C/SCA/12767/2017 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 12767 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 ? HITECH OUTSOURCING SERVICES....Petitioner(s) Versus PR. COMMISSIONER OF INCOME TAX - 3, AHMEDABAD & 1....Respondent(s) Appearance: MR B S SOPARKAR, ADVOCATE for Petitioner(s) No. 1 MR NITIN K MEHTA, ADVOCATE for Respondent(s) No. 1 NOTICE SERVED BY DS for Respondent(s) No. 2 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Page 1 of 11 HC-NIC Page 1 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT Date : 04/09/2017 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. petitioner has challenged order dated 9.3.2017 passed by Commissioner of Income tax, Ahmedabad, rejecting petitioner's revision petition under section 264 of Income Tax Act. 2. Brief facts are as under. petitioner is partnership firm and is engaged in export of Back Office Operation and computer software. petitioner had filed return of income on 30.10.2007 declaring total income of Rs.98,360/ . In return, petitioner had claimed deduction under section 10B of Income Tax Act ( Act for short). Return was taken in scrutiny by Assessing Officer. During such scrutiny assessment, he had raised several questions with respect to petitioner's claim of deduction under section 10B of Act, in respect to which petitioner had replied under undated communication (Annexure B) as under: 2. Documents relevant with STPI and Cochin SEZ, Kakkanad, Cochin 1. Complete copy of certificate issued by vide STPI Registration Letter no. STPG/EXIM/S/GC/HE/LOP Page 2 of 11 HC-NIC Page 2 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT PP/367/ 5830 Dated : 8th January 2002 2. SEZ letter No : 9/19/2003/IL/CSEZ/8098 Dated : 16 th December 2003 3. Copy of documents submitted before STPI at time of registration. 4. Letter of Commencement of Production 1. Copy of letter of Development Commissioner of CSEZ regarding information of Production started date at CSEZ, Kakkinada, Cochin. According to this letter Date of production was 01.04.2004. 2. Copy of Annual return submitted before STPI,Gandhinagar where date of Production started mentioned earlier. According to documents Date of Production was 25.08.2001. 6. Clarification regarding sales proceeds received in India after 6 months from end of previous year in convertible foreign exchange As per various guidelines issued by DBDT it is very much clear that under section 10A. 10B and 10BA allowed and Assessing Officer amend order within period of 4 years from end of previous year and allow deduction. Looking to above guidelines and facts of our case their was few bills where payment received after 30th September, 2007 but said payments were received within assessment year and verified by you and hence our claim u/s 10A can not be disallowed. 3. It was after scrutiny that Assessing Officer passed his order of assessment on 16.12.2009. On petitioner's claim of deduction under section 10B of Act, he made limited disallowance of sum of Rs.2,45,418/ to extent remission was not made on export transaction within six months from end of financial Page 3 of 11 HC-NIC Page 3 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT year. This can be gathered from order of assessment, relevant portion of which reads as under : 8. Deduction Allowable u/s 10 B assessee has claimed deduction u/s 10B of Income Tax Act @ 100% of profit on its export turn over. During assessment proceeding it is noticed that realized of some export transaction, having amount of Rs. 2,45,418/ have not received with in six month from end of financial year. Accordingly, revised working of allowable deduction is as under : Export turnover claimed as reduced later Realization by more than six months(i.e. After September) Profit = Total turnover 176341082 (176586500 245418) 51341330 = Rs.5,11,71,753 176925454 Rs.5,12,42,970/ original claim 5,11,71,753 = 71,217/ (Excess amount) Thus eligible amount for deduction u/s. 10B comes of Rs.51171753/ instead of assessee has claimed amount of Rs.5,12,42,970/ . 4. To reopen such assessment, Assessing Officer issued notice dated 18.3.2014. In order to do so, he had recorded following reasons : In this case assessee filed return of income for above assessment year on 30/10/2007 declaring total Page 4 of 11 HC-NIC Page 4 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT income of Rs.98,630/ after claiming deduction u/s. 10B of Act of Rs.5,12,42,970/ in respect of its Ahmedabad unit of Rs.4,67,32,162/ and Cochin unit of Rs.45,10,808/ . said return was processed u/s. 143(1) of Act on 12/02/2009. Order u/s. 143(3) of Act was passed on 02/06/2010 determining income of assessee at Rs.76,72,050/ which includes addition made on account of following : (i) Addition u/s 36(1)(va) on account of