D.C.I.T. -10(1)(1), Mumbai v. M/s. Hexaware Technologies Ltd
[Citation -2016-LL-1014-3]

Citation 2016-LL-1014-3
Appellant Name D.C.I.T. -10(1)(1), Mumbai
Respondent Name M/s. Hexaware Technologies Ltd.
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 14/10/2016
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags set off of brought forward loss • representative of assessee • reassessment proceedings • reopening of assessment • unabsorbed depreciation • consequential addition • computing book profit • recording of reasons • reassessment order • depreciable asset • export activities • change of opinion • reason to believe • excess allowance • reasonable time • business loss • mat credit
Bot Summary: CIT(A) erred in holding that the reassessment is invalid without appreciating that the reasons were communicated to the assessee vide letter dated 02/07l2012 and the issues raised therein were the reasons for re-opening. AR of the assessee would argue that reasons of reopening was not supplied to assessee despite requesting in writing to AO. The Ld. AR for assessee argued that due to non supply of reasons of reopening the reassessment order passed u/s 143(3) r.w.s. 147 is invalid and thus consequential addition made in such reassessment proceeding are illegal. The Ld. CIT(A) while considering this ground of appeal on the allegation of assessee that assessee was not supplied reasons of reopening despite requesting time and again, forwarded the objections raised by assessee to the AO and directed to submit his report. The Ld. CIT(A) observed that reasons recorded were never communicated to the assessee during the course of assessment proceeding despite being repeatedly asked by assessee. No separate order for disposing the objection raised by assessee was passed by AO. On the merit of the case, it was observed by the ld CIT(A) that AO tried to rectify the previous order wherein he had already allowed relief to the assessee on the same facts and record. These recorded reasons must be furnished to the, assessee when sought for so as to enable the assessee to object to the reasons before the Assessing Officer. The stand of the' Revenue could not be appreciated, that the assessee had asked for reasons' recorded only 9 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. once and seeking to justify non-furnishing of reasons.


IN INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI RAJENDRA, AM AND SHRI PAWAN SINGH, JM I.T.A. No.725/Mum/2015 (Assessment Year: 2007-08) D.C.I.T. -10(1)(1), M/s. Hexaware Technologies R. No.209, Aayakar Bhavan, Ltd. M.K. Road, 152, Millenium Business Park, Mumbai-400 020. Vs. Sector-3, TTC Industrial Area, Mahape, Navi Mumbai-400 710. PAN/GIR No. AABCA 3202F (Appellant) : ( Respondent) Appellant by : Shri Arvind Kumar Respondent by : Shri Vijay Mehta : 10/10/2016 Date of Hearing : 14/10/2016 Date of Pronouncement O R D E R PER PAWAN SINGH, J. M.: 1. present Appeal is filed by Revenue against order of CIT(A)- 17, Mumbai dated 08.11.2014 in respect of Assessment Year 2007-08, assessee has raised following grounds of appeal: 1. On facts and in circumstances of case and in law, ld. CIT(A) erred in holding that reassessment is invalid without appreciating that reasons were communicated to assessee vide letter dated 02/07l2012 and issues raised therein were reasons for re-opening. 2 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. 2"On facts and in circumstances of case and in law, ld. CIT(A) erred in holding that re-opening of assessment was based on change of opinion and no new material has been brought on record without appreciating that no opinion on issues involved was formed at time of original assessment and assessment was re-opened within period of 4 years" 3"On facts and in circumstances of case and in law, Ld. CIT(A) erred in allowing deduction u/s 1OA before computing brought forward business losses and unabsorbed depreciation without appreciating that after amendment, S. 1OA/1 OB has become "Deduction" and not "Exemption" and income of assessee has to be computed as per Computation of income as defined in S 2(45) of Act. " 4."On facts and in circumstances of case and in law, Ld. CIT(A) erred in allowing deduction u/s 1OA before computing brought forward business losses and unabsorbed depreciation ignoring that Hon 'ble Karnataka High Court in case of Commissioner of Income-tax Vs. Himatsingka Seide Ltd. reported in 286 ITR 255 (2006) which has clarified that loss of 10-A unit has to be first set off against 10- profit and only on balance amount deduction is available and ignoring fact that decision of Karnataka High Court was upheld by Hon'ble Supreme Court in CA 1501 of 2008 holding that appeal is devoid of any merit? 