Gujarat High Court
E-Infochips Limited vs Deputy Commissioner Of Income Tax on 28 April, 2017
Bench: M.R. Shah, B.N. Karia
C/SCA/5746/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT
AHMEDABAD
SPECIAL CIVIL APPLICATION No. 5746 of 2017
FOR APPROVAL AND SIGNATURE :
HONOURABLE Mr. JUSTICE M.R. SHAH
and
HONOURABLE Mr. JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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E-INFOCHIPS LIMITED....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)
(1)..Respondent(s)
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Appearance :
Mr B S SOPARKAR, Advocate for the Petitioner(s) No. 1
Mr MANISH R BHATT Sr. Advocate with Mrs MAUNA M BHATT,
Advocate for the Respondent(s) No. 1
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CORAM: HONOURABLE Mr. JUSTICE M.R. SHAH
and
HONOURABLE Mr. JUSTICE B.N. KARIA
28th April 2017
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C/SCA/5746/2017 JUDGMENT
ORAL JUDGMENT (PER : HONOURABLE Mr. JUSTICE M.R.
SHAH) Rule. Mrs. Mauna M Bhatt, learned advocate waives service of notice of rule on behalf of the respondent-Revenue.
2. In the facts and circumstances of the case, this petition is taken up for final hearing today.
3. By way of this petition under Article 226 of the Constitution of India, the petitioner-assessee has prayed for issuance of writ and/or order quashing and setting aside the impugned Notice under Section 148 of the Income-tax Act,1961 [Annexure "A" to the petition] by which the Assessing Officer has sought to reopen the assessment for Assessment Year 2010-2011 on the ground that the income chargeable to tax has escaped the assessment within the meaning of Section 147 of the Act, for Assessment Year 2010-2011.
4. Facts leading to the present Special Civil Application in nutshell are as under :
4.1 That the assessee filed its return of income for A.Y Page 2 of 20 HC-NIC Page 2 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT 2010-2011. That the assessee claimed deduction under Section 10B of the Act as well as Section 14A of the Act.
That, the case was selected for scrutiny assessment. Detail questionnaires were asked by the Assessing Officer with respect to the claim under Section 14A as well as Section 10B of the Act. The assessee furnished the detailed particulars. That, after detailed scrutiny, the Assessing Officer made disallowances of Rs. 1,00,652/= under Section 14A of the Act read with Rule 8D of the Rules and made additions. That, on the basis of the material on record, the Assessing Officer also accepted the deductions claimed under Section 10B of the Act.
4.2 That thereafter, beyond the period of four years, the Assessing Officer has issued the impugned Notice under Section 148 of the Act alleging inter alia that the income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act for Assessment Year 2010-2011.
4.3 That, at the request made by the assessee, the Page 3 of 20 HC-NIC Page 3 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT Assessing Officer furnished the reasons recorded to reopen the assessment for A.Y 2010-2011. The reasons recorded to reopen the assessment for Assessment Year 2010-2011 read as under :
"Reasons Recorded for Initiation of assessment proceedings :
The assessee, a company, engaged in the business of software development, filed its return of income for the A.Y 2010-2011 on 8/10/2010 declaring total income of Rs. 39,24,594/=. The case was selected for scrutiny and assessed under Section 143 [3] of the Act,1961 on 4/03/2013 declaring the assessed income at Rs. 40,25,242/=.
From the record of the assessee company, it was seen and from the perusal of the audited accounts, it is noticed that huge amount of investments were made in mutual funds and liquid funds. Besides, the assessee had received dividend income of Rs. 2300000/= and tax free interest on bonds of Rs. 1065386/= which was claimed exempt in the statement of total income. However, the assessee had made a disallowance under Section 14A r.w.r 8D of Rs. 17267/- only. No explanation and evidences as to why Page 4 of 20 HC-NIC Page 4 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT disallowance under Section 14A r.w.r 8D were not made by the assessee on the average value of such investments on which provisions of section 14A were clearly applicable, were given by the assessee. To handle and manage the huge investments in mutual funds and liquid funds, certain administrative expenses under Section 14A r.w.s 8D were compulsorily incurred by the assessee and therefore, the assessee ought to have made disallowance under Section 14A r.w.s 8D in respect of expenditure incurred for earning exempted income. The assessee had also not given investments wise details of dividend income of Rs. 2300000/= and tax free interest on bonds of Rs. 1065386/=. Further, the assessee had not given any details and evidences as to which investment would be included for the purpose of disallowance u/s. 14A and which investment would be included for the purpose of disallowance u/s. 14A and which investment would not to be included for the purpose of disallowance u/s.14A. Thus, non furnishing of complete details of investment as well as exempted income on various investments had Page 5 of 20 HC-NIC Page 5 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT resulted escapement of income of Rs.
