Gujarat High Court
Mastek Limited vs Deputy Commissioner Of Income Tax -Osd- ... on 8 August, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/2147/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 2147 of 2014
With
SPECIAL CIVIL APPLICATION NO. 2148 of 2014
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MASTEK LIMITED....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX -OSD- - I....Respondent(s)
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Appearance:
MR B S SOPARKAR, ADVOCATE for the Petitioner(s) No. 1
MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 08/08/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. These petitions arise in common background. The facts being almost identical, we may notice from Special Civil Application No.2147 of 2014.
2. The petitioner is a company registered under the Companies Act. It is engaged in the business of software services and related business. For the Assessment Year 2006- 07, the petitioner had filed a return of income on 31.10.2006 declaring total income of Rs.61.28 lacs. Said return was taken in scrutiny by the Assessing Officer. He passed a draft order of assessment on 11.2.2009 after making various additions to Page 1 of 7 HC-NIC Page 1 of 7 Created On Wed Aug 10 03:13:39 IST 2016 C/SCA/2147/2014 ORDER the income declared by the assessee. The assessee disputed certain additions. Upon which the final order of assessment under Section 143(3) read with Section 144C of the Income- Tax Act,1961 (for short 'the Act') was passed on 26.10.2010.
3. To reopen such assessment, the respondent - Assessing Officer issued impugned notice dated 1.3.2013. He had recorded following reasons for issuing the notice :
"In this case, the return of income for the A.Y.2006-07 declaring income of Rs.61,28,140/- was filed on 31.10.2006. Assessment u/s.143(3) of the Act was finalized determining the total income at Rs.22,46,55290/-.
In the assessment order the assessee was allowed exemption u/s.10A of the Act amounting to Rs.71,16,11,732/- (restricted to Rs.60,06,59,051/- to the extent of business income available) which was arrived at as under :
Profit of the(Rs.71,16,11,732/- x Export turnover business (Rs.315,67,73629/-) Total turnover (Rs.315,67,73,629/-) =Rs.71,16,11,732/-
On perusal of the assessment records, it is noticed that while computing deduction u/s.10A of the Act, for the purpose of computing export turnover, tele- communication charges for export of computer software have not been considered as the same are fixed in nature and not incurred specifically for export of software. It is also seen from the assessment records that the 'telecommunication charges' incurred by the assessee was Rs.2,58,14,421/- and 'insurance charges' incurred was Rs.12,61,319/- totaling to Rs.2,70,75,740/- which is required to be deducted from the 'Export turnover' to compute deduction u/s.10A ibid. The deduction available accordingly will come to Rs.70,55,08,217/- as shown below:Page 2 of 7
HC-NIC Page 2 of 7 Created On Wed Aug 10 03:13:39 IST 2016 C/SCA/2147/2014 ORDER Profit (Rs.71,16,11,732/-) x ETO(Rs.315,67,73,629/-
MINUS Rs.2,70,75,740/-) Total turnover (Rs.315,67,73,629/-) =Rs.70,55,08,217/-.
Thus, the deduction computed was excess by Rs.61,03,515/-.
In view of the above, I have reason to believe that the income chargeable to tax to the extent of Rs.61,03,515/- has been under assessed on account of failure on the part of the assessee to disclose fully and truly all material facts pertaining to the A.Y.2006-07 and no opinion was formed in the original assessment.
In view of above, I am of the opinion that this is a fit case for reassessment by invoking the provisions of Section 147 of the Income-Tax Act,1961."
4. Upon receipt of such reasons, the assessee raised objections on 26.3.2013. These objections were, however, rejected by the Assessing Officer on 10.12.2013.
5. It can thus be seen that for reopening a scrutiny assessment, the Assessing Officer has issued notice beyond the period of 4 years from the end of relevant assessment year. In Special Civil Application No.2148 of 2014 also, such notice has been issued beyond the period of 4 years and is also based on identical reasons recorded by the Assessing Officer.