5."Whether on facts and in circumstances of case and in law, Ld. CIT(A) erred in allowing deduction u/s 10A before computing brought forward business losses and unabsorbed depreciation ignoring that CBDT vide its Circular No.7 of 2013 dated 16.07.2013 has categorically clarified as under: .... "first income/loss from various sources i.e. eligible and ineligible units, under same head are aggregated in accordance with provisions of section 70 of Act. Thereafter, income from one ahead is aggregated with income or loss of other head in accordance with provisions of section 71 of Act. If after giving effect to provisions of sections 70 and 71 of Act there is any income (where there is no brought forward loss to be set off in accordance with provisions of section 72 of Act) and same is eligible for deduction in accordance with provisions of Chapter VI or sections 10A, 10B etc. of Act, same shall be allowed in computing total income of assessee ... "? 6."Whether on facts and in circumstances of case and in law, Ld. CIT(A) erred in allowing deduction u/s 10A before computing brought forward business losses and unabsorbed depreciation by placing reliance upon decision of Bombay High Court in case ofCIT Vs Black & Veatch Consulting P Ltd 20 Taxmann.com 727 (Born.) ignoring fact that department has not accepted ratio laid down in said case. ?" 3 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. 7."On facts and in circumstances of case and in law, CIT(A) erred in deleting disallowance of dividend distribution tax while computing book profits u/s. 115JB without appreciating that Explanation 2 below section 115JB was already in statute when assessee filed its revised return on 05/03/2012. " 8."On facts and in circumstances of case and in law, CIT(A) erred in deleting disallowance of dividend distribution tax while computing book profits u/s. 115JB without appreciating that Explanation 2 below section 115JB was inserted by Finance Act, 2008 with retrospective effect from 01/04/2001 whereas order u/s 14. Already in statue when assessee filed its revised return on 05/03/2012. 2. brief facts of case are that assessee filed return of income for A.Y. 2007-08 on 31.10.2007 declaring total income of Rs. 7,52,80,804/-. assessment was completed u/s 143(3) of Income Tax Act, 1961 on 30.11.2010 determining its total income at Rs. 7,90,29,077/-. Subsequently assessment was reopened u/s 147 of Act. Following reasons were recorded for re-opening of assessment. From perusal of ease records, it is seen that assessee is engaged in design, development and export of computer software etc. assessee company is having three 10A units at Mahape, Bangalore and Chennai. From scrutiny assessment records, it is observed that during scrutiny assessment, depreciation as per Income-tax Act was thrusted and profit in respect of Bangalore unit was recomputed and allowed deduction of profit in respect of Mahape and Chennai units as claimed by assessee company in its return of income. It was revealed that Chennai units was having brought forward losses of Rs. 32152293 for AY 2005-06 which was not set off while allowing 10A deduction for current year. This resulted in excess allowance of deduction under section 10A of Rs. 32152293/ - which has escaped assessment with subsequent excess carry forward of losses of three units, Bangalore unit was transferred and assessee has offered Short Term Capital Gains of Rs. 51563568 on slump sale its -of return of income which was accepted during scrutiny assessment. From assessment records, it is revealed that assessee had considered WDV of depreciable asset as Rs. 48583994 on gross 4 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. basis. However, during scrutiny assessment while allowing deduction u/s. 10A in respect of above unit depreciation of Rs. 26035586 being current year depreciation after elaborate discussion and taking into account various judicial pronouncements. As such while computing Short Term Capital Gains on slump sale WDV of Rs. 22548408 net of current year depreciation should have been taken, which has resulted in under assessment of Rs. 2,60,35,586 which in turn resulted in excess carry forward of losses of Rs. 2,60,35,586. In computation of income, assessee had claimed deduction of Rs. 665811431 under section 10A. assessee was allowed to set off brought forward unabsorbed depreciation and business loss of Rs. 11,84,74,976 pertaining to10A units from balance remaining after allowance of deduction under section 10A. No set off of brought forward losses/ unabsorbed depreciation was made while computing eligible profits for purpose of section10A. Hon'ble Karnataka High Court in case of CIT vs Himatsingeke Siede Ltd [2006 TIOL -448-HC-KAR-IT] held that brought forward unabsorbed business losses and depreciation should be set off first while computing eligible