TaxTMI 
TaxTMI 
2019 (6) TMI 1261
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....on on certain grounds. To the extent of disallowance of a portion of the deduction under Section 10-A in the original assessment orders, the matters were taken in appeal and the appeals were pending. 4. In the meanwhile, the Addl. Commissioner took up the petitioner's assessment relating to the assessment year 2007-2008 and concluded the same under the provisions of Section 143(3) of the Act by order dated 28.12.2010 wherein the petitioner's claim for deduction under Section 10-A has been disallowed substantially. Taking clue form the above order relating to assessment year 2007-08, the respondent issued notices under Section 148 proposing to re-assess the petitioner for the assessment years in question on the ground that certain income had escaped assessment. It transpires that the petitioner had replied to the said notices asserting that there is no escapement of assessment of any income and requested the respondent to furnish a copy of the reasons recorded, if any. In response to the same, the respondent issued a letter along with the reasons recorded under Section 148. It is the contention of the petitioner that the reasons recorded for issue of notice has been furnished aft....
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.... the presence of some material, a nexus between such material and the belief of escapement of income from assessment, application of mind by the officer to such material and an inference based on reason drawn by the officer that income has escaped assessment. Such 'reason to believe' could not be borrowed satisfaction and the same do not confer any jurisdiction to initiate reassessment proceedings. It was argued that the notices issued to withdraw Section 10A benefits considering the profits from onsite development of computer software as deputation of technical manpower is nothing but change of opinion. There was no failure on the part of the petitioner in disclosing all material facts, fully and truly. 'Note' on expenditure incurred in Foreign Countries and Annual Report were referred to. Reference was made to the order of Dispute Resolution Panel relating to the A.Y.2010-11. 9. Learned counsel Sri.E.I.Sanmathi appearing for the Revenue argued that Master Service Agreements, Work Orders, Scope of Works and invoices were not placed before the Assessing Officer at the time of the original assessment. It is only during the scrutiny proceedings conducted for the assessment year 20....
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....ed out at the customer's site. After requirement analysis, the next stage of proto typing which is a stage to gather complete requirements and the execution of the stage could happen either at the client site or offshore location. Then at the stage of design it is executed either at the client site or at the offshore development centre. Running the system for a restricted set of users parallel with the existing system exposing the critical functionality of the system i.e., the private stage is executed either at the client site or at the offshore development centre. Similarly in a programming language, the build stage produces the source code, executables and the test data is carried out either at the customer's site or at the offshore development centre. All these activities are carried at customer's site or at offshore software development centre. 13. Note on expenditure incurred in foreign currency reads thus: "Infosys incurs expenditure in foreign currency in connection with the execution of software development projects abroad for its global client base. The expenditure in foreign currency can be categorized into two sets viz., a] Direct expenditure incurr....
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....ing to Sections 10A and 10AA vis-à-vis the onsite activity of the assessee company's STPI/SEZ units amounted to manpower supply and hence not eligible for deduction relating to assessment year 2010-11 has observed that the Assessing Officer's conclusions is not based on the critical analysis of the voluminous documents filed by the assessee in support of the claim that none of the revenue attributed to the exempt units could be said to be related to DTM activity, or to wholesale onsite activity. .... There is no bar under the provisions of Section10A/10AA that no part of the contract for export of software service could be performed onsite. ......... The deductions curtailed /restricted in an ad-hoc manner based on the estimate across the units, without reference to the eligible profits, eligible export turnover, and without identifying the revenue which could not be said to be part of eligible business. 16. The reasons recorded by the Assessing Officer for issue of notice [assessment year - 2004-05] under Sections 147/148 reads thus: "The assessee company had filed its return of income declaring an income of Rs. 99,21,78,620/-. The details of return filed by the....
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....ftware development activities onshore abroad had any link whatsoever with the STP/SEZ undertakings in India. It had been noticed that the assessee had claimed all revenue from software developmental activities under STPs/SEZs based in India only. No part of the income had ever been admitted as generated out of the company's activities abroad. During the course of investigation conducted, it had been detected on facts as per various contracts/SOW, work orders and invoices that a large body of work related to software development with the STP/SEZ units in India. The said revenue receipt from onshore activity was treated as not related to the undertaking eligible for deduction u/s 10A/10AA of the I.T. Act. Such onshore receipts were treated as company wide software receipts not related to the STP/SEZ undertakings in India. This had been computed and the deduction claimed u/s 10A/10AA of the I.T. Act had been drastically reduced. b) During the course of said fact finding it had also been detected that the assessee company is in the business of deputing technical man power (DTM) of providing short duration technical man power abroad. Such business activity commonly known as Bod....
