TaxTMI 
TaxTMI 
2015 (10) TMI 599
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....ring total income at Rs. 14,41,49,689/-. In this return deduction under section 80HHF of Rs. 12,01,29,653/- was claimed by the assessee. The case was selected for scrutiny and the assessment order u/s. 143(3) was completed on 28.02.2006, assessing the total income at Rs. 26,55,52,542/-. In his order of assessment deduction under section 80HHF of the Act was re-computed by the AO at Rs. 12,06,49,803/-. 2.1 Subsequently, the Assessing Officer reopened the assessment of assessee u/s. 147 by issuing notice u/s. 148 of the Act after recording following reasons : Return of income in this case for A.Y. 2003-04 was filed on 02.12.2003 declaring income of Rs. 14,41,49,689/- after claiming deduction u/s 80HHF of the I.T. Act. Original Assessment u/s 143(3) of the Act was made on 28.02.2006 at a total income of Rs. 14,49,02,740/-. On perusal of assessment records for the year under consideration, it has been revealed that assessee has claimed to have made export / transfer of software programmes comprising 24 hours news channel to STAR TV, Hong Kong. It also claimed to have exported software programmes for other broadcasters like BBC etc. The assessee-claimed deduction u/s 80HHF to the t....
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.... on Foreign Exchange Fluctuation. Thus, the assessee has failed to disclose this material fact that gains of Rs. 1,19,64,641/- have also been included for claiming deduction under section 80HHF. Though it has been mentioned that Foreign Exchange Fluctuation gains on remittance are included in the export turnover, but has not been mentioned about the amount on which Foreign Exchange Fluctuation has been gained by eligible profit for the purposes of computation of deduction under section 80HHF worked out by the assessee. Thus, it is clear cut cases where inflated deduction has been claimed by suppressing material facts and income escaping assessment is of the order of over Rs. 60 lakhs on this account only. The assessee failed to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year relating to export income and failed to disclose all material evidences to show that eligible items i.e., film software, television software, music software, television news software including telecast rights were exported by the assessee company outside the country. The assessee has failed to disclose fully and truly that eligible items were actually....
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.... exchange fluctuation gains. The Assessing Officer, therefore, held that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. Therefore, the AO formed the reason to believe that the income liable to tax has escaped assessment because of the excess deduction claimed by assessee and allowed by AO u/s. 80HHF in the original assessment proceedings u/s. 143(3). The crux of AO's findings is that foreign exchange fluctuation gains of Rs. 1,19,64,641/- were not eligible for deduction u/s 80HHF of the Act. While recomputing the said deduction in reassessment order dated 24th December, 2010 the AO, therefore, reduced the figures of Export Turnover and Total Turnover as disclosed by the Appellant in Form No.10CCAI by the amount of foreign exchange fluctuation gain of Rs. 1,19,64,641/-. In addition to this the Ld. AO further reduced 90% of income derived from foreign exchange fluctuation gain from the figure of "profits of business" eligible for claiming benefit of deduction u/s 80HHF. Thus, the AO worked out excess claim of deduction u/s. 80HHF amounting to Rs. 52,91,274/- (Rs.12,01,29,653 - 11,48,38,379) and....
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....tence of a direct and proximate nexus with the export activity. The expression 'derived from' was explained in the judgment of Hon'ble Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 129 Taxman 539 in the context of the use of that expression in section 80HH. In that case the assessee had placed a deposit with an electricity board for obtaining the supply of electricity and the submission of the assessee was that the undertaking itself could not run in the absence of electricity. Consequently, it was urged that the interest received on the deposits placed with the electricity board must be regarded as being derived from the industrial undertaking. The Supreme Court rejected this submission, holding that the expression derived from "must be understood as something which has direct or immediate nexus". The Court held that though electricity may be required for the industrial undertaking, the deposit required for such supply " is a step removed from the business" and the derivation of profits on the deposit made "cannot be said to flow directly from the industrial undertaking itself". The same principle has been reiterated by Hon'ble Supreme Court in CIT v. K. Ra....
