HCL Technologies Ltd. v. Deputy Commissioner of Income-tax, Central Circle-2 & Anr
[Citation -2017-LL-0720-22]

Citation 2017-LL-0720-22
Appellant Name HCL Technologies Ltd.
Respondent Name Deputy Commissioner of Income-tax, Central Circle-2 & Anr.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 20/07/2017
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags reopening of assessment
Bot Summary: In the course of the assessment proceedings under Section 143(3) of the Act, the AO by a notice dated 6th December, 2005 under Section 142(1) of the Act, sought answers to specific queries inter alia in respect of the deductions claimed under Section 10A/80HHE of the Act. Thereafter, on 31st January, 2006 the AO passed the assessment order under Section 143(3) of the Act at a net taxable income of Rs. 47,20,54,224 after allowing deduction under Section 10A of the Act at Rs. 2,35,63,91,105. More than four years thereafter on 30th March, 2010, the AO issued the impugned notice under Section 148 of the Act proposing to re- assess the income of the Assessee for the AY in question on the ground that certain income had escaped assessment. The W.P.(C) 8164/2010 Page 3 of 13 assessment was finalised for the AY in question under Section 143(3) of the Act after the AO sent a questionnaire which was duly answered by the Assessee and those answers were considered by the AO. The reasons given by the AO for forming the belief that income had escaped assessment were based on a mere change of opinion and not on any fresh tangible material. In a case like the present one where the initial assessment has taken place under Section 143(3) of the Act with the AO undertaking a full-fledged inquiry, if in the absence of any tangible material another AO were to come to the conclusion more than four years later that there has been an under-assessed income or a wrong claim of deduction only on the basis of the same material, then it would not satisfy the jurisdictional requirement of there having to be some tangible material which should form the basis of the belief that the income had escaped assessment. For complying with the jurisdictional requirement under the first proviso to Section 147 of the Act, the reasons would have to show in what manner the Assessee had failed to make a full and true disclosure of all the material facts necessary for the assessment. The Court finds that one of the queries raised by the AO in its communication to the Assessee in the course of the assessment proceedings completed under Section 143(3) of the Act was asking it to furnish details of purchases of more than Rs. 1 lakh accompanied by ledger extracts of such persons.


IN HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 8164/2010 HCL TECHNOLOGIES LTD. ..... Petitioner Through: Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha & Mr. Vaibhav Kulkarni, Advocates. versus DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2 & ANR. ..... Respondents Through: Mr. Rahul Chaudhary, Senior Standing Counsel for Revenue. CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER 20.07.2017 Dr. S. Muralidhar, J.: 1. This writ petition by HCL Technologies Limited ( Assessee ) challenges notice dated 30th March, 2010 issued by Assistant Commissioner of Income Tax, Central Circle-2/Assessing Officer ( AO ) under Section 148 of Income Tax Act, 1961 ( Act ) seeking to re-open assessment for Assessment Year ( AY ) 2003-04 as well as order dated 19th November, 2010 passed by AO dismissing objections filed by Petitioner thereto. cause title and writ petition wrongly describe Respondent. 2. background facts are that Petitioner, public limited W.P.(C) 8164/2010 Page 1 of 13 company, is engaged in business of development and export of computer software and rendering ITES services. Petitioner filed its return of income for AY 2003-04 on 28th November, 2003 declaring income of Rs. 47,43,47,000. In original return, Petitioner claimed deduction of Rs. 2,35,63,91,105 under Section 10A of Act. This claim was supported by certificate issued by Chartered Accountant ( CA ) in Form 56F. It is stated that on 31st March, 2005, Assessee filed revised return declaring income of Rs. 47,20,54,224. deduction in sum of Rs. 12,93,67,448 under Section 80HHE of Act was further claimed by Assessee. 3. In course of assessment proceedings under Section 143(3) of Act, AO by notice dated 6th December, 2005 under Section 142(1) of Act, sought answers to specific queries inter alia in respect of deductions claimed under Section 10A/80HHE of Act. Petitioner replied to said queries on 21st December, 2005 and 28th December, 2005. 4. AO after examining return, audited accounts and other documents accompanying them in light of replies furnished by Assessee accepted deductions claimed under Sections 10A and 80HHE of Act. Thereafter, on 31st January, 2006 AO passed assessment order under Section 143(3) of Act at net taxable income of Rs. 47,20,54,224 after allowing deduction under Section 10A of Act at Rs. 2,35,63,91,105. W.P.