Income Tax Appellate Tribunal - Bangalore
Nuance Transcription Services India ... vs Assessee on 22 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH "B"
BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND
SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
I.T.A. No.322/Bang/2012 & S.P. No.56/Bang/12
(Assessment Year : 2007-08)
M/s. Nuance Transcription Services India Pvt. Ltd.,
No.117-120, II Floor, 13,
Green Leaf Layout, 80 Feet Peripheral Road,
4th Block, Koramangala, Bangalore-560 034 .... Appellant.
Pan AAACF 3465F
Vs.
Dy. Commissioner of Income Tax,
Circle 11(3), Bangalore. ..... Respondent.
Appellant/Petitioner By : Shri Padam Chand Khincha.
Respondent By : Shri B. Saravanan.
Date of Hearing :22.03.2012.
Date of Pronouncement : 04.04.2012.
O R D E R
Per Shri Jason P. Boaz :
The appeal in ITA No.322/Bang/2012 is directed against the order of the Commissioner of Income Tax (Appeals)-I, Bangalore dated 31.01.2012 captioned 'ORDER ON MISCELLANEOUS PETITION'. In the said order, the learned CIT(A) entirely disallowed the assessee's claim for deduction u/s.10A of the Income Tax Act, 1961 (herein after referred as 'the Act') and directed the Assessing Officer to assess amount of deduction claimed u/s.10A as income of the assessee. The assessee has also filed a petition seeking stay on collection of demand in S.P. No.56/Bang/12.
2. The facts of the case, in brief, are as under :
2ITA No.332/Bang/12 & S.P. No.56/Bang/12
2.1 The assessee was incorporated under the Companies Act, 1956 on 2.7.1999 in the name and style of M/s. Focus Infosys (India) Pvt. Ltd. As per certificate of Registration No.11-120639 of 1999 issued by the Registrar of Companies, Mumbai. The registered office of the assessee was shifted from Mumbai to Bangalore on 8.5.2006 which is confirmed by certificate of transfer from one state to another issued on 4.9.2006 by Dy.
Registrar of Companies, Bangalore. The name of the assessee was changed from M/s. Focus Infosys (India) Pvt. Ltd. To M/s. Focus M.T. India Pvt. Ltd. on 19.6.2008 and thereafter the name was changed to M/s. Nuance Transcription Services India Pvt. Ltd. on 14.3.2011 as per Certificate of Incorporation consequent upon change of name issued by the Registrar of Companies, Karnataka.
2.2 The assessee-company is primarily engaged in the business of providing medical transcription services. It also provides HR and pay roll services to medical transcriptionists, back office support services, etc. All these services are provided entirely to its associate enterprise viz. M/s. Nuance Transcription Services Inc. (Formerly known as Focus Informatics Inc.). The assessee is a 100% Export Oriented Undertaking (EOU) and has obtained registration from Software Technology Parks of India (STPI). 2.3 The assessee filed its return of income for Asst. Year 2007-08 on 29.10.2007 admitting income of Rs.11,021 after claiming an amount of Rs.24,12,91,413 as deduction u/s.10A of the Act. The return was processed u/s.143(1) and the case was subsequently taken up for scrutiny by issue of notice u/s.143(2) of the Act. In the course of assessment proceedings, the Assessing Officer asked the assessee to explain as to why internet charges of Rs.38,00,830 should not be reduced from the Export Turnover in computing eligible deduction u/s.10A. The assessee's reply was as under :
" We have subscribed to telecom link from M/s. Novatel Ltd to provide us Voice T1 links, which will allow Doctors/clinicians to dictate into our DVI system and using this voice / audit file, our Medical Transcriptionist then perform to process of Transcription and convert the audit into an 'formatted text' output which is called 'transcript' document and this formatted transacit 3 ITA No.332/Bang/12 & S.P. No.56/Bang/12 is then delivered to customer's system. Hence in out case the finished product is 'traanscript' and audit/voice is input/raw material for processing and they are not incurred for "delivery of finished product" and in view of this fine and distinct difference, we reiterate our submission that such datacom expenses though incurred in foreign exchange, should not be deducted from the export turnover to arrive at quantum of deduction under section 10A sub-section 4 and explanation 2(iv) to section 10A which speaks of telecom cost incurred in foreign exchange..." attributable to delivery of computer software service .. is not applicable in our case since this expense incurred in forex is towards obtaining audit files which are akin to our input raw material. Since we had not detailed and elaborated our explanation, but subsequent to our personal hearing we wish to highlight this clear and distinct difference for your perusal and consideration appropriately."