11,72,980/=.
Further, the assessee had claimed deduction u/s. 10B of the Act, without fulfilling all the eligibility conditions for the claim of such deduction and without getting registered with the Board appointed by the Central Government u/s. 14 of the Industries Development and Regulation Act, 1951. Since the assessee had not furnished the requisite certificates from the prescribed authority ie., Board appointed by the Central Government under Section 14 of the Industries Development and Regulation Act, 1951 for fulfillment of all the conditions for eligibility of deduction u/s. 10B of the Act, in respect of STP Unit at Pune, it is patently a failure on the part of the assessee to disclose truly and fully all the material facts necessary for the assessment for the assessment year 2010- 2011. Thus, the assessee has not fulfilled the condition for eligibility of deduction u/s. 10B of the Act, in respect of STP unit at Pune, the deduction of Rs. 8,93,345/=.
In view of the above, I have reason to believe that the assessee has concealed Page 6 of 20 HC-NIC Page 6 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT the income to extent of Rs. 20,66,325/= [Rs. 11,72,980 + 8,93,345] within the meaning of the provision of Section 147 of the I.T Act, 1961. Hence, it is a fit case for issuing notice u/s. 148 of the I.T Act, 1961 to M/s. E-Infochips Limited for A.Y 2010- 2011."
4.4 That, the assessee raised detailed objections against the reopening. It was mainly contended on behalf of the assessee that it cannot be said that there was any non-disclosure on the part of the assessee in disclosing true and correct facts, and therefore, re- opening beyond the period of four years is not permissible. It was also further contended that even otherwise, the claim under Section 14A and Section 10B of the Act were considered by the Assessing Officer at the time of scrutiny assessment in detail and even the Assessing Officer also made disallowance under Section 14A read with Rule 8D of the Rules, and therefore, the reopening is nothing but a change of opinion by the subsequent Officer, and hence, the reopening is not Page 7 of 20 HC-NIC Page 7 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT permissible.
4.5 Number of other submissions were also made to drop the reopening of the assessment. 4.6 That thereafter, the Assessing Officer has disposed of the objections raised by the assessee and has not agreed with the objections raised by the assessee. Hence, the petitioner has preferred the present Special Civil Application under Article 226 of the Constitution of India with the aforestated prayer.
5. Heard Shri B.S Soparkar, learned advocate for the petitioner and Shri Manish R Bhatt, learned Senior Advocate appearing for the respondent-Revenue.
6. Shri B.S Soparkar, learned advocate for the petitioner has vehemently submitted that in the facts and circumstances of the case, the impugned Notice under Section 148 of the Act and reopening of the assessment for A.Y 2010-2011 is bad in law and illegal, and contrary to the provisions of Income-tax Act, 1961 ie., Section 147 of the Act.
6.1 It is further submitted by Shri Soparkar, learned Page 8 of 20 HC-NIC Page 8 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT advocate appearing on behalf of the petitioner that the ground for reopening of the assessment is completely misconceived and baseless. It is submitted that the re- assessment proceedings have been initiated after a period of four years from the end of the relevant assessment year. It is submitted that therefore, the escapement of income must also be occasioned by failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment.
6.2 It is further submitted by Shri Soparkar, learned advocate appearing on behalf of the petitioner- assessee that in the present case, as such there is/was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. It is submitted that all the details of payment for Software Licence Fees were duly provided as and when sought for and/or required by the Assessing Oficer and the same was scrutinized by the Assessing Officer. It is submitted that therefore, now having allowed the Page 9 of 20 HC-NIC Page 9 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT claim, it is not open to the Assessing Officer to reopen the assessment, merely for the re-computation by taking a different view on the same material available with him.