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..... The learned CIT(A), therefore, confirmed the reassessment order vide impugned order dated 10.01.2013. The assessee has assailed this order by way of appeal No. 1023/Del/2014 before us, inter alia, on the following grounds : 1. That on facts and in laws, the orders passed by both the Assessing Officer (hereinafter referred to as the "AO") and the Commissioner of Income Tax (Appeals) {hereinafter referred to as "the CIT(A)} are bad in law and void ab-initio. 2. That on facts and in laws, the CIT(A) erred in upholding the assumption of jurisdiction u/s 147 of the Act by the AO. 2.1. That on facts and in laws, the CIT(A) erred in not appreciating that the prerequisites of assumption of valid jurisdiction in terms of proviso to section 147 are not met rendering the reassessment orders passed thereto as bad in law. 2.2 That on facts and in laws, the CIT(A) erred in not appreciating that the impugned reassessment proceedings were initiated by the AO as a result of a mere change of opinion on similar set of facts. 3. That on facts and in laws, the CIT(A) erred in upholding the disallowance of deduction u/s 80HHF of the Act to the tune of Rs. 52,91,274/-. 3.1 That on facts and....
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.... that the Assessing Officer failed to examine these issues which were very crucial for determination of the eligibility of deduction u/s. 80HHF of the Act. The learned Commissioner after going through clause 17 of the agreement dated 21.02.1997, further opined that since NTVI Pvt. Ltd. which is an Indian Company, was solely responsible for uplinking, transmission and distribution of the 24 hours news channel programme and that US $ 8.5 million has been received from NTVI Pvt. Ltd., the supply of programmes to NTVI Pvt. Ltd. or any other entity on their instructions by the assessee cannot be treated as export for the purposes of section 80HHF. He further stated that there is difference of Rs. 10,73,74,270/- between the declared export receipts from STAR TV and the amount received as per Bank certificates and therefore, if the excess export turnover receipts from STAR are excluded then the deduction u/s. 80HHF would work out to Rs. 10,21,88,579/- instead of Rs. 11,48,38,379/- as assessed by AO u/s. 147 of the Act. He, therefore, observed that excess claim of Rs. 1,26,49,799/- was allowed by the AO in the reassessment order only on this count. The ld. Commissioner after relying on var....
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....of the paper book, wherein, the figure of export turnover of Rs. 98,67,38,000/- included the gains derived on account of foreign exchange fluctuation (i.e Rs. 97,47,73,359/- plus Rs. 1,19,64,641/-). Reference was also made to the computation of total income, copy of which is placed at pages 4 & 5 of the paper book to point out that there is a specific disclosure for inclusion of foreign exchange fluctuation gain in the figure of export turnover. As to the objection of the AO that the material on record does not evidence factum of export, it was submitted by the assessee that the relevant disclosure to this effect was also fully and truly made in the return of income itself. In this regard, our attention was invited to Note No.19 of the audited financial accounts, which reads as under:- "19. During the year the Company received a demand from the Income tax authorities in pursuance of the order of CIT(Appeals) for the assessment year 1999-2000 - on account of disallowance of the Company's claim for a deduction of Rs. 157,617,840/- under section 80HHC of the Income Tax Act. The company had claimed in its assessment that it was eligible for deduction under section 80HHE, since it....
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....y satisfying the conditions stipulated in section 80HHF of the Act. As regards reasons to believe that foreign exchange fluctuation gains are not eligible for claiming deduction u/s 80HHF of the Act, it was submitted by the Ld. AR that this issue is no more res integra. In this regard, our intention was invited to following judicial pronouncements: (i). Smt. Sujata Grover reported in 74 TTJ 347 (Del) (ii). Priyanka Gems reported in 367 ITR 575 (Guj) (iii). Alps Chemicals Ltd. reported in 367 ITR 594 (Guj) (iv). Novels Software Development reported in 355 ITR 339 (Kar) (v). Pantasoft Technologies Ltd. reported in 347 ITR 578 (Mad) 6. On the other hand Ld. CIT (DR) vehemently opposed the above submissions advanced by the Ld. AR. It was submitted by him that the Ld. CIT(A) has for just reasons rejected the arguments advanced and the decisions relied upon by the assessee and as such no interference in the impugned order is called for. 7. We have carefully considered the rival submissions, relevant material on record and the decisions cited by both the parties. In the instant case, proceedings u/s 147 of the Act were initiated by the ld. AO after expiry of four years from ....