In the light of the above submission, the assessee submitted that internet charges amounting to Rs.38,00,830 should not be reduced from the export turnover while computing its eligible deduction u/s.10A. The Assessing Officer after examining and considering the assessee's submissions proceeded to complete the assessment by an order u/s.143(3) of the Act on 19.11.2010, wherein he rejected the assessee's claim and held that internet charges are attributable for the delivery of computer software outside India and therefore the same was to be reduced from the export turnover for the purpose of computing the eligible deduction u/s.10A. The internet charges reduced from export turnover was not reduced from the total turnover as the Assessing Officer was of the view that in the absence of the definition of 'Total Turnover' in section 10A, the normal meaning of the word 'total turnover' is to be adopted and hence expenditure reduced from 'export turnover' in accordance with the specific definition cannot be reduced from 'total turnover'. In view of the Assessing Officer finding, the deduction u/s.10A was allowed to the extent of Rs.23,96,13,592 (Rs.26,12,91,413 less Rs.16,77,820) and Rs.16,77,820 was added to the assessee's income as 'excess claim of 10A deduction' resulting in the income of the assessee being assessed at Rs.16,88,841. 2.4 The assessee went in appeal before the CIT(A) against the order of Assessing Officer. In this appeal, the assessee raised the ground challenging the Assessing Officer's action in reducing internet charges from export turnover and filed written 4 ITA No.332/Bang/12 & S.P. No.56/Bang/12 submission in support thereof. It was submitted that in any case only a sum of Rs.9,42,055 could be treated as internet charges attributable to delivery of computer software outside India. It was also submitted, alternatively, that internet charges, if reduced from export turnover, it should be excluded from total turnover also. In the course of appellate proceedings, the assessee submitted the details of activities involved in medical transcription and that these services are regarded as 'computer software' under clause (b) of item (i) of Explanation 2 of section 10A and was eligible for deduction u/s.10A in view of CBDT Notification No.890(E) dt.26.9.2009. On being called upon to do so by the CIT(A), the assessee filed copies of the Memorandum, Articles of Association and Certificate of Incorporation. On perusal of these documents, the CIT(A) in his order noted that --
" .... The certificate of incorporation reveals that one company named - " Focus Infosys (India) Private Limited" got registered on 2.7.1999 under No.11-120639 of 1999 with ROC, Maharashtra, Mumbai. It altered its objects on 25.8.2003. The company changed its registered office from Maharashtra to Karnataka on 8.5.2006 which got the registration certificate from Deputy Registrar of Companies, Karnataka Bangalore on 4.9.2006 under - CIN U 72200 KA 1999 PTCO 39933. However, the name of 'Focus Infosys (India) Pvt. Ltd.,' was changed to 'Focus MT India Private Limited' on 19.6.2008 by certificate issued by Assistant Registrar of Companies Karnataka to that effect."
The learned CIT(A) went on conclude that --
"....This demonstrates that the appellant was not in existence in this relevant A.Y. 2007-08 but still a return was filed and assessment was also completed thereon without appreciation of actual fact. I therefore hold that the assessee has filed inaccurate particulars of income in A.Y. 2007-08 by showing its existence when it was not even in embory, return being filed on 29.10.2007 i.e. before 9.6.2008. Therefore a notice under section 271(1)( c ) of the Act is issued along with this order, I being satisfied that inaccurate particulars of income has been filed. The appeal is dismissed being infructuous because the assessment is itself held bad in law. However the Assessing Officer is directed to take appropriate steps as per law to bring the income chargeable to tax in appropriate hands. However a notice under section 271(1)( c ) of the Act is issued herewith insomuch as I am satisfied to hold the entire income 5 ITA No.332/Bang/12 & S.P. No.56/Bang/12 shown to have been earned from the business of medical transcription not forming part of the main objects of the company is considered its unaccounted concealed income."
The learned CIT(A) in his order dt.10.8.2011 held that the assessment framed was bad in law; directed the Assessing Officer to take appropriate steps to bring income chargeable to tax in appropriate hands and dismissed the appeal filed as infructuous. Against this order, the learned Authorised Representative of the assessee submitted that the assessee has filed an appeal before the Tribunal (ITA No.1040/Bang/2011 Dt.16.11.2011) which is yet to come up for hearing.
