TaxTMI 
TaxTMI 
2015 (10) TMI 599
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....its return of income on 02.12.2003, declaring 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 B....
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.... on which deduction under section 80HHF has been claimed include the amount on account of gains 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 outsi....
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.... included in other income and also the adjusted profit were wrongly calculated by not excluding 90% of foreign 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 wor....
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....#39; is of narrower connotation than the expression attributable to'. The expression 'derived' postulates the existence 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 directl....
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.... the foreign exchange fluctuation gain cannot be regarded as profits derived by the assessee from the export of eligible software items. 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. ....
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....ments are only internal arrangements between M/s. NTVI and M/s. Star TV. Therefore, sale made in consequence of agreement between M/s. NTVI and M/s. NDTV dt. 21.02.1997 cannot be termed as export turnover. 3.1 The learned Commissioner observed 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. 10,21,88,5....
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....material facts was made by the assessee. In this regard, our attention was invited towards the profit and loss account of the assessee placed at pages 11 and 17 of the paper book wherein the said income was specifically credited. Ld. AR also referred to the CA Certificate in Form No.10CCAI placed at page 2 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 ....
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....otice u/s 148 was issued by the AO on 31stMarch, 2010 and as on that date ITAT in appellant's own case for A.Ys. 1999-2000 and 2002-03 vide orders dated 26th July, 2004 and 31st March, 2008 respectively (copies placed in paper book) had accepted the stand of the appellant that eligible items were being exported out of India thereby 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 a....
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....ith the submissions of the Ld. AR that no new facts have come to the knowledge of the AO justifying assumption of jurisdiction after four years. Hon'ble Delhi High Court in the case of Satnam Overseas (supra) has clearly laid down in this regard as under :- "We feel that the Writ Petitions have to succeed because the contentions as raised on behalf of the counsel for the petitioner 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 ....
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....d failed or omitted to disclose the material or primary facts. These were available on record. The assessing officer, it is stated, had failed to draw correct legal inferences at the time of original assessment from the said primary facts. This is not an error or omission on the part of the respondent-assessee. It is not alleged that the assessee had suppressed, misrepresented or falsified the record/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....
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....the export of software is received in India in convertible foreign exchange within a period of 6 months from the end of the previous years. c) It is reiterated that the facts and circumstances for the year relevant to the assessment year 2003-04 are exactly the same as were for the years relevant to assessment years 2000-01, 2001-02 & 2002-03 for which deduction has already been allowed in the assessments under section 143(3). The same may kindly be 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 Program....
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.... TV programme/footage tapes relating to the Channel; for the purposes of broadcasting overseas STAR TV shall have the right to broadcast overseas only on any channel owned by it or its associated companies, any complete story or programme on the 24 Hours Indian News Channel contemplated under this Agreement. This will be a limited non-exclusive for such right shall be USD 3 Million payable to NDTVB, which shall be paid irrespective of actual broadcasts or usage by STAR TV. The total consideration for the five year aggregating to USD 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 faciliti....
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.... During the course of assessment proceedings for the assessment year 2000-01 it was submitted that w.e.f. 01.04.2000. Section 80HHE has been brought on the statute which specifically includes 'Television Software' and Television News Software as eligible business activities. It was therefore, pleaded that in case there was any doubt on the eligibility for deduction u/s 80HHE, the deduction could be allowed u/s 80HHF. It was also mentioned in the TAX AUDIT REPORT filed with the return of income. The deduction claimed after considering all relevant facts is allowed." 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....
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....have to be legitimate means and it was essential for the appellant to adduce evidence to the effect that the cassettes were cleared through the official channels" is also thus devoid of any legally sustainable basis. The CIT(A) has completely ignored the crucial distinction between 'transfer of television software rights' and 'transfer of television software'. 13. The Commissioner has thereafter only stated that, the aforesaid decision has not been accepted by Revenue. In our opinion, such an approach is not a valid approach for assumption of jurisdiction u/s 263 of the Act. In 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 Del....
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....vailing exchange rate on the quoted price for the exported goods in the foreign currency rates. If during the same year of the export, the remission is also made, the difference in the rate recorded in the accounts of the assessee and that eventually received by way of remission either positive or negative, would be duly adjusted. May be the accounting standards require that the same may be recorded in separate foreign exchange fluctuation account. Nevertheless any deviation either positive or negative must have direct relation to the export actually made. Payment would be due to the assessee on account of the factum 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 ....
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....ate of exchange for calculation of value of rupee of any income accruing or arising in case of an assessee and provides that the same shall be telegraphic transfer of buying rate of such currency on the specified date. The term "specified date" has been defined in Explanation-2 to the said sub-rule (1). Rule 115 of the Income-tax Rules, 1962 thus has application for a specific purpose and has no bearing while judging whether foreign exchange rate fluctuation gain can form part of the deduction under section 80HHC of the Act........" 10.1 Further we find that ITAT Delhi Bench in the case of Sujata Grover (supra) has 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....
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....ars in this category by classifying it under the expression "any other receipts of a similar nature" is not in accordance with rule of ejusdem generis a discussed above." 11. Respectfully following the above precedents, we do not concur with the findings recorded by the authorities below on this issue. Per contra, the decisions relied upon by the Ld. CIT(A), being distinguishable on facts, are not found applicable to the case in hand. Accordingly, ground Nos. 3 & 3.1 are decided in favour of the assessee. 12. In Ground No.4, the assessee has challenged the levy of interest u/s 234B & 234D of the Act. To this we direct the 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 ....
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....alent to USD 30,00,000. Ld CIT has also held that assessee has not furnished FIRC's to this extend. In our considered opinion assumption of jurisdiction u/s 263 cannot be sustained for the simple reason that no show cause notice was issued by Ld. CIT on this issue. We find that the show cause notices dated 21stJuly, 2011 and 10th August, 2011 issued by the Ld. CIT in the instant case do not put the assessee to show cause on this issue. In this regard we note that Hon'ble Delhi High Court in the case of Contimeter Electrical Pvt. Ltd. reported in 317 ITR 249(Del) has held as under: "10. The Tribunal considered the rival contentions and referred to the Supreme Court's decision in the case of Commissioner of Customs v. Toyo Engg. India Ltd. [2006] 7 SCC 592 wherein the Supreme Court noted that the department cannot travel beyond the show-cause notice. The Tribunal was of the view that the ground that the assessee had not fulfilled the conditions laid down under section 80-IA did not form part of the show-cause notice. The Tribunal accepted the argument of the assessee that the Commissioner of Income-tax did not even call for any explanation on this issue and, ther....