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....titioner are well founded. The only reason which has been given seeking reopening of the assessment for the years 1997-98 and 1998-99 is that suppression of sales have taken place on account of the fact that when average price of the closing stock is multiplied with the quantity of the sales in the year then the value of the sales would be at a higher figure than that as declared by the assessee. Clearly, there is no new material which is alleged to have come to the notice of the Assessing Officer which has caused him to seek reopening of the assessment. Admittedly, the reasons given for seeking reopening of the assessment contains the expression 'perusal of the case record reveals' clearly showing that it is on the basis of the same assessment record as was filed by the assessee, during the relevant assessment years and also scrutinized by the Assessing Officer before passing the orders under section 143(3) is the basis for seeking reopening of the assessment. Further the new logic, rationale and opinion, which has been formed by the Assessing Officer for seeking reopening of the assessment is nothing but a change of opinion and a new approach to the existing facts and mat....
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....ecord/facts. It is not alleged that there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts. .... ..... 11. Recently in Atma Ram Properties (P.) Ltd. v. Dy. CIT [2011] 203 Taxman 408 (Delhi) and it has been observed as under : "15. The reasons recorded above do state that the appellant assessee had failed to fully and truly disclose the facts but do not indicate why and how the assessee had failed to make full and true disclosure of the material facts. Mere repetition or quoting the language of the proviso is not sufficient. The basis of the averment/statement should be either stated or should be apparent/lucid/explained from the record. 16. In the present appeal, Explanation (1) to Section 147 also does not help or assist the Revenue. All material facts were available on record and no material facts had to be inferred or discovered by the assessing officer. The assessing officer in spite of being aware of the facts, failed to apply or, at best failed to consider whether Section 2(22)(e) of the Act was attracted. Failure to apply law or ....
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....e allowed for this year also. We have been directed vide questionnaire to furnish the evidence in support of export / transmission made by the assessee company and also evidence in support of the foreign exchange realization with in time limits as prescribed under the Act. It may be kindly noted that the assessee company has received the foreign exchange through normal banking channels in the prescribed manner within the prescribed time limits in all instances. We are enclosing herewith the following for your kind perusal:- I. Detail of party wise export invoices II. Copies of export invoices III. Copy of bank certificate of export and realization (Export to STAR, & sample for BBC - IBR Programme) IV. Foreign inward remittance certificate issue by the bank The assessee fulfils all the conditions, for the claim under section 80HHF which has already been allowed to the assessee company in the assessment for immediately preceding Assessment Years 2000-01, 2001-02 and 2002- 03 on the same facts. (Anenxure-I)." Further, vide submissions dated 20th January, 2005 it was submitted by the assessee as under :- 1. A "Note" on business activities of the assessee company undert....
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....15 Million will be paid..............." 7. Thereafter, another agreement was signed on 21st of March' 1998 between the appellant company, STAR TV of Hong Kong and NTVI in innovation of the earlier agreement. As per the second agreement the rights under the first agreement were assigned by NTVI to STAR TV. Hong Kong and, as such after this agreement, NTVI had no role to play in fulfilling, executing and enforcing terms and conditions of the contract. In other words, appellant was to export the television news software to STAR TV, Hong Kong through satellite directly from its facilities at New Delhi. The satellite space and uplinking facilities to uplink the signals had been contracted directly by the appellant from VSNL and, such uplink were on a point to point basis, i.e. Delhi to Hong Kong. Accordingly, as a result of the aforesaid agreement with M/s STAR TV of Hong Kong, the appellant company had received consideration for production of News Software for the first time in assessment year 1999-2000. During that year the appellant claimed deduction of Rs. 15,76,17,840/- u/s 80HHE of the Act. However the Assessing Officer denied the aforesaid claim of deduction which was uphel....
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....llowed." 9. Likewise identical claim of deduction u/s 80HHF of the Act was allowed in order of assessments for assessment year 2001-02 and, for the instant assessment year i.e. assessment year 2002-03. It may be pertinent to state here the consideration received by the appellant for production of television software from M/s STAR TV Hong Kong for successive assessment years namely A.Y. 2000-01 to 2002-03 was under the agreement dated 21st of March' 1998........ .... ....... We further disagree with the observation of the Commissioner that, Assessing Officer has not examined the issue that, since worldwide copy rights remained with the appellant company under the agreement, therefore appellant was not entitled to claim of deduction u/s 80HHF of the Act, in view of the past history, stated above. In fact, in this regard specific submission was also made by the appellant before the Commissioner that, there is no specific precondition which, on such facts, disentitles the claim of deduction u/s 80HHF of the Act. Reliance was also placed on the decision of Bombay Bench in the case of K. R. Films 102 ITD 426, wherein it has been observed as under: "In the present case, Yash ....