2.5 The Assessing Officer filed a rectification application u/s.154 dt.30.11.2011 before the learned CIT(A) on 2.12.2011, which is reproduced hereunder :
" The Hon'ble CIT(A) in the order cited under reference has held that assessment passed in the above case is bad in law since the assessment order has been passed on a non-existent company and directed this office to take appropriate steps to bring the income chargeable to tax in appropriate hands and has set aside the assessment.
In this connection, it is submitted that M/s. Focus Infosys (India) Pvt Ltd filed its return of income for the Assessment Year 2007-08 on 29.10.2007 with DCIT, Circle 3(1), Mumbai. After filing the return of income, the name of the company was changed to M/s. Focus MT India Pvt Ltd and a certificate to that effect was filed by the assessee before the DCIT, Circle 3(1), Mumbai vide certificate dated 19.6.2008. The PAN of the company remained same even after change of name of the assessee company.
This case was selected for scrutiny under CASS with the name M/s. Focus MT India Pvt Ltd on 24.9.2008 with DCIT, Circle 3(1), Mumbai. Subsequent to change of place of its registered office from Maharashtra to Karnataka, the case was received on transfer from DCIT,Circle 3(1), Mumbai. The Transfer Memo as well as pre and post correspondence with Mumbai office regarding transfer of case stated the name of the assessee as M/s. Focus MT India Pvt Ltd.
Consequent on transfer of this case to this office, the assessment under section 143(3) was completed in this case on 19.11.2010 in the name of M/s. Focus MT India Pvt Ltd wherein excess claim of 10A deduction of Rs.16,77,821 was disallowed. Against this disallowance the assessee preferred appeal before 6 ITA No.332/Bang/12 & S.P. No.56/Bang/12 the Hon'ble CIT(A) and the same has been disposed by CIT(A) vide order in ITA No.70/DC 11(3)/A-1/10-11 dated 10.8.2011.
It is submitted that in the above order the CIT(A) has held that the assessment completed is bad in law since the name of the assessee company is changed from M/s. Focus Infosys (India) Pvt Ltd to M/s. Focus MT India Pvt Ltd, that since the appellant was not in existence in the relevant A.Y. 2007-08 the assessee has filed inaccurate particulars of income in the A.Y. 2007-08 by showing its existence and on this ground the CIT(A) has set aside the assessment to recompute the income and tax on the basis of CIT(A) order in appropriate hands.
On facts and circumstances of the case, it is submitted that it is not correct to hold that assessee company was not in existence during Assessment Year 2007-08 and has come into existence only on 19.6.2008. In fact the company was very much in existence and only the name of the company was changed to M/s. Focus MT India Pvt Ltd under the same PAN. This fact is evident from the notice generated by computer system on 24.9.2008 which clearly states the name of the company as Focus MT India Pvt Ltd. Though the name of the company was changed but it was under the same PAN. The assessee is recognized in the department from its PAN. Further, it is submitted that the Software Technology Parks of India has renewed the Green Card in the name of M/s. Focus MT India Pvt Ltd wherein the initial approval was granted in the name of M/s. Focus Infosys (India) Pvt Ltd. This further strengthens the stand that the assessee is one and the same and it is only the change of name under the same PAN. The decision of the CIT(A) that the assessment is bad in law since the assessment is made on non-existent company is not correct and it suffered from a mistake apparent.
In view of the above, it is requested that the orders passed by the Hon'ble CIT(A) suffers from mistakes apparent from records, and therefore, the CIT(A) is requested to recall the appellate order for Assessment Year 2007- 08 and decide the ground of appeal taken by the assessee on the merits of the case."
2.6 This rectification application u/s.154 was admitted for hearing by the learned CIT(A) and he accepted the contention of the Assessing Officer that even after change in the name of the company, it remained the same and that therefore the assessment made cannot be held as bad in law. After having held as such, the CIT(A), examined the issue as to whether the assessee was eligible to claim deduction under section 10A of the Act. The learned CIT(A) concluded that the assessee was not engaged in exports, was of the view 7 ITA No.332/Bang/12 & S.P. No.56/Bang/12 that the assessee receives some data and sends back the same data which does not result in any manufacture or development. The learned CIT(A) was of the opinion that an export results only when Doctors in India prescribe treatment/medicines to overseas patients and it is only in such circumstances that an assessee involved in medical transcription is eligible for the benefit of deduction under section 10A of the Act and directed the Assessing Officer to add the entire deduction claimed under section 10A as income of the assessee. The learned CIT(A) also issued notice under section 271(1)(c) of the Act to the assessee. The 'Order on Miscellaneous Petition' was accordingly passed on 3.1.2012 by the learned CIT(A).