profit under section 10B. In recent judgment of ITAT Banglore Bench in case of M/s. Intellinet Technologies India Pvt. Ltd. [2010-TIOL-167- ITAT-BANG], it was held that total income of particular assessment year has to be computed after aggregation of profits/losses of concerned assessment year under different heads of income and after set off of brought forward business losses/unabsorbed depreciation relating to assessment years and deduction u/ s. 10A has to be worked out after setting off of brought forward losses/unabsorbed depreciation. Similar view was expressed by Delhi Bench in case of Global Vantedge Pvt. Ltd. vs. DCIT 2010-TIOL-24-ITAT-DEL where tribunal has held that unabsorbed business losses in respect of eligible 10A unit has to be set off against profits for determining amount of deduction available u/ s. 10A . Delhi Bench had considered decision of Karnataka High Court in case of Commissioner of Income-tax vs. Himatsingeke Siede Ltd. while giving its judgement. In view of decisions cited above, brought forward losses of units eligible for deduction under section10A should have been adjusted before allowing full deduction under section 10A. This had resulted in excess allowance of deduction of Rs. 118474976. 5 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. It was noticed from computation sheet that assessee was allowed relief under section 90(1) to extent of Rs. 8962633 in respect of taxes paid overseas. This amount included Rs. 7604853 being credit for withholding tax paid in foreign branches as per DTA. Since entire profit earned from export activities were claimed exempt from tax in India, assessee was not eligible to get DTA relief in respect of such income. While computing book profit under section 115JB, assessee had reduced dividend distribution tax of Rs. 34686771 from book profit. As per explanation 2 below section 115JB, tax on distributed profit should be treated as income tax and therefore cannot be allowed as deduction from book profit for purpose of section 115JB. Since assessee had claimed deduction of MAT credit u/ s. 115JB from normal income of current year, correct computation of tax liability u/ s. 115JB is relevant in this case. Accordingly, excess allowance of dividend distribution tax of Rs. 34686771 from book profit has resulted in escapement of assessment." notice u/s 148 issued on 01.03.2012 was served on assessee. assessee filed it s vide reply dated 05.03.2012 contending that return filed on 31.10.2007 may be treated as return in response to notice u/s 148. After hearing representative of assessee, AO passed reassessment order u/s 143(3) r.w.s. 147 of Act. While passing order of reassessment AO made disallowance of set off of brought forward loss of Chennai STP unit, disallowed brought forward loss and unobserved depreciation of non eligible units against income of STP units, not granted relief in respect of tax paid outside India and made additions on account of dividend distribution. Aggrieved by order of AO, assessee filed appeal before CIT(A) challenging validity of reopening and various additions made in quantum reassessment. Ld. CIT(A) while deciding appeal declared re-opening of assessment as invalid. Ld. CIT(A) further deleted various 6 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. addition made in quantum assessment. Thus, being aggrieved by order of ld. CIT(A) Revenue has filed present appeal before us. 3. We have heard ld. DR for revenue and ld. AR for assessee and perused material placed on record. Ld. DR for revenue would argue that ld CIT(A) wrongly held order of reopening as invalid. addition was also deleted without valid reasons. On other hand ld. AR of assessee would argue that reasons of reopening was not supplied to assessee despite requesting in writing to AO. Ld. AR for assessee argued that due to non supply of reasons of reopening reassessment order passed u/s 143(3) r.w.s. 147 is invalid and thus consequential addition made in such reassessment proceeding are illegal. Ld. AR of assessee further argued that Ground against reopening is squarely covered in his favour by judgment of Hon ble Jurisdictional High Court in CIT vs. Trend Electronics in ITA No.1867 of 2013 dated 16.09.2015 reported vide [2015] 379 ITR 456 (Mum). 