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....n any case, the finding does not show that the view adopted by the AO was not a possible view............." 8.2 Since the above order of ITAT was passed on 31stMarch, 2008, the AO while recording of reasons on 31st March, 2010 could not have reasons to believe doubting factum of export. Law relating to change of opinion being not permissible for invoking proceedings u/s 147 of the Act is now well settled. Support in this regard can be derived from the decisions of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India reported in 320 ITR 561(SC) and the judgment of Delhi High Court in the case of Usha International Ltd. reported in 348 ITR 485 (Del)(FB). Moreover after initiating reassessment proceedings doubting factum of export the AO thereafter in the reassessment order has accepted the submission of assessee on this issue in para 3.4 and restricted his findings only on the issue of foreign exchange fluctuation gain. 9. In view of the aforesaid discussion, we are of the considered opinion that the initiation of proceedings u/s 147 is bad in law and deserves to be quashed. The consequential addition made by AO, thus, has to be deleted on this count only. According....
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....tum of export. Current price of the goods so exported would also be pre-decided in the foreign exchange currency. The exact remittance in Indian rupees would depend on the precise exchange rate at the time when the amount is remitted. This fluctuation and possibility of increase or decrease, in our opinion, can have no bearing on the source of such receipt. Primarily and essentially, the receipt would be on account of the export made. If this is so, any fluctuation thereof also must be said to have arisen out of the export business. Mere period of time and the vagaries of rate fluctuation in international currencies cannot divest the income from the character of the income from assessee's export business. In that view of the matter, the Revenue's contention that such income cannot be said to have been derived from the export business must fail. If this is the position when the remittance is made during the same year of the export, we fail to see what material change can it bring about if within the time permitted under sub-section (2) of section 80HHC, the remittance is made but in the process accounting year has changed. To our mind mere change in the accounting year can h....
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....as also considered this issue holding as under :- "By applying the said rule to the present situation it is seen that the expression "any other receipt of a similar nature" as used in Explanation (baa) is accompanied by the receipts of brokerage, commission, interest and rent, etc. Therefore, this expression should mean only such item which are of the nature of brokerage, commission, etc. and do not directly add to the export turnover. The foreign exchange fluctuation income, the subject of contention before us is related to the exports effected in earlier years. There is no dispute and naturally cannot be, insofar as the amount representing foreign exchange rate fluctuations income in relation to exports effected during the current year is concerned because that cannot be considered for exclusion to the extent of 90 per cent for computing 'Profits of the business' and the CIT has himself left out the same. We fail to understand as to how the exchange rate fluctuation income relating to exports effected in the earlier years can be differentiated from the exchange rate difference in relation to exports effected in the current year. Basically exchange rate fluctuation diffe....
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....e AO to allow consequential relief. As a result the appeal of the assessee deserves to be allowed. ITA No. 5126/D/2011 13. In this appeal, the assessee is aggrieved by the action of Ld. CIT in holding that reassessment order dated 24th December, 2010 passed by the AO u/s 147 / 143(3) of the Act is erroneous and prejudicial to the interest of the revenue. Since in ITA No.1023/D/2013 we have held above that initiation of proceedings u/s 147 of the Act itself stood vitiated being without jurisdiction, in our view the Ld. CIT thus cannot invoke jurisdiction u/s 263 against such void or non-est order. Support in this regard is derived from the decision of ITAT, Lucknow Bench in the case of Inder Kumar Bachani (HUF) reported in 99 ITD 621 (Lucknow).This appeal therefore merits to be disposed of on this aspect itself. However, since elaborate arguments have been advanced before us we are inclined to render our opinion on merits of the appeal as well. 14. Action under 263 of the Act has been initiated by the Ld. CIT in the instant case vide show cause notices dated 21st July, 2011 and 10th August, 2011. Before us written propositions were filed by the Ld AR. Relying upon the same it was....