Rs.14,82,993 employee's contribution to PF and ESI (ii) Disallowance u/s 40(a)(ia) of Act Rs.59,19,051 (iii) Disallowance of Surat Flood Victim expenses Rs.1,00,430 (iv) Excess deduction claimed u/s. 10B Rs.71,217/ 2. Section 10B of Income tax Act, 1961 is special provisions in respect of newly established hundred per cent export oriented undertakings enables assessee for deduction from total income. For AY 2007 08, assessee claimed deduction u/s 10B of Act for amount of Rs. 5,12,42,970/ as newly established hundred per cent export oriented undertaking. Clause(iv) of Explanation 2 for purpose of section 10B of Act states as to hundred per cent export oriented undertaking as under : (iv) 'hundred per cent export oriented undertaking' means undertaking which has been approved as hundred per cent export oriented undertaking by Board appointed in this behalf by Central Government in exercise of powers conferred by section 14 of Industries (Development and Regulation) Act, 1951 (65 of 1951) and rules made under that Act. 3. undertaking of assessee has not been approved as hundred per cent export oriented Page 5 of 11 HC-NIC Page 5 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT undertaking by Board appointed in this behalf by Central Government in exercise of powers conferred by section 14 of Industries (Development and Regulation) Act, 1951 (65 of 1951), and rules made under that Act. Therefore, assessee is not qualified for deduction under provisions of section 10B of Act as this provisions is applicable to newly established hundred per cent export oriented undertakings approved by Board as stated above. Hence deduction as claimed by assessee u/s. 10B of Act of Rs.5,12,42,970/ is not allowable as not eligible. 4. I have therefore reason to believe that income of assessee of at least Rs.5,12,42,970/ has escaped assessment within meaning of section 147 of Income tax Act, 1961 for AY 2007 08. 5. petitioner raised objections to notice of reopening of assessment, but eventually submitted to jurisdiction of Assessing Officer and participated in reassessment proceedings during which also assessee raised serious dispute about very jurisdiction of Assessing Officer to carry out reassessment. assessee also raised additional grounds on merits of claim. Ignoring such objections of petitioner, Assessing Officer passed fresh order of assessment on 25.3.2015 disallowing petitioner's claim of deduction under section 10B of Act on ground that assessee had not fulfilled requirement of being 100% export oriented undertaking since it did not enjoy approval by Board appointed by Central Government under Industries (Development and Regulation) Act, 1961. Page 6 of 11 HC-NIC Page 6 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT 6. petitioner challenged order of assessment before Commissioner in revision petition filed under section 264 of Act. Revision petition came to be dismissed by Commissioner by impugned order dated 9.3.2017. Before Commissioner also, assessee had argued that reopening of assessment itself was bad in law. This was in addition to assessee's contention that even otherwise deduction under section 10B of Act could not have been disallowed. 7. Learned counsel for petitioner raised following contentions. notice for reopening was issued beyond period of four years from end of relevant assessment year. There was no failure on part of assessee to disclose truly and fully all material facts. Assessing Officer had no additional or external material to enable him to reopen assessment. Notice of reopening which was issued beyond period of four years from end of relevant assessment year was therefore, bad in law. During original scrutiny assessment, entire claim of deduction under section 10B of Act was examined by Assessing Officer at length. assessee had pointed out that assessee enjoyed certification under Software Technology Parks Scheme issued by Software Technology Park of India ( STPI for short). Supporting documents were produced. assessee had also pointed out that he had received letter of commencement of production from Development Commissioner. assessee had also satisfied other requirements of said section including having received sale proceeds from foreign buyers in convertible foreign exchange within Page 7 of 11 HC-NIC Page 7 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT period of six months from end of financial year. It was after such scrutiny that Assessing Officer passed order of assessment on 16.12.2009 under which he made limited disallowance in claim of deduction under section 10B of Act to extent assessee failed to receive foreign exchange remittance within prescribed period. It was thereafter not open for Assessing Officer to examine claim which would be based on mere change of