C/SCA/5746/2017 JUDGMENT IN 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 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder? E-INFOCHIPS LIMITED....Petitioner(s) Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1) (1)..Respondent(s) Appearance : Mr B S SOPARKAR, Advocate for Petitioner(s) No. 1 Mr MANISH R BHATT Sr. Advocate with Mrs MAUNA M BHATT, Advocate for Respondent(s) No. 1 CORAM: HONOURABLE Mr. JUSTICE M.R. SHAH and HONOURABLE Mr. JUSTICE B.N. KARIA 28th April 2017 Page 1 of 20 HC-NIC Page 1 of 20 Created On Sat May 13 10:10:43 IST 2017 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 respondent-Revenue. 2. In facts and circumstances of case, this petition is taken up for final hearing today. 3. By way of this petition under Article 226 of Constitution of India, petitioner-assessee has prayed for issuance of writ and/or order quashing and setting aside impugned Notice under Section 148 of Income-tax Act,1961 [Annexure to petition] by which Assessing Officer has sought to reopen assessment for Assessment Year 2010-2011 on ground that income chargeable to tax has escaped assessment within meaning of Section 147 of Act, for Assessment Year 2010-2011. 4. Facts leading to present Special Civil Application in nutshell are as under : 4.1 That assessee filed its return of income for A.Y Page 2 of 20 HC-NIC Page 2 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT 2010-2011. That assessee claimed deduction under Section 10B of Act as well as Section 14A of Act. That, case was selected for scrutiny assessment. Detail questionnaires were asked by Assessing Officer with respect to claim under Section 14A as well as Section 10B of Act. assessee furnished detailed particulars. That, after detailed scrutiny, Assessing Officer made disallowances of Rs. 1,00,652/= under Section 14A of Act read with Rule 8D of Rules and made additions. That, on basis of material on record, Assessing Officer also accepted deductions claimed under Section 10B of Act. 4.2 That thereafter, beyond period of four years, Assessing Officer has issued impugned Notice under Section 148 of Act alleging inter alia that income chargeable to tax has escaped assessment within meaning of Section 147 of Act for Assessment Year 2010-2011. 4.3 That, at request made by assessee, Page 3 of 20 HC-NIC Page 3 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT Assessing Officer furnished reasons recorded to reopen assessment for A.Y 2010-2011. reasons recorded to reopen assessment for Assessment Year 2010-2011 read as under : Reasons Recorded for Initiation of assessment proceedings : assessee, company, engaged in business of software development, filed its return of income for A.Y 2010-2011 on 8/10/2010 declaring total income of Rs. 39,24,594/=. case was selected for scrutiny and assessed under Section 143 [3] of Act,1961 on 4/03/2013 declaring assessed income at Rs. 40,25,242/=. From record of assessee company, it was seen and from perusal of audited accounts, it is noticed that huge amount of investments were made in mutual funds and liquid funds. Besides, assessee had received dividend income of Rs. 2300000/= and tax free interest on bonds of Rs. 1065386/= which was claimed exempt in statement of total income. However, assessee had made 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 Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT disallowance under Section 14A r.w.r 8D were not made by assessee on average value of such investments on which provisions of section 14A were clearly applicable, were given by assessee. To handle and manage huge investments in mutual funds and liquid funds, certain administrative expenses under Section 14A r.w.s 8D were compulsorily incurred by assessee and therefore, assessee ought to have made disallowance under Section 14A r.w.s 8D in respect of expenditure incurred for earning exempted income. assessee had also not given investments wise details of dividend income of Rs. 2300000/= and tax free interest on bonds of Rs. 1065386/=. Further, assessee had not given any details and evidences as to which investment would be included for purpose of disallowance u/s. 14A and which investment would be included for purpose of disallowance u/s. 14A and which investment would not to be included for 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 Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT resulted escapement of income of Rs. 11,72,980/=. Further, assessee had claimed deduction u/s. 10B of Act, without fulfilling all eligibility conditions for claim of such deduction and without getting registered with Board appointed by Central Government u/s. 14 of Industries Development and Regulation Act, 1951. Since assessee had not furnished requisite certificates from prescribed authority ie., Board appointed by Central Government under Section 14 of Industries Development and Regulation Act, 1951 for fulfillment of all conditions for eligibility of deduction u/s. 10B of Act, in respect of STP Unit at Pune, it is patently failure on part of assessee to disclose truly and fully all material facts necessary for assessment for assessment year 2010- 2011. Thus, assessee has not fulfilled condition for eligibility of deduction u/s. 10B of Act, in respect of STP unit at Pune, deduction of Rs. 8,93,345/=. In view of above, I have reason to believe that assessee has concealed Page 6 of 20 HC-NIC Page 6 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT income to extent of Rs. 20,66,325/= [Rs. 11,72,980 + 8,93,345] within meaning of provision of Section 147 of I.T Act, 1961. Hence, it is fit case for issuing notice u/s. 148 of I.T Act, 1961 to M/s. E-Infochips Limited for A.Y 2010- 2011. 4.4 That, assessee raised detailed objections against reopening. It was mainly contended on behalf of assessee that it cannot be said that there was any non-disclosure on part of assessee in disclosing true and correct facts, and therefore, re- opening beyond period of four years is not permissible. It was also further contended that even otherwise, claim under Section 14A and Section 10B of Act were considered by Assessing Officer at time of scrutiny assessment in detail and even Assessing Officer also made disallowance under Section 14A read with Rule 8D of Rules, and therefore, reopening is nothing but change of opinion by subsequent Officer, and hence, reopening is not Page 7 of 20 HC-NIC Page 7 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT permissible. 