TaxTMI 
TaxTMI 
TaxTMI 
2015 (8) TMI 1217
X X X X Extracts X X X X
X X X X Extracts X X X X
.... admitted to consider the following substantial questions of law: "(1) Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the reopening of assessment is by mere change of opinion, without appreciating the fact that the expenditure related to on-site development of computer software was not examined in the original assessment and as such is not a deemed opinion to hold change of opinion? (2) Whether on the facts and in the circumstances of the case the tribunal was correct in holding that reopening of assessment is mere change of opinion, when the assessing officer has not considered the eligibility of the income derived from rendering technical services abroad to be eligible for deduction under Section 10-A or not?" 4. Briefly stated facts are: Assessee is a company engaged in the business of software development. For the assessment year 2003-04 return of income was filed whereunder the assessee claimed deduction under Section 10A of the Act. The assessee had excluded the expenses incurred in foreign currency for providing technical services. The return of income was processed and it was selected for scrutiny. After issuing statu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be eligible for deduction under Section 10A or not, question of change of opinion did not arise. He would submit that eligibility of income derived from technical services was not to be included in the eligible profits under Section 10A of the Act and the assessing Officer, while framing the assessment proceedings, had not examined inclusion of income from technical services into the eligible profits for computing deduction under Section 10A. He would submit that assessee had claimed deduction under Section 10A of the Act by including the profits from rendering technical services in the eligible profits and as such deduction claimed under Section 10A of the Act by the assessee was excessive and Explanation to Section 147 of the Act was attracted and it would amount to deemed escapement of income to tax. Hence, he contends that the re-opening of the concluded assessment is valid. 6. He would further submit that the assessing Officer had not expressed any opinion on the controversy regarding inclusion of profits derived from rendering technical services into the eligible profits and as such, no opinion had been expressed during assessment proceedings and thereby change of opinion....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he business of software development. For the assessment year 2003-04 return of income was filed on 31.10.2003 declaring income of Rs. 15,00,92,060/- after claiming deduction of Rs. 99,67,71,161/- under Section 10A of the Act. Assessment order came to be framed under Section 143(3) of the Act on 27.03.2006. The Assessing Officer reduced the claim of deduction from Rs. 99,67,71,161/- to Rs. 89,08,86,778/-. Notice under Section 148 of the Act was issued on the ground that excess deduction under Section 10A has been claimed and hence the deduction has to be recomputed. After considering the reply given by the assessee, order of reassessment was passed under Section 143(3) read with Section 147 on 31.12.2007. This was carried in appeal by the assessee and was successful partially. The assessee being aggrieved by the finding recorded by the Appellate Commissioner that reopening being proper, filed further appeal before the Tribunal and the revenue being aggrieved by the grant of partial relief to the assessee by the Appellate Commissioner, filed an appeal before the Tribunal. Thus, both the appeals came to be taken up together by the Tribunal and by the impugned order set aside the reope....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r computer software under Section 10A(1) of the Act and that the same should be totally excluded from the computation of deduction under Section 10A of the Act and as such, considering Rs. 38,51,45,781/- as part of the export turnover, while computing deduction under Section 10A of the Act was incorrect. Hence, the assessing Officer had proposed to re-assess. The assessee had contended that there was application of mind by the assessing Officer on all issues including the question as to whether the sum of Rs. 38,51,45,781/- is not profit derived by the assessee from the export of articles or things or computer software. The assessing Officer while completing the assessment under Section 143(3) of the Act, has gone into the question of excluding the sum of Rs. 38,51,45,781/- from the export turnover on the ground that it was expenditure incurred in foreign exchange for providing technical services outside India. However, the reasons recorded for reopening the said assessment is that the aforesaid sum cannot be considered as income derived from export of articles or things or computer software at all. Thus, it has to be seen whether it would be a different dimension or the income had....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [(1996) 132 CTR (SC) 162: (1996) 217 ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [(1999) 152 CTR (SC) 418: (1999) 236 ITR 34 (SC)]. 17. The scope and effect of section 147 as substituted with effect from 1st April, 1989, as also Sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of Section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under Section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income- tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....India. In this context, we wish to submit that the Company is primarily engaged in software development activities and is not involved in rendering any technical services outside India." 17. Considering the above explanation given by the assessee, the assessing Officer in the original assessment proceedings which resulted in order passed under Section 143(3) of the Act on 27.03.2006 has held to the following effect: "2.6. It is clear from the assessee's above submissions that the assessee is engaged in providing support services, which are nothing but technical services. The expenditure in foreign exchange is incurred for both development of software and providing technical services. However, the assessee has not been able to furnish a break-up of the expenditure incurred for development of software and providing technical services. It has taken a stand that no technical services are provided and the entire expenditure is for development of software. Taking the functional analysis reproduced above into account, and in the absence of any break-up of the expenditure, 25% of the expenditure incurred under the following heads in foreign exchange is deemed to be the expenditure incur....