(C) 8164/2010 Page 2 of 13 5. More than four years thereafter on 30th March, 2010, AO issued impugned notice under Section 148 of Act proposing to re- assess income of Assessee for AY in question on ground that certain income had escaped assessment. In response to said notice, Assessee filed same return of income originally filed and requested reasons for re-opening of assessment. 6. objections raised by Assessee for re-opening assessment were rejected by AO by order dated 19 th November, 2010. Thereafter, present petition has been filed. 7. Mr. Ajay Vohra, learned Senior Counsel appearing for Petitioner, referred to each of reasons for re-opening of assessment. He submitted that since re-opening was after four years from end of relevant AY, and return for AY in question had been picked up for scrutiny and assessment order passed under Section 143(3) of Act, jurisdictional requirement of Revenue to show that there was failure by Assessee to make full and true disclosure of all material facts necessary for assessment for that AY in terms of first proviso under Section 147 of Act was sine qua non. 8. Mr. Vohra submitted that there was no failure whatsoever by Assessee to make full or true disclosure of all material facts. W.P.(C) 8164/2010 Page 3 of 13 assessment was finalised for AY in question under Section 143(3) of Act after AO sent questionnaire which was duly answered by Assessee and those answers were considered by AO. reasons given by AO for forming belief that income had escaped assessment were based on mere change of opinion and not on any fresh tangible material. All relevant records including balance sheet, books of accounts, certificates of CA in Form 56F etc. were available with AO during assessment proceedings. Re-opening of assessment on mere change of opinion and that too on same material was clearly impermissible in law. 9. Mr. Vohra referred to decision in Commissioner of Income Tax- II v. Maruti Suzuki India Ltd. (2013) 31 taxmann.com 184 (Delhi). He further pointed out that in order rejecting objections, AO placed reliance on decision of this Court in Consolidated Photo & Finvest Ltd. v. ACIT (2006) 281 ITR 394, which has been expressly overruled by this Court subsequently in KLM Royal Dutch Airlines v. ACIT (2007) 292 ITR 49 (Del) which fact was noted by Full Bench of this Court in Commissioner of Income Tax v. Usha International Ltd. (2012) 348 ITR 485 (Del). 10. Mr. Rahul Chaudhary, learned Senior Standing Counsel for Revenue, began by referring to Explanation 2(c) to Section 147 of Act which states that where income chargeable to tax has been under- assessed; or such income has been assessed at too low rate; or such W.P.(C) 8164/2010 Page 4 of 13 income has been made subject of excessive relief under this Act; or excessive loss or depreciation allowance or any other allowance under this Act has been computed; then that should also be deemed to be case where income chargeable to tax has escaped assessment. 11. Mr. Chaudhary submitted that while computing deduction under Section 10A of Act, Assessee excluded telecommunication charges both from export turnover as well as total turnover whereas it should not have been excluded from total turnover. This wrong claim of Assessee should, according to Mr. Chaudhary, be considered to be failure to make true disclosure. He submitted that reasons adduced by AO for re-opening assessment did not have to be based on any definitive conclusion at this stage. AO had to be prima facie satisfied at this stage that income had escaped assessment. He relied on Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC) and Raymond Woollen Mills Ltd. v. ITO & Orss. 236 ITR 34. 12. above submissions have been considered. reasons recorded by AO for re-opening assessment were as under: i. Petitioner claimed exempt income aggregating to Rs.25,81,52,005 in return of income but did not disclose all material facts relating to expenses (incurred in earning such exempt income). Petitioner has claimed excess expense and no such expense has escaped assessment. Petitioner has earned exempt income but did not disallow any expense under section 14A. Petitioner failed to disclose fully and truly all material facts necessary for its assessment and claimed excess W.P.(C) 8164/2010 Page 5 of 13 expenses. ii. Annexure-A of Form No. 56F filed by Petitioner did not contain working sheet of deduction under section 10A of Act. While computing deduction claimed under Section 10A of Act, Petitioner did not reduce from "export turnover" amount of expenses incurred in convertible foreign exchange in connection with delivery of technical services rendered outside India and on account of expenses incurred on insurance, telecommunication and freight. iii. Petitioner has claimed deduction under section 35D of Act amounting to Rs.4,97,58,627. Petitioner did not claim such deduction during assessment years 2001-02 and 2002-03. Apparently, claim under section 35D is incorrectly claimed. iv. entire payment of software license made by Petitioner during relevant year was not allowable as revenue expenditure and is apparently capital expenditure. Petitioner has wrongly claimed same as revenue expenditure. v. Depreciation on certain items of computer peripheral was wrongly claimed @ 60% instead of 25% since same was wrongly treated as part of "computer system" instead of Plant and Machinery. vi. Petitioner did not furnish details of payment exceeding Rs. 1 lakh as required by Respondent No.1 in course of assessment proceedings. Petitioner has simply stated that such details were voluminous in nature. Petitioner has failed to disclose nature of expenses claimed by not furnishing details of expenses claimed exceeding Rs. 1,00,000. 