E-infochips Limited v. Deputy Commissioner of Income-tax, Circle 2(1)(1)
[Citation -2017-LL-0612-4]

Citation 2017-LL-0612-4
Appellant Name E-infochips Limited
Respondent Name Deputy Commissioner of Income-tax, Circle 2(1)(1)
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 12/06/2017
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags profits and gains of business • software development • gross total income • change of opinion • foreign currency • exempted income • export turnover • housing project • local authority • total turnover • tax at source • audit report
Bot Summary: These grounds are as under: Page 3 of 11 HC-NIC Page 3 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT i. The assessee had claimed deduction under section 10B of the Act in respect of its software development unit situated at Pune. 10B as under: Unit Name Consecutive year of Deduction Rs. claim Pune Unit 7th 10,66,05,096 Kasez Unit 4th 56,51,508 Similar claims of deduction have been allowed in all the earlier years. To verify such claim, the Assessing officer had raised certain queries and asked the assessee to provide complete details with respect to such a claim. On the basis of the same material, it would now not be open for the Assessing Officer to reexamine the claim on the premise that a certain element of the claim was not gone into at the time of original assessment proceedings. We hasten to add that each case must depend on facts individually and in a given case, it may be possible for the assessee to argue that all aspects of the claim were examined or that different facets of the claim were so inextricably interlinked that the assessing officer must be taken to have examined the entire claim. In the said decision itself, the Court observed that each case must depend on facts individually and in a given case, it may be possible for the assessee to argue that all aspects of the claim were examined or that different facets of the claim were so inextricably interlinked that the assessing officer must be taken to have examined the entire claim. As noted claim under section 80IB(10) of the Act was the sole claim of the petitioner in the return filed.


C/SCA/2527/2017 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 2527 of 2017 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 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 MRS MAUNA M BHATT, ADVOCATE for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 12/06/2017 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Page 1 of 11 HC-NIC Page 1 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT 1. This petition is filed by assessee challenging notice dated 28.03.2016 issued by respondent-Assessing Officer seeking to reopen petitioner's assessment for assessment year 2011-12. original assessment was framed after scrutiny. impugned notice is thus, issued within period of four years from end of relevant year in case, where scrutiny assessment was framed. To issue such notice, Assessing Officer had recorded following reasons: Reasons recorded for initiation of assessment proceedings In this case, assessee company filed its return of income for A.Y. 2011-12 at Rs. (-) 34,08,157/- on 29/11/2011. case was finalized u/s. 143(3) determining total income at Rs. (-)34,08,157/- on 28/02/2014. a) company acquired 100% Software Development EOU status after registering with Software Technology Parks of India [STP], Pune. Hence, assessee was eligible to claim exemption u/s. 10A. For purpose of eligibility of deduction u/s. 10B of Income Tax Act, competent authority for approval is Board appointed by Central Government in this behalf. However, it was seen from assessment records for A.Y. 2008-09 to A.Y. 2010-11 i.e. three years that assessee had claimed exemption u/s. 10B of Act, without getting registered with Board appointed by Central Government u/s 14 of Industries Development and Regulation Act, 1951. Since, assessee had not fulfilled condition for eligibility of deduction u/s. 10B of Act, in respect of STPI unit at Pune, deduction of Rs. 10,55,64,382/- claimed and allowed u/s. 10B in respect of above unit was irregular and was required Page 2 of 11 HC-NIC Page 2 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT to be disallowed. b. It was observed from submission dated 13/09/2013 that amount of Rs. 63,00,000/- were debited as Managing Directors Remuneration and TDS was not deducted from expenditure booked. In view of above, this expenditure was required to be disallowed under provisions of section 40(a) (ia) of Income Tax Act, 1961 and same was required to be added to income of assessee. c. It was observed from assessment records that assessee had earned exempted income u/s. 10 of Act. However, from assessment records, it was seen that expenses deemed to have been incurred for earning income exempt from income tax was not disallowed in terms of provisions of section 14A read with rule 8D. 2. In view of above, I have reason to believe that assessee has concealed income to extent of Rs. 11,30,80,042/- 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. 2011-12. 2. Upon receipts of reasons, assessee raised objections to notice of reopening under communication dated 18.10.2016. Such objections were, however, rejected by order dated 02.12.2016 by Assessing Officer. At that stage, assessee has filed this petition. 