3.0 This appeal in ITA No.322/Bang/2012 by the assessee is directed against the above order passed by the learned CIT(A) on 3.1.2012. The grounds of appeal raised by the assessee are as under :
" 1. The order passed by the learned CIT(A) is bad in law and on facts.
2. The learned CIT(A) erred in admitting and adjudicating on the miscellaneous petition of the Assessing Officer, without providing any opportunity to the appellant to be heard on the issue.
3. The learned CIT(A) erred in passing an order on the miscellaneous petition, which had the effect of substantially enhancing the income returned without providing any opportunity to the appellant of showing cause against such enhancement.
4. The learned CIT(A) erred on facts by not appreciating the nature of the business carried on by the appellant and concluding that the appellant was not eligible for deduction under section 10A of the Act.
5. The learned CIT(A) erred in disallowing the claim of the appellant under section 10A of the Act. On the facts and in the circumstances of the case, the appellant is entitled to the deduction under section 10A of the Act.
6. The learned CIT(A) has erred in initiating penal proceedings under section 271 (1) ( c ) of the Act."
3.1 In the grounds of appeal at S.No.1 to 3, it was pleaded that the order of the learned CIT(A) dt.3.1.2012 denying the deduction claimed under section 10A and thereby 8 ITA No.332/Bang/12 & S.P. No.56/Bang/12 enhancing the income of the assessee is bad in law since no opportunity of hearing was provided to the assessee before making such enhancement. In the hearing before us, the learned Authorised Representative submitted that :
i) Neither was the rectification application dt.30.11.2011 filed by the Assessing Officer brought to the notice of the assessee nor was a copy of the same served on the assessee.
ii) No notice was given to or served on the assessee by the learned CIT(A), proposing to deny deduction claimed under section 10A which resulted in enhancing the income of the assessee.
iii) No opportunity of hearing was given to the assessee before concluding that the assessee is not entitled to the deduction claimed under section 10A thereby resulting in enhancement of the assessee's income.
iv) The reasons for denying the deduction under section 10A were neither discussed with the assessee nor brought to its notice.
In view of the above cited reasons, the learned Authorised Representative strongly contended that the order passed by the learned CIT(A) on the miscellaneous petition was bad in law and liable to be quashed.
3.2 In support of his contention, the learned Authorised Representative argued that the order of the learned CIT(A) on the Miscellaneous Petition suffers from many factual errors and serious defects. It is submitted that these are as follows :
i) The dates of hearing mentioned on page 1 of the order on the Miscellaneous Petition as 21.9.2011, 24.10.2011, 31.10.2011, 21.11.2011 and 21.12.2011 are factually incorrect as the rectification application under section 154 of the Assessing Officer was dated 30.11.2011 and the same was filed in the learned CIT(A) office only on 2.12.2011. Opportunity of hearing, therefore, could not have been afforded to the assessee before the filing of the Miscellaneous Application.9 ITA No.332/Bang/12 & S.P. No.56/Bang/12
ii) It is claimed by the learned Authorised Representative that the reference to the names of Sri Gautam Kumar and Sri Rishi Harlalka in page one of the said order as persons who represented the assessee before the learned CIT(A)/ in rectification proceedings is incorrect as no opportunity of hearing was granted to the assessee.
iii) It is further pointed out by the learned Authorised Representative that the reference on page 1 of the order on the Miscellaneous Petition that the ld. DCIT appeared before the learned CIT(A) on 31.10.2011 in connection with rectification proceedings is incorrect, because the rectification application of the DCIT itself though dated 30.11.2011 was filed before the learned CIT(A) on 2.12.2011 only.
iv) It is submitted that the references made in para 3 of the said order by the learned CIT(A) that the Assessing Officer and the learned Authorised Representative of the assessee appeared and explained the matter before him is factually incorrect since no opportunity of hearing was provided to the assessee.