4.5 Number of other submissions were also made to drop reopening of assessment. 4.6 That thereafter, Assessing Officer has disposed of objections raised by assessee and has not agreed with objections raised by assessee. Hence, petitioner has preferred present Special Civil Application under Article 226 of Constitution of India with aforestated prayer. 5. Heard Shri B.S Soparkar, learned advocate for petitioner and Shri Manish R Bhatt, learned Senior Advocate appearing for respondent-Revenue. 6. Shri B.S Soparkar, learned advocate for petitioner has vehemently submitted that in facts and circumstances of case, impugned Notice under Section 148 of Act and reopening of assessment for A.Y 2010-2011 is bad in law and illegal, and contrary to provisions of Income-tax Act, 1961 ie., Section 147 of Act. 6.1 It is further submitted by Shri Soparkar, learned Page 8 of 20 HC-NIC Page 8 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT advocate appearing on behalf of petitioner that ground for reopening of assessment is completely misconceived and baseless. It is submitted that re- assessment proceedings have been initiated after period of four years from end of relevant assessment year. It is submitted that therefore, escapement of income must also be occasioned by failure on part of assessee to disclose fully and truly all material facts necessary for assessment. 6.2 It is further submitted by Shri Soparkar, learned advocate appearing on behalf of petitioner- assessee that in present case, as such there is/was no failure on part of assessee to disclose truly and fully all material facts necessary for assessment. It is submitted that all details of payment for Software Licence Fees were duly provided as and when sought for and/or required by Assessing Oficer and same was scrutinized by Assessing Officer. It is submitted that therefore, now having allowed Page 9 of 20 HC-NIC Page 9 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT claim, it is not open to Assessing Officer to reopen assessment, merely for re-computation by taking different view on same material available with him. 6.3 It is further submitted by Shri B.S Soparkar, learned advocate appearing on behalf of petitioner that in present case, there are two reasons assigned for reopening of completed assessment viz., [a] to disallow expenditure under Section 148A read with Rule 8D of Income-tax Rules; and [b] to disallow claim under Section 10B holding that petitioner has not obtained requisite certificate from Board appointed by Central Government under Section 14 of Industries Development & Regulation Act, 1951. It is further submitted by Shri Soparkar, learned advocate for petitioner-assessee that both aforesaid issues were gone into in detail by Assessing Officer, while framing original assessment. It is submitted that thorough inquiry was made during original assessment proceedings and Page 10 of 20 HC-NIC Page 10 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT issue with respect to expenses claimed under Section 14A read with Rule 8D of I.T Rules was specifically discussed in assessment order. Therefore, it is submitted that it is clear case of change of opinion, and hence, reopening is bad. 6.4 It is further submitted that even with respect to claim under Section 10B of Act, thorough inquiry was made during original assessment proceedings. It is submitted that after verifying all documents and being satisfied by explanation furnished from time to time, Assessing Officer formed conscious opinion, accepting claim of assessee. It is submitted that although pointed query was not raised regarding certificate from Board, but claim was examined; including audit reports and Form 56G. It is submitted that merely because Assessing Officer, while framing original assessment did not consider claim from any angle, which ought to have been considered, cannot be ground to reopen concluded assessment and that Page 11 of 20 HC-NIC Page 11 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT too, beyond period of four years. In support of his above submissions, Mr. Soparkar, learned advocate for petitioner has relied upon decision of Division Bench of this Court in case of Sarla Rajkumar Varma v. Assistant Commissioner of Income-tax, reported in [2015] 231 Taxman 889 (Gujarat). He has also relied upon decision of Division Bench of this Court in 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 case of Vodafone West Limited, reported in [2013] 354 ITR 572 [Gujarat]. It is further submitted by Shri B.S Soparkar, learned advocate for petitioner that as is evident from reasons recorded, Assessing Officer has not come across any new external tangible material based on which he now proposes to form fresh opinion on issue. It is submitted that from 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 Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT is further submitted that even otherwise, with respect to some of earlier/previous years, claim of assessee under Section 10B of Act has been granted, which has not disturbed by Assessing Officer. It is submitted that therefore, once assessee is allowed deduction in first year then without disturbing disallowance in initial year, subsequent years cannot be disturbed. It is further submitted that similar notice for reopening for A.Y 2008-2009 has been quashed and set-aside by Division Bench of this Court in Special Civil Application No. 13860 of 2014 by observing that there was no failure on part of petitioner to truly and fully disclose all material facts. 6.5 Making above submissions, Shri B.S Soparkar, learned advocate for petitioner has requested this Court to allow present petition. 