13. There are two jurisdictional requirements as far as first proviso to Section 147 of Act is concerned. One is satisfaction that income chargeable to tax has escaped assessment. For this purpose, W.P.(C) 8164/2010 Page 6 of 13 Explanation 2 (c) to Section 147 of Act states that where any assessment has been made but income chargeable to tax has been under-assessed [clause (i)]; or assessed at too low rate [clause (ii)] ; or has been made subject of excessive relief [clause (iii)]; or excessive loss or depreciation allowance or any other allowance [clause (iv)] then it shall be deemed that income chargeable to tax has escaped assessment. 14. However, this begs question whether it will straightaway be presumed that there has been underassessment of tax and therefore escapement of income without there being any tangible material to come to such conclusion. Therefore, while it might be enough for AO to show that one of above factors exist, that opinion even prima facie at stage of re-opening assessment will have to be based on some tangible material. In case like present one where initial assessment has taken place under Section 143(3) of Act with AO undertaking full-fledged inquiry, if in absence of any tangible material another AO were to come to conclusion more than four years later that there has been under-assessed income or wrong claim of deduction only on basis of same material, then it would not satisfy jurisdictional requirement of there having to be some tangible material which should form basis of belief that income had escaped assessment. 15. second requirement is regarding AO having to show that W.P.(C) 8164/2010 Page 7 of 13 there was failure on part of Assessee to make full and true disclosure of all material facts necessary for assessment. Here, Mr. Chaudhary s argument was that even wrong claim of deduction would make earlier disclosure to be one that is not true . Court is unable to agree with above submission. As far as Assessee is concerned, whatever he has claimed as deduction in first instance was examined by AO. It might be moot question whether situation would have been any different if during such examination AO did not issue any questionnaire and simply accepted all figures put forth by Assessee along with his balance sheet, books of accounts, etc. However, in case like present one where AO, after examining return and documents submitted along with it (including balance sheet, books of accounts, certificates of auditors and statutory forms, etc.), did not simply accept version of Assessee but issued detailed questionnaire asking for specific inputs and information in relation to some of claims, it can no longer be said that such disclosure would still be considered to be disclosure which is not true or full only on basis of same material more than four years later. That, again, would be mere change of opinion and nothing more. It would, therefore, not satisfy jurisdictional requirement of Section 147 of Act. 16. AO has not made effort of disclosing, in reasons, what according to him constituted failure by Assessee to make full and true disclosure. mere reproduction of language of provision will not suffice. Also, although making such averment W.P.(C) 8164/2010 Page 8 of 13 either in order rejecting objections of Assessee or subsequently in counter-affidavit in answer to writ petition will not satisfy requirement of law. reasons will have to speak for themselves. For complying with jurisdictional requirement under first proviso to Section 147 of Act, reasons would have to show in what manner Assessee had failed to make full and true disclosure of all material facts necessary for assessment. failure to do so would not be mere irregularity. It would render reopening of assessment after four years vulnerable to invalidation. 17. Even while Explanation 1 to Section 147 of Act states that production before AO of account books or other evidence will not necessarily amount to disclosure within meaning of foregoing proviso , it still does not relieve AO of burden of having to record in reasons that there was failure by Assessee to make full and true disclosure of all material facts. deeming provision does not lead to presumption about disclosure not being true or full. That burden is still on AO notwithstanding Explanation 1 to first proviso to Section 147 of Act. 18. Court has examined each of reasons for re-opening assessment. first reason pertains to Petitioner earning exempt income but not disallowing any expense under Section 14A of Act. allegation is that Assessee failed to disclose fully and truly all W.P.