4. We have considered rival contentions of ld AR for parties and perused material placed on record. notice u/s 148 dated 01.03.2012 was duly served upon assessee. In reply to notice u/s 148 assessee submitted that return already filed on 31.10.2007 may be treated as return filed in response to notice u/s 148 of Act. assessee requested reasons recorded for reopening. AO did not passed any order about reasons demanded by assessee. We have further perused order of reassessment u/s 143(3) r.w.s. 147 dated 18.03.2013, AO has not recorded that reasons of reopening was supplied. Though para no.3 of assessment order 7 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. contained reference of reply of assessee dated 05.03.2012. Ld. CIT(A) while considering this ground of appeal on allegation of assessee that assessee was not supplied reasons of reopening despite requesting time and again, forwarded objections raised by assessee to AO and directed to submit his report. AO filed his report dated 22.09.2014, wherein it was contended that AR of assessee was provided copy of reasons recorded during hearing dated 12.09.2014( during remand proceedings). Ld. CIT(A) observed that reasons recorded were never communicated to assessee during course of assessment proceeding despite being repeatedly asked by assessee. No separate order for disposing objection raised by assessee was passed by AO. On merit of case, it was observed by ld CIT(A) that AO tried to rectify previous order wherein he had already allowed relief to assessee on same facts and record. Nothing new material came to notice of AO, AO also admitted that relief was granted to assessee on basis of information provided to him. reasons recorded by AO are also patently incorrect as reasons were not pertaining to year under consideration and same was related to earlier year. ld. CIT(A) concluded that if reasons are not supplied during assessment proceeding, then furnishing reasons at subsequent stage to assessment proceeding would serve no purpose. non supply of reasons amounts to denial of opportunity to assessee. Ld. CIT(A) held that reassessment was completed without furnishing reasons actually recorded by AO and reopening of assessment is not sustainable in law. AO is duty bound to supply his reasons for 8 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. recorded within reasonable time as per directions of Hon be Apex court. Subsequent supply of reasons would not make good illegality suffered by reopening of assessment. Hon ble Jurisdictional High Court in case of CIT vs. Trend Electronics (supra) held: That order passed in reassessment proceedings was bad in law in absence of reason recorded for issuing reopening notice under section148 of Income-tax Act, 1961, being furnished to assessee when sought for. It is axiomatic that power to reopen completed assessment under Act is exceptional power and whenever Revenue seeks to exercise such power, it must strictly comply with pre-requisite conditions, viz., recording of reasons to indicate that Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant re-opening of assessment. These recorded reasons must be furnished to the, assessee when sought for so as to enable assessee to object to reasons before Assessing Officer. Thus, in absence of reasons being furnished when sought for would make order of reassessment bad in law. recording of reasons and-furnishing, of reasons has to be-strictly complied with t as it is jurisdictional issue. I This requirement is salutary as it not only ensures reopening notices are not lightly issued but also where notices have been issued on some misunderstanding misconception, assessee is given opportunity to point' out that reasons to believe as recorded in reasons do not warrant 'reopening before reassessment proceedings are commenced. Assessing Officer disposes of these objections and if satisfied with objections, then reopening notice under section 148 is dropped or withdrawn otherwise it is proceeded with further. In issues such as this, i.e., where jurisdictional issue is involved this must be strictly complied with by authority concerned and no question of knowledge being attributed on basis of implication can arise. stand of the' Revenue could not be appreciated, that assessee had asked for reasons' recorded only 9 ITA No. 725/Mum/2015(A.Y. 2007-08) D.C.I.T., V s. M/s. Hexaware Technologies Ltd. once and, therefore, seeking to justify non-furnishing of reasons. State is expected to act more responsibly." 5. In view of above discussion we find that ratio determined by Hon ble Jurisdictional High Court in case of CIT vs. Trend Electronics (supra) is squarely applicable on facts of present case. Thus, following decision of Jurisdictional High Court we sustain order of ld. CIT(A) that reopening of assessment proceeding is invalid. As we have sustained that reopening of assessment proceeding is invalid, thus decision of other ground of appeal raised by assessee become academic. In result, appeal filed by Revenue is dismissed. Order pronounced in open court on 14th October, 2016 Sd/- Sd/- (RAJENDRA) (PAWAN SINGH) Accountant Member Judicial Member Mumbai; Dated : 14.10.2016 Ps. Ashwini Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai. D.C.I.T. -10(1)(1), Mumbai v. M/s. Hexaware Technologies Ltd
Report Error