7. Shri Manish R Bhatt, learned counsel appearing on behalf of Revenue has vehemently opposed present petition. Page 13 of 20 HC-NIC Page 13 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT 7.1 It is vehemently submitted by Shri Bhatt, learned counsel for Revenue that though assessee claimed deduction towards interest paid, and though Assessing Officer accepted same, however, it has been found that 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 assessee has not given any details and evidences as to which investment would be included for purpose of disallowance under Section 14A and which investment would not be included for purpose of disallowance under Section 14A of 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, Assessing Officer is justified in reopening of assessment on aforesaid grounds. 8. Now so far as deduction claimed under Section Page 14 of 20 HC-NIC Page 14 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT 10B of Act by assessee, which was granted by Assessing Officer, it is submitted that assessee had claimed deduction under Section 10B of Act without fulfilling all eligibility conditions for claim of such deduction and without getting registered with Board appointed by Central Government under Section 14 of Industries Development & Regulation Act, 1951. It is submitted that since assessee has not furnished requisite certificates from prescribed authority ie., Board appointed by Central Government under Section 14 of Industries Development & Regulation Act, 1951 for fulfillment of all conditions for eligibility of deduction under Section 10B of Act, in respect of STP Unit at Pune, same can be said to be failure on part of assessee to disclose truly and fully all material facts necessary for assessment for A.Y 2010-2011. It is submitted that therefore, when assessee had not fulfilled conditions for eligibility of deduction under Section 10B of Act in respect of Page 15 of 20 HC-NIC Page 15 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT STP Unit at Pune, deduction of Rs. 8,93,345/= was wrongly allowed by Assessing Officer. It is submitted that therefore, reopening cannot be said to be on change of opinion by subsequent Assessing Officer, as contended on behalf of petitioner-assessee. 8.1 Making above submissions, it is requested by learned counsel for Revenue to dismiss present petition. 9. Heard learned advocates appearing on behalf of respective parties at length. 10. It is required to be noted and it is not in dispute that assessment for A.Y 2010-2011 is sought to be reopened beyond period of four years. Therefore, unless and until condition precedent for reopening assessment beyond period of four years, as per provisions of Section 147 of I.T Act is satisfied ie., there was any failure on part of assessee in not disclosing truly and fully all material facts necessary for assessment, reopening beyond Page 16 of 20 HC-NIC Page 16 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT period of four years is not permissible. 11. In present case, Assessing Officer has sought to reopen concluded scrutiny assessment under Section 143 [3] of Act on two grounds viz., [a] to disallow expenditure under Section 148A read with Rule 8D of Income-tax Rules; and [b] to disallow claim under Section 10B holding that petitioner has not obtained requisite certificate from Board appointed by Central Government under Section 14 of Industries Development & Regulation Act, 1951. 11.1 From order of assessment, it appears that deduction claimed by assessee towards expenses under Section 14A read with Rule 8D was gone into and specifically discussed by Assessing Officer at time of framing of scrutiny assessment. Number of queries came to be raised, and which came to be answered by assessee. That thereafter, even Assessing Officer also made further deduction of Rs. 1 lac. Therefore, said issue was specifically discussed Page 17 of 20 HC-NIC Page 17 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT and gone into by Assessing Officer at time of framing original assessment, which was scrutiny assessment under Section 143 [3] of Act. Under circumstances, this is clear case of change of opinion and hence, reopening is bad. It cannot be said that there was any failure on part of assessee in disclosing true and correct facts necessary for assessment. 11.2 Similarly, even with respect to deduction claimed under Section 10B of Act is concerned, it is required to be noted that even said issue was gone in detail by Assessing Officer. assessee produced certificate asked by Assessing Officer and thereafter, Assessing Officer, after having satisfied with deduction claimed under Section 10B of Act, allowed such deduction claimed under Section 10B of Act. Therefore, there was no failure on part of 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 earlier years/previous Page 18 of 20 HC-NIC Page 18 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT assessment years, similar deduction under Section 10B of Act has been allowed in case of very assessee. At this stage, it is required to be noted that even for A.Y 2008-2009 on very ground, assessment was sought to be reopened, which has been set-aside by 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 part of assessee in not disclosing true and correct facts. As observed hereinabove, issue with respect to claim under Section 14A of Act read with Rule 8D of Rules and deduction of claim under Section 10B of Act were gone into by Assessing Officer at time of framing of scrutiny assessment under Section 143 [3] of Act. Therefore, even reopening can be said to be on basis of change of opinion,which is not permissible. 13. In view of above and for reasons stated above, present writ petition succeeds. Page 19 of 20 HC-NIC Page 19 of 20 Created On Sat May 13 10:10:43 IST 2017 C/SCA/5746/2017 JUDGMENT impugned Notice dated 6th May 2016 issued under Section 148 of Income-tax Act, 1961 for A.Y 2010- 2011 is hereby quashed and set-aside, and impugned proceedings for re-opening of assessment for A.Y 2010-2011 are hereby terminated on aforesaid grounds. Rule nisi made absolute accordingly. In facts and circumstances of 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 Sat May 13 10:10:43 IST 2017 E-Infochips Limited v. Deputy Commissioner of Income-tax, Circle 2(1) (1)