TaxTMI 
TaxTMI 
2019 (5) TMI 538
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....3) of the Act, hence, it is not based on 'change of opinion'. 2. On the facts and in the circumstance of the case, the CIT(A) has erred in deleting the disallowance made by the AO on account of deduction/exemption claimed u/s 10B and 80HHE of the Income Tax Act, 1961. 3. On the facts and in the circumstance of the case, the CIT(A) has erred in deleting the disallowance of Rs. 2,46,557/- made by AO in view of the provisions of Section 14A of Income Tax Act read with Rule 8D of the Income Tax Rules. 4. The order of the CIT(A) is erroneous and is not tenable on facts and in law. A.Y. 2003-04: 1. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in quashing the reassessment proceedings u/s 148 by holding that the same is based on 'change of opinion'. 2. On the facts and in the circumstances of the case, the CIT(A) erred in law and on facts in deleting the disallowance made by the AO u/s 80HHE and 10A of the Income Tax Act, 1961 on account of profits derived from overseas branches. 3. The order of the CIT(A) is erroneous and is not tenable on facts and in law. A.Y. 2005-06: 1. ....
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....c limited company, engaged in the business of software development, maintenance services and business process outsourcing services and had three units in operation: (a) Software development unit in respect of which deduction u/s 80HHE was claimed ("Leela Galleria unit"). The Leela unit has three foreign branches, located in the US, UK & Singapore; (b) BPO unit in respect of which deduction u/s 10A was claimed ("BPO unit") with no branches outside India; (c) Software development unit in respect of which deduction u/s 10A was claimed ("GNR unit") with branches in US & UK. The assessee stood amalgamated with HCL Technologies Ltd w.e.f. 01.04.2005. RE: BACKGROUND OF ASSESSMENT PROCEEDINGS U/S 143(3) & CONSEQUENTIAL APPELLATE PROCEEDINGS For the relevant assessment year, the return of income was filed by the assessee on 01.11.2004 declaring income of Rs. 16,75,00,900. The assessee claimed, inter alia, deduction u/s 80HHE & 10A. The return was selected for scrutiny and assessment order dated 28.02.2006 was passed under section 143(3) of the Income-tax Act, 1961 ("the Act") wherein, the assessing officer computed deduction u/s....
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....ctions to the initiation of reassessment proceedings along with reply on the merits of the proposed disallowances were filed vide letter dated 08.02.2008, 29.05.2008 & 17.09.2008. (@ PB pg 47-99) Reassessment was completed vide order dated 28.11.2008 at total income of Rs. 32,60,00,451 after making following disallowances: * Excess claim disallowed u/s 80HHE in respect of Leela Galleria unit - Rs. 3,76,81,835 * Excess claim disallowed u/s 10A in respect of GNR unit - Rs. 11,35,51,884 The assessing officer rejected claim of the assessee qua deduction u/s 80HHE of the Act on the ground that the operations were performed at the customer's location outside India by the foreign branches of the assessee and the same is excluded under Explanation (d) to the said section. @ Reassessment order para 6-21 The deduction claimed u/s 10A qua profits derived from onsite software development services was also disallowed on the ground that the assessee had rendered technical services outside India through its foreign branches and profits derived from rendering technical services outside India were to be excluded from the export turnover while computing d....
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.... the basis of which assessing officer formed a belief that income of the assessee had escaped assessment. The foundation of 'reasons to believe', basis which reopening of assessment has been initiated have not been recorded in the reasons, which merely state that "on examination of records" and "on perusal of assessment records", it is found that income has escaped assessment, without referring to any fresh tangible material which had come in possession of the assessing officer for initiating reassessment. It is respectfully submitted that section 147/ 148 does not confer unrestricted power on the assessing officer to reopen assessment and on failure to pass the aforesaid jurisdictional test, impugned reassessment proceedings are clearly without jurisdiction and liable to be quashed. The Delhi High Court in the case of Donaldson India Filters Systems (P) Ltd vs DCIT: 371 ITR 87 (Del) held as under: "24. It is clear from bare reading of the aforementioned satisfaction note recorded by the assessing authority for reopening the assessment five years after the assessment had been completed under Section 143(3) (on 30.11.2005) that the only indication set out as to the....
