therefore, the context in which reo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration resulted escapement in the original assessment order and the Assessing Authority found that there was an under-assessment, which resulted loss of revenue, then also reopening of assessment is certainly possible. Under these circumstances, mere comparison of issues already adjudicated in the original assessment proceedings always may not be a ground for the purpose of setting aside the entire reopening proceedings. Whether from and out of the said issue, a different dimension is identified to establish that there was a loss of revenue due to non-consideration of a particular issue within or the intricacy in some accounting system, then the Assessing Officer is undoubtedly empowered to initiate reopening proceedings by issuing notice under Section 148 of the Act. Thus, the wider scope contemplated under Section 147 for reopening of assessment to protect the interest of Revenue is to be interpreted pragmatically, so as to ensure that if the Assessing Officer has reason to believe, which is not change of opinion, then he must be allowed to complete the reassessment proceedings as contemplated under the provisions of the Act. 57. As elaborately discussed in the aforementione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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