AI Drafter 
TaxTMI 
TaxTMI 
2015 (5) TMI 189
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..... 52,78,610/-. 2.02. That the case was selected for scrutiny and notices under section 142(1) and under section 143(2) of the Income Tax Act were issued and served upon the petitioner - assessee. It appears that in the notice dated 28/7/2011, specific query regarding "Software License Fees" as well as deduction under section 10(B), was raised. The petitioner assessee furnished details required vide communication dated 24/10/2011 and 8/11/2011. 2.03. That thereafter the assessing officer passed the assessment order under section 143(3) of the Income Tax Act on 9/12/2011, making several additions to income under various heads of the income of the assessee. 2.04. That thereafter beyond the period of four years of the concerned assessment year, the assessing officer has issued the impugned notice under section 148 of the Income Tax Act on 27/3/2014 reopening the assessment for the A.Y. 2008-2009. 2.05. That on receiving the notice, the assessee requested for the reasons recorded for reassessment the assessment vide letter / communication dated 28/4/2014. That vide letter / communication dated 20/5/2014, the assessing officer recorded reasons for reopening of the assessment ....
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....cted at Source ("TDS" for short) deducted on the Software License Fees. It is submitted that thereafter when the Assessing Officer passed the assessment order and that as such there was no failure on the part assessee to disclose fully and truly all material facts, the initiation of reassessment proceedings on the reasons recorded, is absolutely invalid, illegal and without jurisdiction and more particularly, the condition precedent for initiation of the reassessment proceedings beyond the period of four years are not satisfied. It is submitted that even the Assessing Officer accepted the claim of the assessee for deduction under section 10(B) of the Act after raising specific query. It was submitted that therefore, as such there was no failure on the part of the assessee in not disclosing the truly and fully all material facts for assessment. 3.03. Mr.B.S. Soparkar, learned advocate appearing on behalf of the petitioner - assessee has further submitted that on perusal of the reasons supplied, it appears that reopening for the issue of deduction under section 10(B) is made due to the decision of the Delhi High Court in the case of Commissioner of Income Tax Versus Regency Creati....
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.... submitted that as such the present petition is filed at premature stage, as only a notice under section 148 read with section 147 of the Income Tax Act has been issued. It is submitted that in the event, the petitioner assessee is aggrieved by the reassessment order, alternative efficacious remedy is available by way of an appeal to the CIT(A) and thereafter to the learned tribunal as per the provisions of the Act. Therefore, it is requested not to entertain the present petition. 4.03. On merits, Mr.M.R. Bhatt, learned counsel appearing on behalf of the revenue has vehemently submitted that the impugned reassessment proceedings are absolutely just and proper and in accordance with the provisions of the Act, more particularly section 147 read with section 148 of the Income Tax Act. 4.04. Mr.M.R. Bhatt, learned counsel appearing on behalf of the revenue has further submitted that in the case of the petitioner, the assessment was completed under section 143(3) of the Income Tax Act assessing total income at Rs. 2,41,81,079 on 9/12/2011. It is submitted that it was noticed that the income of Rs. 22,56,752/- and Rs. 4,69,56,816/- chargeable to tax has been under-assessed and ther....
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....y in the nature of "Royalty". 4.08. Mr.M.R. Bhatt, learned counsel appearing on behalf of the revenue has further submitted that the assessee company simply availed the "Software Services" from the foreign companies and these Companies granted the assessee company only right to use "Software License", as the the Software was owned by the parent Company itself. It is submitted that it is an admitted fact that the payment made by the assessee as Software License Fees is in the nature of "Royalty" and the same was not disclosed in the original return filed. It is submitted that nature of foreign remittance attracts the provisions of section 95 read with section 40(A)(i) of the Act and therefore, the income had escaped the assessment on account of the assessee not disclosing the full facts. It is submitted that therefore initiation of opening of the assessment and initiation of the reassessment proceedings are absolutely just and proper and in accordance with the provisions of law, more particularly section 147 read with section 148 of the Income Tax Act. Submitting accordingly it is requested to dismiss the present Special Civil Application. 5.00. Heard the learned advocates ....
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....ceedings under section 147 of the Act is reproduced, as under for your reference; "...It has been observed that assessee has incurred expenditure of Rs. 22,56,752/- on account of 'software license fee'. Assessee's contention of being consideration of expenditure as 'revenue', has been accepted. It has been noted that the payment was made without withholding of tax at source though the payment is exclusively in nature of 'royalty'. Assessee Company has simply availed 'software services' from M/s.Megrna Design Automation Inc, USA. Magma has granted the company the only right to use software license purchased from Magma the software was owned by Magma Design and is protected by Copyright laws of USA. 2.1. In view of the above, though the nature of foreign remittance clearly attracts the provisions of Section 195 of the Act, nor the deduction of tax seems to have been made before payment credit of Rs. 22, 56, 752/ - to foreign companies, on account of 'software services'. Hence. by not making disallowace u/s "40(A)(i) of the Act, order passed is tantamount to under-assessment to the extent of Rs. 22,56,752/- under the Act. It is further to be noted that, in the assessee's own cas....
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....ips Ltd. for the Assessment Year 2008-09 and is required to be reassessed as there was failure on the part of the assessee to disclose fully and truly all material facts necessary for Assessment Year 2008-09. 5. In view of the above, I have reason to believe that income to the tune of Rs. 4,92,13,568/- (Rs.22,56,752/- + 4,69,56,816/-) has escaped assessment..... " 5.04. Thus, from the aforesaid it appears that the assessment for the A.Y. 2008-2009 is sought to be reopened on the ground that the "Software License Fees" paid to the foreign companies was in nature of "Royalty" and thus, "Capital Expenditure" and therefore, it attracts section 195 of the Income Tax Act and therefore, TDS was required to be deducted. However, it is required to be noted that in the original assessment, full particulars with respect to "Software License Fees" by the assessee to the foreign companies was disclosed. Not only that the assessee claimed the same as revenue expenditure. The notice was issued under section 143(3) of the Act and the Assessing Officer also vide communication / notice dated 28/7/2011 called upon the assessee to furnish necessary documents which include the complete details of....
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.... companies and also with respect to deduction claimed under sec.10(B) of the Act, and therefore, the income chargeable to tax has been escaped due to the failure on the part of the assessee to disclose fully and truly all material facts. Under the circumstances, the condition precedent for invoking powers under section 147 of the Income Tax Act to initiate reassessment proceedings beyond the period of 4 years are not at all satisfied. 5.07. Identical question came to be considered by the Division Bench of this Court in the case of Niko Resources Ltd. (supra) and while considering the scope and ambit of powers to be exercised under section 147 of the Income Tax Act by the Assessing Officer, while reopening the assessment beyond the period of 4 years, the Division Bench of this Court while considering its decisions in the case of Gujarat Lease Financing Limited (supra), has observed and held in paragraph Nos.16, 17 and 27 as under :- "16. The Assessing Officer is authorized to make reassessment in the event of his having reasonable belief that any income chargeable to tax has escaped assessment for any assessment year. As per the 1st proviso to section 147 of the Act, assessmen....