v) It is further submitted by the learned Authorised Representative that in para 4 of the said order the learned CIT(A) states that the learned Authorised Representative provided a brief note on the nature of exports made and which is enclosed as Annexure 2 thereof is also incorrect as no opportunity was afforded to the assessee. He pointed out that the note at Annexure 2 had in fact been submitted to the learned CIT(A) during the hearing of the first appeal and the contents of this note have been reproduced in page 3 and 4 of the first order of the learned CIT(A) dt.10.8.2011.
vi) The learned Authorised Representative contends that while in the order dt.10.8.2011, the learned CIT(A) held that the assessment made was bad in law only for the reason that the company was not in existance, in the order on Miscellaneous petition dt.3.11.2012 at page 2 thereof the learned CIT(A) states that the assessment made was bad in law for the reasons that (a) the name of the assessee as mentioned in the assessment order is not 10 ITA No.332/Bang/12 & S.P. No.56/Bang/12 correct and (ii) the assessee is not eligible to claim deduction under section 10A of the Act.
vii) The learned Authorised Representative also challenged the findings of the learned CIT(A), on merits at para 5.1 of the order that the Memorandum of Association of the assessee-company does not reveal that it is involved in medical transcription activity. He referred to the relevant para of the same Memorandum of Association which reads as under :
" MAIN OBJECT OF THE COMPANY TO BE PURSUED ON ITS INCORPORATION :
To engage in the profession of providing information technology enabled services including but not restricted to data transmission and processing, software development, consultancy & training, rendering software solutions, establishing software research laboratories, & experimental workshops and also to engage in the business to manufacture and deal in hardware, e-commerce and information technology products, whether in India or Overseas."
The learned Authorised Representative submits that medical transcription services having been recognized as information technology enabled services by CBDT vide Notification No.890(E) dt.26.9.2000, there is no merit in the CIT(A)'s view that the Memorandum of Association does not provide for carrying on medical transcription activity.
viii) The learned Authorised Representative referring to para 8 of the order on the Miscellaneous Petition wherein the learned CIT(A) holds that the order of the Assessing Officer is decided to be in order and good in law, submitted that when the order passed by the Assessing Officer has been confirmed by the CIT(A), the question of denial of the deduction claimed under section 10A does not arise.
3.3 The learned Authorised Representative submitted that while the rectification application filed by the Assessing Officer was only in respect of correction of mistakes apparent from the records, the learned CIT(A) in the guise of adjudication thereon, has 11 ITA No.332/Bang/12 & S.P. No.56/Bang/12 reviewed his order and denied the entire deduction claimed under section 10A. It was pleaded by the learned Authorised Representative that the action of the CIT(A) in reviewing his order already passed on 10.8.2011 and denying the deduction claimed under section 10A is bad in law and liable to be quashed.
3.4 We have also heard the learned Departmental Representative in the matter and he was unable to controvert the aforesaid submissions and arguments of the learned Authorised Representative. He also conceded that, as per the order passed by the learned CIT(A), the assessee has not been provided any opportunity of being heard in passing the order on the Miscellaneous Petition.
4.0 We have carefully considered the submissions and arguments of the assessee through the learned Authorised Representative and that of the learned Departmental Representative. It is seen that, in the instant case, the learned CIT(A) passed an order on Miscellaneous Petition on 3.1.2012 denying the deduction claimed under section 10A after passing the appellate order on 10.8.2011. Before going into the issues of enhancement of income and of opportunity of being heard, we feel, the issue to be addressed is as to whether passing of an order on miscellaneous petition and thereby enhancing the income after passing the original appellate order is proper and in accordance with law. 4.1 Section 246A of the Income Tax Act deals with orders appealable before the CIT(A). Section 249 deals with the form of appeal and limitation. Section 250 deals with the procedure in appeal. Under section 250(1), the CIT(A) has to fix the date of hearing of the appeal and intimate the same to the assessee and the Assessing Officer by a notice. As per section 250(2), the assessee, his learned Authorised Representative and the Assessing Officer have the right to be heard at the hearing. Section 250(3) confers the powers of adjournment to the CIT(A). Section 250(4) provides that the CIT(A) may, before disposing of any appeal, make such further inquiry as he thinks fit or may direct the Assessing Officer to make further inquiry and report the result of the same to the CIT(A). Section 250(5) entitles the CIT(A) to raise any additional grounds of appeal. 12 ITA No.332/Bang/12 & S.P. No.56/Bang/12 Section 250(6) provides that the order of the CIT(A) disposing the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. Section 250(6A) provides the time limit within which the order disposing the appeal may be passed by the CIT(A) under section 250(1), the CIT(A) is required to communicate the order disposing of the appeal to the assessee and to the Chief Commissioner of Income Tax and Commissioner of Income Tax.