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....ened for assessment under Section 147/148 of Income Tax Act, thus, is found to suffer from jurisdictional error. Consequently, the proceedings taken out in its wake cannot sustain." (emphasis supplied) In fact, during the course of assessment proceedings u/s 143(3), the assessee had filed various details and information regarding deduction claimed u/s 10A/ 80HHE of the Act, including (i) details of profit margins in respect of overseas branches of the assessee, (ii) certificate issued by Chartered Accountant in prescribed Form No.56F which was annexed to the return of income, etc. (@ PB pg 477-484) and the assessing officer has merely referred to the same documents for forming a belief that income of the assessee has escaped assessment. Change of opinion Reassessment has been initiated merely on the basis of change of opinion since the assessing officer during the course of assessment proceedings u/s 143(3) of the Act had already examined the claim of deduction u/s 10A of the Act and disallowed the same partly after thorough deliberation and discussion in the assessment order. Also, deduction u/s 80HHE of the Act was duly examined and allowed by ....
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....ate reassessment proceedings upon his mere change of opinion'. The Full Bench of the Delhi High Court also took into account Circular No.549 dated 31.10.1989 issued by CBDT explaining the scope of amended section 147 of the Act. The aforesaid decision of the Full Bench (supra) was affirmed by the Apex Court in the case of CIT vs Kelvinator of India Ltd: 320 ITR 561 (SC). Reliance is placed on the decision of the Delhi High Court dated 20.07.2017 in the case of the assessee [WP(C) 8165/2010], wherein the High Court quashed similar notice issued under section 148 of the Act by the assessing officer for assessment year 2004-05, which decision squarely covers the present case. In the said case, reason for initiation of reassessment, inter alia, was allowance of deduction claimed under section 10A of the Act in respect of profits of foreign branches of eligible undertakings. Noting that the assessee had filed Form 56F in support of its claim of deduction and had also filed details of telecommunication expenses and expenses incurred in foreign currency during the course of assessment proceedings u/s 143(3), amongst other details, the Court was of the firm view ....
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....te management company, under section 80-IA of the Act was disallowed by the AO, but on appeal the CIT(A) allowed the same, reassessment could not be initiated by AO on the ground that monitoring expenses, cell utilization expenses, land utilization expenses claimed by the assessee were not allowable. In the case of QX KPO Services (P) Ltd vs DCIT: [2018] 94 taxmann.com 467 (Guj), it was held similarly. SLP filed by the Revenue against the said decision has been dismissed by the Hon'ble Supreme Court in [2018] 99 taxmann.com 301 (SC). The Gujarat High Court, in the case of Hitech Outsourcing Services vs CIT: 409 ITR 609 (Guj) held that where AO initiated reassessment proceedings on ground that deduction under section 10A was wrongly allowed as assessee's units were situated outside STPI, in view of fact that the assessing officer had allowed assessee's claim for deduction after a detailed scrutiny, initiation of reassessment proceedings merely on basis of change of opinion was not justified. Reliance in this regard is also placed on the following decisions: * Usha International Limited: 348 ITR 485 (Del)(FB) * Manjusha Estate (P) ....
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....ct has been rightly quashed by the CIT(A) at the outset." 6. We have heard the submissions of both the parties and have gone through the entire material available on record and we do not find any infirmity in the findings reached by the ld. CIT(A) in the impugned order on this score. The ld. CIT(A) while dealing with the legal aspect of the case, as narrated above, has made an elaborate discussion and has reached its conclusions on the basis of various judicial pronouncements. The relevant findings of the ld. CIT(A) read as under : 4.7 Finding on Ground of Appeal Nos. 2,3 & 4:- I have carefully considered the submissions of the AR and the assessment order passed by the assessing officer. The appellant during the relevant previous year claimed deduction under section 80HHE in respect of the profits of Leela Unit (including the profits from onsite operations accounted as profit of the overseas branches to the extent attributable to the Leela Unit) at Rs. 12,60,85,082, whereas deduction was claimed under section 10A in respect of the profits of GNR and BPO units at Rs. 27,68,45,650 and Rs. 50,33,378. respectively. The assessing officer in the assessment complet....