6.3 It is further submitted by Shri B.S Soparkar, learned advocate appearing on behalf of the petitioner that in the present case, there are two reasons assigned for reopening of the completed assessment viz., [a] to disallow the expenditure under Section 148A read with Rule 8D of the Income-tax Rules; and [b] to disallow claim under Section 10B holding that the petitioner has not obtained requisite certificate from the Board appointed by the Central Government under Section 14 of the Industries Development & Regulation Act, 1951. It is further submitted by Shri Soparkar, learned advocate for the petitioner-assessee that both the aforesaid issues were gone into in detail by the Assessing Officer, while framing the original assessment. It is submitted that a thorough inquiry was made during the original assessment proceedings and Page 10 of 20 HC-NIC Page 10 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT the issue with respect to expenses claimed under Section 14A read with Rule 8D of the I.T Rules was specifically discussed in the assessment order. Therefore, it is submitted that it is a clear case of change of opinion, and hence, the reopening is bad. 6.4 It is further submitted that even with respect to the claim under Section 10B of the Act, a thorough inquiry was made during the original assessment proceedings. It is submitted that after verifying all the documents and being satisfied by the explanation furnished from time to time, the Assessing Officer formed a conscious opinion, accepting the claim of the assessee. It is submitted that although a pointed query was not raised regarding certificate from the Board, but the claim was examined; including the audit reports and Form 56G. It is submitted that merely because the Assessing Officer, while framing the original assessment did not consider the claim from any angle, which ought to have been considered, cannot be a ground to reopen the concluded assessment and that Page 11 of 20 HC-NIC Page 11 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT too, beyond the period of four years. In support of his above submissions, Mr. Soparkar, learned advocate for the petitioner has relied upon a decision of Division Bench of this Court in the case of Sarla Rajkumar Varma v. Assistant Commissioner of Income-tax, reported in [2015] 231 Taxman 889 (Gujarat). He has also relied upon a decision of Division Bench of this Court in the case of Gujarat Lease Financing Limited vs. CIT, reported in 360 ITR 496 [Gujarat] as well as another decision of Division Bench of this Court in the case of Vodafone West Limited, reported in [2013] 354 ITR 572 [Gujarat]. It is further submitted by Shri B.S Soparkar, learned advocate for the petitioner that as is evident from the reasons recorded, the Assessing Officer has not come across any new external tangible material based on which he now proposes to form a fresh opinion on the issue. It is submitted that from the assessment records, he has now sought to change his earlier opinion which amounts to change of opinion and is not permissible. It Page 12 of 20 HC-NIC Page 12 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT is further submitted that even otherwise, with respect to some of the earlier/previous years, the claim of the assessee under Section 10B of the Act has been granted, which has not disturbed by the Assessing Officer. It is submitted that therefore, once the assessee is allowed deduction in the first year then without disturbing the disallowance in the initial year, the subsequent years cannot be disturbed. It is further submitted that a similar notice for reopening for A.Y 2008-2009 has been quashed and set-aside by the Division Bench of this Court in Special Civil Application No. 13860 of 2014 by observing that there was no failure on the part of the petitioner to truly and fully disclose all the material facts.
6.5 Making the above submissions, Shri B.S Soparkar, learned advocate for the petitioner has requested this Court to allow the present petition.
7. Shri Manish R Bhatt, learned counsel appearing on behalf of the Revenue has vehemently opposed the present petition.
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7.1 It is vehemently submitted by Shri Bhatt, learned counsel for the Revenue that though the assessee claimed deduction towards interest paid, and though the Assessing Officer accepted the same, however, it has been found that the assessee did not give investment-wise details of dividend income of Rs. 23,00,000/= and tax free interest on bonds of Rs. 10,65,386/=. It is submitted that even the assessee has not given any details and evidences as to which investment would be included for the purpose of disallowance under Section 14A and which investment would not be included for the purpose of disallowance under Section 14A of the Act. It is submitted that therefore, non furnishing of complete details of investment as well as exempted income on various investments had resulted into escapement of income of Rs. 11,72,980/=. It is submitted that therefore, the Assessing Officer is justified in reopening of the assessment on the aforesaid grounds.
8. Now so far as deduction claimed under Section Page 14 of 20 HC-NIC Page 14 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT 10B of the Act by the assessee, which was granted by the Assessing Officer, it is submitted that the assessee had claimed deduction under Section 10B of the Act without fulfilling all the eligibility conditions for the claim of such deduction and without getting registered with the Board appointed by the Central Government under Section 14 of the Industries Development & Regulation Act, 1951. It is submitted that since the assessee has not furnished the requisite certificates from the prescribed authority ie., the Board appointed by the Central Government under Section 14 of the Industries Development & Regulation Act, 1951 for fulfillment of all the conditions for eligibility of deduction under Section 10B of the Act, in respect of STP Unit at Pune, the same can be said to be a failure on the part of the assessee to disclose truly and fully all the material facts necessary for the assessment for A.Y 2010-2011. It is submitted that therefore, when the assessee had not fulfilled the conditions for eligibility of deduction under Section 10B of the Act in respect of Page 15 of 20 HC-NIC Page 15 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT STP Unit at Pune, the deduction of Rs. 8,93,345/= was wrongly allowed by the Assessing Officer. It is submitted that therefore, the reopening cannot be said to be on the change of opinion by the subsequent Assessing Officer, as contended on behalf of the petitioner-assessee.