4.2 Section 251 of the Act deals with the powers of the CIT(A) in disposing of the appeals. As per section 251(1) & (2), in disposing an appeal against the order of assessment, the CIT(A) may confirm, reduce, enhance or annul the assessment. Explanation to section 251 provides that in disposing an appeal, the CIT(A) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, not withstanding that such matter was not raised before the CIT(A) by the assessee. From a plain reading of section 251(1) and the Explanation to section 251, it is evident that the powers of enhancement and the power of deciding any matter arising out of proceedings even though such matter was not raised by the assessee, could be exercised by the CIT(A) in disposing an appeal. As discussed in para 4.1 above, the appeal is said to have been disposed when an order is passed by the CIT(A) in writing. When section 250 and 251 are read together, it would be evident that the powers of enhancement could be exercised by the CIT(A) before passing an order disposing of the appeal and not afterwards.
4.3 There is an exception to the above proposition. Under section 154(2) of the Act, the CIT(A) may correct the mistake apparent from records either on his own motion or when such mistake is brought to his notice either by the assessee or by the Assessing Officer. The correction of the mistake apparent from the records may have the effect of either enhancing the assessment or reducing a refund already made. As per section 154(3), the enhancement of assessment or reducing of refund cannot be made unless the assessee is allowed a reasonable opportunity of being heard. However, to enhance the 13 ITA No.332/Bang/12 & S.P. No.56/Bang/12 assessment under section 154, the primary requirement of the mistake being apparent from the record should be satisfied.
4.4 In view of the above proposition, the question for consideration in the instant case is whether the action of the learned CIT(A) in denying the entire claim of the assessee for deduction under section 10A, in an order on miscellaneous petition and pursuant to a rectification application filed by the Assessing Officer under section 154, is correct? 4.5 Section 154 of the Act permits an income tax authority to correct any mistake apparent from the record. A mistake apparent from the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning or examining on points where there may be conceivably be two opinions. A mistake apparent from the records must be a glaring, obvious and self evident mistake which does not require elaborate discussion of evidence or argument to establish it. Such errors should be so manifest and clear that no court would permit it to remain on record. If the view accepted by the court in the original judgment is one of the possible views, the case cannot be said to be covered by an error apparent on the face of the record. Rectification is not possible if the question is debatable. The decision in ITO Vs. Volkart Brothers (1971) 82 ITR 50 (SC); CIT Vs. Hero Cycles P. Ltd (1997) 228 ITR 463 (SC) and ACIT Vs. Saurashtra Kutch Stock Exchange Ltd. (2008) 305 ITR 227 (SC) confirms the above proposition. In order to attract the application of section 154 of the Act, a mistake must exist and it must be apparent from the record. 'Mistake' means to take or understand wrongly, to make an error in interpreting; an error or fault; a misunderstanding or misconception. 'Apparent' means, visible, capable of being seen, obvious, and plain. A mistake which can be rectified under section 154 is one which is patent, obvious and whose discovery is not dependent on argument or elaboration (O.K. Pradeep & Co. Vs. ACIT (2008) 296 ITR (AT) 1 ITAT, Cochin.) 4.6 In the instant case, the ld. CIT(A) admitted the rectification application filed by the Assessing Officer and held that the order passed by the Assessing Officer is good in law. 14 ITA No.332/Bang/12 & S.P. No.56/Bang/12 After having so held, the learned CIT(A) proceeded further and held that the assessee is not involved in export and hence is not eligible to be allowed the deduction claimed u/s. 10A of the Act. This issue as to whether the assessee is eligible for deduction u/s.10A involves examination of facts, business activity carried on and the relevant provisions of the Act. It is a matter which requires a long drawn out process of reasoning or examining arguments on points where there may conceivably be two opinions or views. The said mistake, if at all there is one, is not glaring, obvious or self-evident. Rather, one has to travel outside the record and examine the relevant facts and law to determine whether the assessee is involved in exports and is eligible for deduction u/s. 10A of the Act. We are of the opinion that the issue as to whether the assessee is involved in exports and is eligible for deduction u/s.10A of the Act cannot be considered as 'mistake apparent from records' within the meaning of section 154. As a result, the ld. CIT(A) was not correct in unilaterally denying the assessee deduction u/s.10A in the 'Order on miscellaneous petition' and pursuant to the rectification application filed by the Assessing Officer u/s.154 of the Act. Even otherwise, the assessee should, in the internet of natural justice, have been allowed reasonable opportunity of being heard before concluding so and before passing the order on the miscellaneous petition.