3. reasons recorded show three separate grounds on which, Assessing Officer desired to reopen assessment. These grounds are as under: Page 3 of 11 HC-NIC Page 3 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT i. assessee had claimed deduction under section 10B of Act in respect of its software development unit situated at Pune. According to Assessing Officer, in terms of section 10B of Act, unit had to be registered with Board appointed by Central Government under section 14 of Industries Development and Regulation Act, 1951. unit of assessee was not so registered and that therefore, deduction under section 10B was not available. ii. assessee had paid certain remuneration to its directors without deducting tax at source. Such expenditure therefore, had to be disallowed under section 40(a)(ia) of Act. iii. assessee had earned income which was exempt under section 10 of Act. However, according to Assessing Officer, matching disallowance for expenditure to earn such exempt income, as provided under section 14A of Act and Rule 8D of Income Tax Rules, 1961, was not made. 4. At this stage, we may record that on facts, Revenue was unable to press second ground since it seems undisputed that assessee had deducted tax at source while paying remuneration to its Managing Directors. On that basis, while disposing of objections of petitioner, Revenue had dropped this ground. This leaves us with two grounds for reopening assessment. Page 4 of 11 HC-NIC Page 4 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT 5. Learned counsel for petitioner submitted that both heads of income were scrutinized by Assessing Officer during original assessment. Any attempt on his part to make additions on these grounds would be based on mere change of opinion. Counsel further submitted that deduction under section 10B of Act is available for ten years from year of setting up of industry. In case of assessee assessment year 2005-06 was first year. Without disturbing first year of assessment Revenue tried to withdraw deduction in present year i.e. assessment year 2011-12 which was seventh year. According to counsel this is wholly impermissible. 6. On other hand learned counsel Ms. Bhatt contended that requirement of registration of unit for deduction under section 10B of Act was not examined during original assessment. This claim was therefore, not scrutinized. Revenue had issued notice for earlier years to extent it was permissible looking to limitation provision. 7. We may first advert to question of deduction under section 10B of Act. In this context, Assessing Officer had during original assessment raised certain queries. These queries were replied by assessee under communication dated 20.01.2014. answers furnished by assessee were in response to Assessing Officer's requirement for furnishing complete details with respect to claim of exemption under Page 5 of 11 HC-NIC Page 5 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT section 10B of Act. information supplied by assessee under said communication was as under: 24. Furnish complete details with respect to claim of exemption u/s. 10B. (Para 35 of notice): We have enclosed two Audit Reports in Form 56G in support of our claim u/s. 10B for our Pune Unit and Kasez Unit (Annexure 'petitioner'). Please note that we have claimed deduction u/s. 10B as under: Unit Name Consecutive year of Deduction Rs. claim Pune Unit 7th 10,66,05,096 Kasez Unit 4th 56,51,508 Similar claims of deduction have been allowed in all earlier years. details of party wise foreign currency sales and receipts are enclosed in chart format. (Annexure P-1). It will be found that in Audit Report in from 56G auditor has given details of unrealized sales bills. We give in table below details of subsequent receipts or non receipts of said outstanding sales bills. We have enclosed herewith in Annexure P-2, copies of FIRC (Foreign Inward Remittance certificates) issued by Indian Bank in respect of realization of such bills. In chart enclosed (Annexure P-3). We have given details of subsequent realization which is within time of six months (and further extended), from date of Invoice, as per Reserved Bank of India guidelines. However, we are unable to realize value of following Invoices as result of which amount of deduction will be reduced by Rs. 10,40,714/- as calculated below: Amount of Total Export Turnover: Rs. 19,45,07,450/- Page 6 of 11 HC-NIC Page 6 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT Amount of Export Turnover as Reduced by Unrealized Amount: Rs. 19,26,08,605/- Profits of Business: Rs. 10,66,05,096/- Amount of Deduction as claimed in Form 56G: Rs. 10,66,05,096/- Revised Amount of Deduction: Rs. 19,26,08,605 --------------------- x Rs. 10,66,05,096/-=Rs.10,55,65,382/- Rs. 19,45,07,450/- Please note business of both Pune and Kasez Units is same as in earlier years i.e. computer software (as defined in section 10B) and Hardware. sales Invoices are produced before Your Honour of Both periods in support of above. We have also enclosed Unit wise statement of Income (Annexure P-4). unit wise Statement of Income shows computation of Profits of business qua each Unit separately. It will be found that M.D.salary etc. has been allocated over all units in equal proportion. unit wise Profits and Gains of business has been arrived at after deducting allocated M.D.Salary. unit wise Profits and Gains of business so arrived at has been considered for computing deduction u/s. 10B(4). computation of deduction has to be made as per section 10B(4) i.e. Profits of business of unit x Export Turnover -------------------------- Total Turnover computation of Export Turnover and Total Turnover has been given in Audit Report u/s. 56G. Audit report carries computation of deduction as per section 10B(4). We have claimed deduction u/s. 10B as per amount mentioned in Audit Report in Form 56G. Page 7 of 11 HC-NIC Page 7 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT As such we comply with all conditions mentioned in section 10B. In view of above, our claim of deduction u/s. 10B is justified to extent of amount realized from seller. 