(C) 8164/2010 Page 9 of 13 material facts relevant for assessment and claimed excess expenses. In this regard, it is seen that AY in question is AY 2003-04. During AY dividend income was not exempt. As regards other items of exempt income, Assessee furnished detailed computation in which it showed that interest on tax-free bonds was fully furnished. There were queries raised by AO in this regard which were answered. These were considered by AO and thereafter assessment was framed under Section 143 (3) of Act. In circumstances, blanket statement by AO that Petitioner failed to disclose all material facts is not supported by any evidence on record. 19. second reason pertains to deduction under Section 10A of Act. case of Assessee is that it did not pass on telecommunication charges to its customers by billing them for it. It claimed it as expense and debited to P&L Account. Consequently, question of including telecommunication charges in total turnover did not arise. Schedule 15 to balance sheet clearly indicated what telecommunication costs debited to P&L account were. assessment order passed by AO in first instance shows that there was detailed discussion leading to allowing of deduction under Section 10A of Act. 20. AO s reason for re-opening is that along with certificate in Form 56F, which was certificate of CA, working sheet of deduction was not enclosed. That was not requirement of law. What Form 56F has to be accompanied with is specified under Income Tax Rules itself. mere fact that working sheet may not have W.P.(C) 8164/2010 Page 10 of 13 been enclosed does not amount to failure by Assessee to make full and true disclosure of all material facts. Consequently, Court is satisfied that second reason for re-opening is also unsustainable in law. 21. third reason concerns deduction under Section 35D of Act. only reason given by AO is that Assessee did not make similar deduction for earlier two AYs i.e., 2001-02 and 2002-03. As explained by Mr. Vohra, it is not case of Revenue that Assessee was not eligible to claim deduction under Section 35D of Act. mere fact that Assessee may not have claimed such deduction for two of five years it was entitled to, cannot deprive it of its legitimate claim for such deduction in AY in question. In answer to query raised by AO in this behalf, Assessee has explained how in revised return it included claim for said deduction which was inadvertently left out while filing original return. This was permissible for Assessee to do. Consequently, even this reason appears to be untenable in law. 22. fourth reason pertains to payment made by Assessee for software licence. AO formed opinion contrary to what was formed when original assessment was framed that deduction claimed was capital expenditure and not revenue expenditure. This was very ground on which in Commissioner of Income Tax-II v. Maruti Suzuki India Ltd. (supra) re-opening of assessment was sought to be made. This Court held that such reason for re-opening was based on mere change of opinion since all necessary relevant W.P.(C) 8164/2010 Page 11 of 13 facts were fully and truly disclosed when initial assessment proceedings took place. Even here, there was no basis for AO to form opinion that software license expenses were not revenue expenditure but capital expenditure. question of there being any failure by Assessee to make full and true disclosure of all material facts in this regard has not even been mentioned by AO. Even this reason, therefore, is untenable in law. 23. fifth reason is about claim for depreciation on computer peripherals. This Court in Commissioner of Income Tax v. BSES Yamuna Power Ltd. (2013) 40 taxmann.com 108 (Delhi) upheld claim of 60% depreciation on computer peripherals. In compilation filed before AO as well as in tax audit report, basis of such claim has been clearly set out by Assessee. There is no indication by AO in reasons for re-opening about failure, if any, by Assessee to make full and true disclosure of any material facts. This reason for re-opening also, therefore, is based not on any tangible material but on mere change of opinion. 24. last reason concerns alleged failure by Assessee to furnish details of payment exceeding Rs. 1 lakh in course of original assessment proceedings. Court finds that one of queries raised by AO in its communication to Assessee in course of assessment proceedings completed under Section 143(3) of Act was asking it to furnish details of purchases of more than Rs. 1 lakh accompanied by ledger extracts of such persons. In reply thereto, Assessee pointed out that this involved voluminous records. AO W.P.(C) 8164/2010 Page 12 of 13 appears to have not pursued matter thereafter. Therefore, there was no failure by Assessee to make true and full disclosure. 25. For all aforementioned reasons, it is plain to Court that legal requirement to justify re-opening of assessment for AY in question was not fulfilled by Revenue in present case. 26. writ petition is, accordingly, allowed. impugned notice dated 30th March, 2010 issued by Assistant Commissioner of Income Tax, Central Circle-2/Assessing Officer as well as order dated 19th November, 2010 passed by AO dismissing objections filed by Assessee thereto are hereby quashed. S. MURALIDHAR, J. PRATHIBA M. SINGH, J. JULY 20, 2017 b nesh W.P.(C) 8164/2010 Page 13 of 13 HCL Technologies Ltd. v. Deputy Commissioner of Income-tax, Central Circle-2 & Anr
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