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....CIT : 292 ITR 49 (Del), Jindal Photofilms Ltd. vs. DCIT 234 ITR 170 (Del), CIT vs. Mittal Casting Ltd. : 124 Taxman 11 (Del) and Anant Raj Industries Ltd. [ITA No. 342/2009 (Del)] In the facts of the ease of the appellant the claim of deduction under section 80HHE and section 10A of the Act in respect of various undertakings was evident by the following documents filed with the return of income: i) Computation of income reflecting the claim of deduction under section 80HHE/1OA of the Act; ii) Computation of deduction under section 80HHE/10A supported by a certificate by the Chartered Accountant; iii) Details of profit margin from the overseas branches. It is also not in dispute that the assessing officer has examined the claim of deduction under section 80HHE / 10A of the Act in the original assessment proceedings. In fact, the assessing officer had made adjustments to the computation of deduction under section 80HHE / 10A of the Act, as claimed by the appellant. Further, clause (d) of Explanation to section 80HHE of the Act providing that profit of branch/office of the assessee situated outside India, is to be excluded from the profit o....
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....bjection of assessee are dismissed. 8. Since, the identical issue on similar facts is involved in appeal for A.Y. 2002-03, our decision, as aforesaid, shall apply mutatis mutandis in appeal of the Revenue for this year too. Accordingly, the appeal of the Revenue for A.Y. 2002-03 is also dismissed. 9. Adverting to appeal for A.Y. 2005-06, the ld. DR, relying on the assessment order, submitted that the export turnover has been defined to mean the consideration in respect of export (export sale made by the undertaking) brought into India by the assessee in convertible foreign exchange, but not to include freight, telecommunication charges or insurance attributable to the delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. The assessee has not provided any technical services. Therefore, expenditure incurred in foreign exchange need not to be reduced from the export turnover or from total turnover. The ld. CIT(A) while deleting the addition u/s. 10A and 80HHE, has not properly considered the above aspect of the case. The deletion of depreciation is also not justified ....
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.... The details of deduction claimed vis-à-vis deduction allowed by the assessing officer in assessment are tabulated as under: Units Deduction claimed u/s. 10A Deduction allowed by A.O. Disallowance made by A.O. Remarks GNR 1,13,53,78,335 1,00,05,19,001 13,48,59,334 Communication expenses, expenses incurred in foreign exchange for rendering services outside India reduced from export turnover while computing deduction u/s 10A. Further, deduction u/s 10A not allowed by AO qua profits of branches situated outside India. BPO 35,46,13,504 32,97,38,669 2,48,74,835 Chennai 19,22,31,981 19,44,72,378 (22,40,397) Total 168,22,23,820 152,47,30,048 15,74,93,772 The assessing officer also made disallowances, inter alia, on alleged excess depreciation claimed on computer peripherals. Refer assessment order u/s 143(3) @ para 20, pg 9 Aggrieved by the disallowance made in respect of profits of GNR & BPO units eligible for deduction u/s 10A, the assessee preferred appeal before the CIT(A). In order passed by the CIT(A), it was held that activities of the assessee are to be regarded as that of developi....
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....ountries and the profit/ loss from the onsite operations so performed by these overseas branches are accounted for as profit/ loss of the overseas branches. The assessee, for the limited purpose of complying with Transfer Pricing Regulations and for discharging its statutory obligation of filing return of income in respect of such branches in the respective countries, considered the revenue from such onsite services, as the revenue of the branch and salaries of the employees, deputed on onsite projects, and other related expenses as the expenditure of the respective branches. In the books of accounts maintained in India, however, the revenue in respect of onsite operations relating to each project is identified with the undertaking and profits in relation to such onsite services, is accounted for as a part of overall profits of the undertaking. The assessing officer, while denying deduction under section 10A in respect of BPO and GNR unit, held that onsite services rendered by the assessee were technical services rendered outside India, profit whereof was not eligible for deduction u/s 10A. It was also held by the assessing officer that expenses incurred by the as....