8. It can thus be seen that Assessing Officer was acutely conscious of assessee's claim of deduction under section 10B of Act during original assessment. To verify such claim, Assessing officer had raised certain queries and asked assessee to provide complete details with respect to such claim. It was in response to these queries that assessee supplied detailed reply, as noted above. Along with reply, assessee had annexed documents giving further details. It was after undertaking such exercise, Assessing Officer by his order of assessment dated 28.02.2014, made minor disallowance of sum of Rs. 10,40,714/- out of claim of deduction made by assessee under section 10B of Act. 9. It can thus be seen that assessee's claim of deduction under section 10B of Act was part of original assessment proceedings. Only after being satisfied about validity of claim that same was substantial, accepted by Assessing Officer. Any attempt on his part to reopen this claim would be based on mere change of opinion. It is well settled that concept of change of opinion is relevant even after amendment in statute w.e.f. 01.04.1989 as held by Page 8 of 11 HC-NIC Page 8 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT Supreme Court in case of Commissioner of Income Tax vs. Kelvinator of India Ltd. reported in 320 ITR 561. Division Bench of this Court in case of Sarla Rajkumar Varma vs. Assistant Commissioner of Income Tax reported in 231 Taxmann.com 889 has observed as under: 14. It can thus be seen that claim of deduction under section 80IB(10) of Act came up for scrutiny minutely by Assessing Officer in original assessment proceedings. He disallowed claim to extent he was convinced that same was exaggerated. He allowed only part of claim. 15. It is true that this pointed element of housing project not having been completed within 10 years of date of development permission granted by local authority was not raised by Assessing Officer. However, in return filed, this was virtually only claim of petitioner. petitioner had declared gross total income of Rs.22,85,259/and claimed deduction under section 80IB(10) of Act of Rs.Rs.21,59,675/. If Assessing officer had any doubt about basis of claim itself, same could have been examined. On basis of same material, it would now not be open for Assessing Officer to reexamine claim on premise that certain element of claim was not gone into at time of original assessment proceedings. 16. In case of Gujarat Power Corporation Ltd.(supra), this Court did leave some room for Revenue to argue that if certain element of claim was not gone into by Assessing Officer in original assessment, reopening may still be permissible. Court observed as under : 48. Before closing this issue, we would like to clarify one aspect. We have expressed our opinion on question framed by us. In given case, it may so happen that particular claim may have many facets. For example, claim of deduction under section 80HHC of Act would have various parameters. If Page 9 of 11 HC-NIC Page 9 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT one of parameters is scrutinized or accepted either with or without reasons, that by itself may not mean that entire claim of deduction under section 80HHC of Act stood verified and accepted by Assessing Officer. We hasten to add that each case must depend on facts individually and in given case, it may be possible for assessee to argue that all aspects of claim were examined or that different facets of claim were so inextricably interlinked that assessing officer must be taken to have examined entire claim. We only clarify that our answer to second question must be seen within limited scope of question itself. 17. In said decision itself, Court observed that each case must depend on facts individually and in given case, it may be possible for assessee to argue that all aspects of claim were examined or that different facets of claim were so inextricably interlinked that assessing officer must be taken to have examined entire claim. This precisely is situation in present case. As noted claim under section 80IB(10) of Act was sole claim of petitioner in return filed. entire claim was examined at length. To extent Assessing Officer thought same was not allowable, after hearing petitioner and inviting her response, he disallowed substantial portion of claim. It is now therefore, not possible for Revenue to canvas that yet another element of claim was not gone into by Assessing Officer and that therefore, fresh look would be permissible. 10. Similar observations have been made in case of Cliantha Research Limited vs. Dy. Commissioner of Income Tax reported in 35 Taxmann.com 61. 11. Regarding second ground of disallowance under section 14A read with Rule 8D of Rules, same is possible of summary disposal. During original assessment, Page 10 of 11 HC-NIC Page 10 of 11 Created On Thu Jun 15 09:29:47 IST 2017 C/SCA/2527/2017 JUDGMENT this very question came up for consideration. Having taken note of evidence on record, Assessing Officer enlarged disallowance voluntarily made by assesseee from Rs. 3,66,749/- to Rs. 1,72,648/- and, in process, made further disallowance of Rs. 1,35,899/-. This ground for reopening of assessment, therefore, is not available to Revenue. 12. In result, impugned notice dated 28.03.2016 is set aside. Petition is allowed and disposed of. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Jyoti Page 11 of 11 HC-NIC Page 11 of 11 Created On Thu Jun 15 09:29:47 IST 2017 E-infochips Limited v. Deputy Commissioner of Income-tax, Circle 2(1)(1)
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