8.1 Making the above submissions, it is requested by the learned counsel for the Revenue to dismiss the present petition.
9. Heard learned advocates appearing on behalf of the respective parties at length.
10. It is required to be noted and it is not in dispute that the assessment for A.Y 2010-2011 is sought to be reopened beyond the period of four years. Therefore, unless and until the condition precedent for reopening the assessment beyond the period of four years, as per the provisions of Section 147 of the I.T Act is satisfied ie., there was any failure on the part of the assessee in not disclosing truly and fully all material facts necessary for assessment, the reopening beyond the Page 16 of 20 HC-NIC Page 16 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT period of four years is not permissible.
11. In the present case, the Assessing Officer has sought to reopen the concluded scrutiny assessment under Section 143 [3] of the Act on two grounds viz., [a] to disallow the expenditure under Section 148A read with Rule 8D of the Income-tax Rules; and [b] to disallow claim under Section 10B holding that the petitioner has not obtained requisite certificate from the Board appointed by the Central Government under Section 14 of the Industries Development & Regulation Act, 1951.
11.1 From the order of assessment, it appears that deduction claimed by the assessee towards expenses under Section 14A read with Rule 8D was gone into and specifically discussed by the Assessing Officer at the time of framing of the scrutiny assessment. Number of queries came to be raised, and which came to be answered by the assessee. That thereafter, even the Assessing Officer also made a further deduction of Rs. 1 lac. Therefore, the said issue was specifically discussed Page 17 of 20 HC-NIC Page 17 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT and gone into by the Assessing Officer at the time of framing the original assessment, which was scrutiny assessment under Section 143 [3] of the Act. Under the circumstances, this is a clear case of change of opinion and hence, reopening is bad. It cannot be said that there was any failure on the part of the assessee in disclosing true and correct facts necessary for the assessment.
11.2 Similarly, even with respect to the deduction claimed under Section 10B of the Act is concerned, it is required to be noted that even the said issue was gone in detail by the Assessing Officer. The assessee produced certificate asked by the Assessing Officer and thereafter, the Assessing Officer, after having satisfied with the deduction claimed under Section 10B of the Act, allowed such deduction claimed under Section 10B of the Act. Therefore, there was no failure on the part of the assessee in disclosing true and correct facts. 11.3 At this stage, it is required to be noted that even in respect of some of the earlier years/previous Page 18 of 20 HC-NIC Page 18 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT assessment years, similar deduction under Section 10B of the Act has been allowed in the case of very assessee. At this stage, it is required to be noted that even for A.Y 2008-2009 on the very ground, the assessment was sought to be reopened, which has been set-aside by the Division Bench of this Court in Special Civil Application No. 13860 of 2014.
12. As stated hereinabove, there does not appear to be any failure on the part of the assessee in not disclosing true and correct facts. As observed hereinabove, the issue with respect to claim under Section 14A of the Act read with Rule 8D of the Rules and the deduction of claim under Section 10B of the Act were gone into by the Assessing Officer at the time of framing of scrutiny assessment under Section 143 [3] of the Act. Therefore, even the reopening can be said to be on the basis of change of opinion,which is not permissible.
13. In view of the above and for the reasons stated above, the present writ petition succeeds. The Page 19 of 20 HC-NIC Page 19 of 20 Created On Mon Aug 14 15:58:13 IST 2017 C/SCA/5746/2017 JUDGMENT impugned Notice dated 6th May 2016 issued under Section 148 of the Income-tax Act, 1961 for A.Y 2010- 2011 is hereby quashed and set-aside, and the impugned proceedings for re-opening of the assessment for A.Y 2010-2011 are hereby terminated on the aforesaid grounds.
Rule nisi made absolute accordingly. In the facts and circumstances of the case, there shall be no order as to costs.
[M.R Shah, J.] [B.N Karia, J.] Prakash Page 20 of 20 HC-NIC Page 20 of 20 Created On Mon Aug 14 15:58:13 IST 2017