opinion. Counsel submitted that deduction under section 10B of Act is available for successive ten years from commencement of activity. Assessment year 2007 2008 was not first year of commencement. assessee had raised such claim continuously from inception from year 2003 onwards. All such claims were granted without disturbing initial order of assessment. It was not open for Assessing Officer to disturb claim in later year. 8. On other hand, learned counsel Shri Nitin Mehta for department opposed petition contending that assessee did not disclose during original assessment proceedings that he did not enjoy approval of Board appointed by Government of India. Certification by STPI was not substitute for such approval. Assessing Officer during original assessment had not examined this aspect. Reopening of assessment was therefore, valid. Commissioner did not commit any error in rejecting revision petition of petitioner. 9. In present petition, petitioner having participated in assessment proceedings and thereafter having Page 8 of 11 HC-NIC Page 8 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT challenged order of assessment before Commissioner in revision petition under section 264 of Act, has filed present petition. Nevertheless, central issue is with respect to validity of reopening of assessment by Assessing Officer. In this context relevant facts are that assessment for assessment year 2007 2008 was completed after scrutiny. notice for reopening of such assessment came to be issued beyond period of four years from end of assessment year in question. 10. In this context we have noticed that Assessing Officer in th original assessment proceedings had examined assessee's claim of deduction under section 10B of Act. It is not as if such claim went unnoticed or unscrutinized. He wanted to be specific about assessee's claim for deduction and therefore, he raised queries in respect to same in response to which assessee, as noted, placed number of documents and materials on record. Principally, assessee pointed out that it has been granted certification by STPI under Software Technology Parks Scheme. assessee also supported claim on merits pointing out that Development Commissioner had granted certificate of commencement and that foreign exchange remittances were made within six months from end of financial year. After such scrutiny, Assessing Officer passed original order of assessment in which he did not reject claim of deduction under section 10B of Act. In fact, he accepted claim substantially making minor disallowance to extent assessee had not received Page 9 of 11 HC-NIC Page 9 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT foreign exchange payment within prescribed period. 11. It can thus be seen that assessee's claim of deduction under section 10B of Act was examined minutely by Assessing Officer. assessee pointed out that it enjoyed certification under STPI. If Assessing Officer was of opinion that such certification was inadequate and did not substitute for requirement of approval by Board appointed by Government of India, under Industries (Development and Regulation) Act, 1961, it was always open for Assessing Officer to examine this issue further or to reject assessee's claim in its entirety. He however, accepted claim accepting assessee's certification as sufficient compliance with statutory requirements. There was no failure on part of assessee to disclose necessary facts. Both on ground of non failure of assessee to disclose necessary facts and on ground of scrutiny during original assessment proceedings, notice of reopening on this issue was not permissible. Assessing Officer as well as Commissioner both failed to appreciate this legal lacuna in notice of reopening. 12. Learned counsel Shri Mehta for department had pointed out that return of assessee for earlier assessment years were accepted under section 143(1) of Act without scrutiny. We have therefore, not based our conclusion on third contention of petitioner's counsel that being continuous claim, same could not have been disturbed for later year without withdrawing benefits of initial years of assessment. We leave Page 10 of 11 HC-NIC Page 10 of 11 Created On Wed Sep 06 09:47:16 IST 2017 C/SCA/12767/2017 JUDGMENT this question open to be examined in appropriate proceedings, if need so arises. 13. In result, impugned order dated 9.3.2017 passed by Commissioner confirming reassessment order dated 25.3.2015 is set aside, Consequently, order of reopening also stands invalidated. 14. Petition is allowed and disposed of. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) raghu Page 11 of 11 HC-NIC Page 11 of 11 Created On Wed Sep 06 09:47:16 IST 2017 Hitech Outsourcing Services v. Pr. Commissioner of Income-tax-3, Ahmedabad & 1