6. The assessee was visited with yet another notice for reopening dated 18.11.2014 for the Assessment Year 2008-09 which was also based on identical reasons recorded by the Page 3 of 7 HC-NIC Page 3 of 7 Created On Wed Aug 10 03:13:39 IST 2016 C/SCA/2147/2014 ORDER Assessing Officer. The assessee had challenged the said notice in SCA No.14571 of 2015 which came to be allowed by the High Court by a judgment dated 11.1.2016 in following terms:
"4. It can be seen from the record that the Assessing Officer had two reasons for holding the belief that income chargeable to tax had escaped assessment. The first reason was that addition of Rs.3.76 crore (rounded off) was made to the business 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 telecommunication charges, freight and insurance incurred in the export of software, despite which the assessee had included the same which resulted into excess deduction being granted.
5. Learned counsel Mr.Soparkar for the petitioner pointed out that the notice in question was issued beyond the period of four years from the date of the assessment order. There was no failure on the part of the petitioner to disclose truly and fully all material facts. The Assessing Officer, therefore, could not have reopened 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 issue was examined by the Assessing Officer for which specific queries were raised and answers given by the petitioner and re-examination of the issue would only be in the nature of change of opinion.Page 4 of 7
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7. On the other hand, learned counsel Ms.Bhatt opposed the petition contending that the Assessing Officer had recorded valid reasons. The assessee had not given break-ups of various expenditures and had thus not disclosed truly and fully all material facts.
8. With respect to the first reason, as noted, 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 section 147 of the Act which enables the Assessing Officer to reopen an assessment previously framed after scrutiny beyond the period of four years of the assessment order. If at all it was an error on the part of the Assessing Officer to grant larger relief than what was justified under the legal provisions. At any rate, this would not be a ground for reopening an assessment beyond four years. There were multiple other remedies available to the revenue to exercise within the time frame provided under 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 insurance could not be formed part of export turn over. If this expenditure were excluded from the computation of export turn over, deduction under section 10-A of the Act would shrink. So far there will be no difficulty. However, in the context of the notice of reopening having been issued beyond the period of four years, we had examined the record from the angle of failure on the part of the assessee to disclose truly and fully all material facts. In this context, our attention was drawn Page 5 of 7 HC-NIC Page 5 of 7 Created On Wed Aug 10 03:13:39 IST 2016 C/SCA/2147/2014 ORDER by counsel 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 telecommunication charges. The same are fixed in nature and not incurred specifically for export of software. However, in case such expenses are reduced for the purpose of export turnover, the same would also be required to be reduced from total turnover.
10. Thus, in the return filed the assessee had pointed out to the Assessing Officer that for computing export turn over, telecommunication charges for export of computer software were not considered as telecommunication expenses. The same are fixed in nature and not incurred specifically for export of software. However, in case such expenses are reduced for the purpose of computing export turn over, the same are also to be reduced from the computation of total turn over. In other 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.
11. Quite apart from this conclusion, we notice that under communication dated 26.12.2011 to the Assessing Officer, the assessee had given detailed clarification regarding the telecommunication expenses and freight and insurance charges. This note runs into nearly six pages and was written in response to the scrutiny assessment in which the Assessing Officer had raised queries. Thus, not only in the original return filed the assessee had made full disclosures, this issue was examined by the Assessing officer during the original Page 6 of 7 HC-NIC Page 6 of 7 Created On Wed Aug 10 03:13:39 IST 2016 C/SCA/2147/2014 ORDER assessment for which the assessee had given written explanation. Any permission now to the Assessing Officer to re-examine the question would be allowing him to change the opinion originally framed.
12. For all these reasons, the impugned notice must be invalidated. The same is quashed. Petition is allowed and disposed of."
7. We may record that on all material aspects, these petitions involve identical issues. Not only the reasons recorded by the Assessing Officer were similar, in the present petitions also the impugned notices have been issued beyond the period of 4 years from the end of relevant assessment year. As is recorded in Para.11 of the above noted judgment dated 11.1.2016, even in the present cases the question of telecommunication expenses and freight and insurance charges was minutely scrutinized by the Assessing Officer during the original assessment. On all grounds therefore, the said judgment dated 11.1.2016 would apply to the present cases also.
8. Under the circumstances, without recording separate reasons, both these petitions are allowed. The respective impugned notices are quashed. Rule is made absolute in both the petitions.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) vipul Page 7 of 7 HC-NIC Page 7 of 7 Created On Wed Aug 10 03:13:39 IST 2016