4.7 Section u/s.154(3) of the Act, provides that an amendment that has the effect of enhancing the income or increasing the liability of the assessee shall not be made unless the income tax authority has given notice to the assessee of its intention to do so and has afforded the assessee reasonable opportunity of being heard. Action u/s.251(2) provides that the CIT(A) shall not enhance the assessment unless the assessee has been afforded reasonable opportunity of showing cause against such enhancement and the opportunity granted, of being heard, must be real, genuine and substantial. It should not be an empty formality and the process cannot be short circulated by any reason whatsoever. No order can be passed in violation of the principles of natural justice as they are incorporated into every unoccupied interstice of the statute [Gautam (C. B) Vs. GOI (1993) 199 ITR 530 (SC)].
15ITA No.332/Bang/12 & S.P. No.56/Bang/12 4.8 The principle of a fair hearing i.e. audi alteram partem is very important for it touches every aspect of fair procedure or due process. The income tax authorities have various powers like calling for evidence, examination of witness, etc. However, these powers are coupled with a duty that the officers concerned conduct the proceedings in a fair manner. The principles of audi alteram partem have two aspects, one is notice and the other is hearing. The aspect of notice is that before any action is taken, the affected party should be given a notice to show cause against the proposed action. This also pre- supposes that a reasonable time should be given to the assessee to show cause his case. The second aspect of audi alteram partem is that the person concerned must be given an opportunity of being heard before any adverse action is taken against him. The requirements of natural justice are met only if an opportunity to represent is given to the assessee. In the present case, as rightly contended by the learned Authorised Representative no opportunity of hearing was provided to the assessee before passing the order on the miscellaneous petition. The learned Authorised Representative has also demonstrated as to how the order on miscellaneous petition passed by the learned CIT(A) suffers from various factual errors and contradictions. The learned Authorised Representative also conceded that no opportunity of hearing was allowed to the assessee. In view of the facts and circumstances of the case as discussed above, we are of the considered opinion that the order passed on the miscellaneous petition by the learned CIT(A) on 3.1.2012 is bad in law and liable to be quashed. Grounds of appeal raised at S.Nos.1, 2 and 3 are accordingly allowed.
5.0 In the grounds of appeal at S.Nos.4 & 5, the assessee has pleaded that the conclusion of the ld. CIT(A) that the assessee is not entitled to claim deduction u/s.10A is incorrect and bad in law in the facts and circumstances of the case and law applicable. Since we have held that the order on miscellaneous petition dt.3.1.2012 passed by the CIT(A) is bad in law and liable to be quashed, we are not adjudicating these grounds on merits. 6.0 In the ground of appeal raised at S.No.6, the assessee has challenged the intimation of penalty proceedings u/s.271(1)(c) of the Act by the learned CIT(A), after denying the 16 ITA No.332/Bang/12 & S.P. No.56/Bang/12 deduction claimed by the assessee u/s.10A, in the order on Miscellaneous Petition dt.3.1.2012. Since we have quashed the order on the miscellaneous petition, this ground does not now survive for consideration and therefore no penalty u/s. 271(1)(c) can be levied on the same issue. This ground No.6 is accordingly allowed. 7.0 In the result, the appeal of the assessee in ITA No.322/Bang/2012 is allowed. 8.0 Consequently the Stay petition filed by the assessee in S.P. No.56/Bang/2012 is dismissed as infructuous.
Order pronounced in the open court on 4th April, 2012.
Sd/- Sd/-
(GEORGE GEORGE K) (JASON P BOAZ)
Judicial Member Accountant Member
Bangalore,
Dated:04.04.2012.
*Reddy gp
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, - B Bench.
6. Guard File.
(True copy) By Order
Asstt. Registrar, ITAT, Bangalore
.