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....lhi HC) dated 15.12.2011 wherein the Apex Court held that the depreciation on computer accessories and peripherals would be admissible @ 60%. The action of the CIT(A) in deleting disallowance of depreciation claimed on computer and its peripherals @ 60% is in accordance with law and deserves to be upheld in view of the following decisions as well: - SLP preferred by the Revenue in the case of Birla Soft Ltd dismissed in SLP(C) No.20645/2012. - CIT vs BSES Rajdhani Powers Ltd: ITA No.1266/2010 (Delhi HC) dated 31.08.2010 - CIT vs BSES Yamuna Power Ltd: 358 ITR 47 (Del) - Expeditors International (India) (P) Ltd vs Addl CIT: 2 ITR(T) 153 (Del Trib.) dated 29.08.2008 - DCIT vs Oriental Ceramics and Industries Ltd: 3 ITR 246 (Del Trib.) dated 20.01.2011 - CIT vs Orient Ceramics and Industries Ltd: 358 ITR 49 (Delhi) dated 20.01.2011 - Steel Authority of India Ltd vs Addl CIT: ITA No. 751/Del/2011 (Delhi) dated 26.10.2012 - ACIT vs HCL Comnet Ltd.: ITA No. 322/Del/2012 (Delhi) dated 24.08.2012 - HCL Technologies BPO Services Ltd vs ACIT: ITA No.5622/Del/2010 In view of the aforesaid, depre....
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....f the branches in those countries and the profit / loss from the onsite operations so performed by these overseas branches are accounted for as profit / loss of the overseas branches. 2.4 It has been submitted that the appellant, for the limited purpose of complying with Transfer Pricing Regulations and for discharging its statutory onus of filing return of income in respect of such branches in the respective countries, considers the revenue from such onsite services, as revenue of the branch and salaries of the employees, deputed on onsite projects, is considered as the expenditure of the respective branch. That in the books of accounts, however, the revenue in respect of onsite operations relating to each project is identified with the respective undertaking and profit in relation to such onsite services, is accounted as part of overall profits of the concerned undertaking. 2.5 That the appellant had during the relevant previous year claimed deduction under Section 10A of the Act in respect of the profits of its STPI Units, namely, BPO Unit and GNR Unit (including the profits from onsite operations Accounted as profit of the overseas branches to the extent attri....
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....urt are reproduced as under: QUOTE "6. The submission of Mr. Sahni, learned Counsel appearing for the Revenue is that the Tribunal and CIT (A) did not appreciate the document furnished before the AO and relied only on Expln. 3 to Section 10A of the Act which according to the Tribunal 'permits exemption under Section 10A on profits derived by an Assessee from a foreign branch with reference to onsite services or development of computer software provided by the said company". His argument was that the relevant documents would clearly demonstrate that the trading branch at Tokyo is an independent and separate branch office and, therefore, profits incurred (sic-earned) in respect of that branch would not qualify for deduction under Section I0A of the Act. He drew distinction between a branch office and a liaison office submitting that a branch office is one which may meet all commercial requirements. A liaison office is only permitted to do what its name suggests-act as an intermediary between the foreign principal enterprise and the Indian customers and vice versa. It may not engage in any other commercial activity with the objective to earn profit. The Assessee has ....
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....ciate the rival contentions, it is necessary to take note of the provisions contained in Section 10A of the Act. This section carves out special provision in respect of newly established 100 per cent export- oriented undertakings. It, inter alia, stipulates that deduction of such profits and gains as are derived by an undertaking for export of articles or computer software shall be allowed from the total income of the Assessee for a period of ten consecutive assessment years. 9. The Assessee is dealing with the export of computer software; it is 100 per cent export- oriented unit. There is no dispute that the Assessee is engaged in the business of development or development of software through its unit located in NEPZ. It is also not in dispute that for this reason, the NEFZ is entitled to deduction under Section 10A/10B of the Act in respect of profits derived from the said unit. The question relates to the profits derived by the Assessee's branch in Japan. Answer to that would depend on Expln. 3. of Section 10A which reads as under. Explanations. -For the removal of doubts, it is here by declared that the profits and gains derived from onsite development of ....
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....are development services:- (v) Master Service Agreement with Deutche Bank, AG. (vi) Project-wise Details of software development services (offshore and onsite) in respect of GNR Unit. (iii) SOFTEX Form / return submitted with STPI. 2.11 It, therefore, cannot be disputed that onsite services rendered by the appellant are essentially services for development of software or are onsite services rendered in connection with software development operations performed by the appellant in the software development centers in India. Moreover from para 2 at page 1 of the impugned assessment order too, it is observed that the assessing officer has not disputed the fact that the appellant is developing and supplying software only. The assessing officer, however, was of the view that there is an element of "technical services" involved in such activity and accordingly held that the appellant was engaged in the business of providing technical services at the customer's location through it's overseas branches. 2.12 Further the Hon'ble Delhi Bench of the Tribunal vide order dated 2301-2009 in appellant's own case for assessment year 2004-05 (ITA N....