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....s claimed as revenue expenditures have been disclosed by the assessee in the return of income and the Annual Reports submitted. It is also seen, that failure on the part of assessee to disclose fully and truly all material facts with regard to deduction u/s 10A has resulted in allowing excess deduction u/s 10A for AY 2004-05 and allowing of capital expenditure as revenue expenditure. Similar reasons are recorded for the other assessment years in question. 17. Relevant portion of Section 147 of the Act during the relevant assessment years read thus: "147. Income escaping assessment. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the releva....
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....ncome chargeable to tax for the assessment year 2004-05 has escaped assessment within the meaning of Section 147 of the Income-Tax Act. I, therefore propose to reassess the income under section for the said assessment year and hereby require you to deliver to me a return in the prescribed form of your income for the said assessment year within 30 days from the date of service of this notice. This Notice is being issued after obtaining the necessary approval of the Commissioner of Income-tax." 22. The Hon'ble Bombay High Court in Multiscreen Media P. Ltd., V/s. Union of India and Another [No.1] [2010] 324 ITR 48 [Bom], [authored by Hon'ble Justice Dr.D.Y.Chandrachud as his lordship then was] has observed thus: "12) The notice issued by the Assessing Officer under section 148 does not state that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment for assessment year 2002-03. The assessment was sought to be reopened after the expiry of a period of four years from the end of the relevant assessment year. In such a case the jurisdictional condition precedent stipulated by the proviso to....
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....e Act. Subsequently on the garb of assessment order passed for the assessment year treating the onsite revenue as revenue collected from DTM activities, revenue is intending to disallow Section 10A deduction, invoking Section 147/148 of the Act. 25. The next question would be whether such information collected by the assessing officer through the assessments concluded for the assessment year 2007-08 would be construed as reason to believe escapement of tax or borrowed satisfaction. 26. The Hon'ble High Court of Rajasthan in the case of Commissioner of Income Tax Vs. Shree Rajasthan Syntex Limited (2009) 313 ITR (Raj), dealing with the question about validity of assumption of jurisdiction under Sections 147 and 148 by the Assessing Officer, held that, the prerequisite condition which is said to be sine qua non is that the Assessing Officer 'has reason to believe' that income chargeable to tax has escaped assessment. The Assessing Officer had taken the decision after considering all the facts and reopening proceedings on account of the opinion of another Assessing Officer and came to the conclusion that the opinion of the Assessing Officer cannot replace the opinion of another ....
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....ment concluded under Section 143 (3) of the Act. 28. The Cognate Bench of this Court in the case of M/s. Kotarki Constructions Pvt. Ltd., V/s. The Asst. Commissioner of Income Tax and Another W.P.No.61671/2016 [D.D.02.01.2018], has observed thus: "........ the deduction allowed to the extent of 68.75% only for the works which fell within the four corners of Section 80-IA[4] of the Act could not have been disallowed or intended to be disallowed by resort to Section 147/148 of the Act under the garb of subsequent Assessment order passed for the subsequent A.Y.2013-14, which also prima-facie indicates that the Assessing Authority has been swayed by the words "Improvement, repairs and widening [SIC !]...................." 29. The assessments concluded for the subsequent year 2007-08 would not be construed as the independent satisfaction of the assessing officer in as much as the reason to believe that income chargeable to tax has escaped assessment. The fact that the petitioner was rendering technical services was considered by the assessing officer at the time of original assessment. It is observed in the assessment order as thus: "Hence, the telecommunication ....
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.... Act, 1922, observed that it is not for the assessee to satisfy the Income-tax Officer that there was no concealment with regard to any question; it is for the Income-tax Officer, if that issue is raised, to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment. Section 34[1][a] does not cast any duty upon the assessee to instruct the Income-tax Officer on questions of law. Income-tax Officer may, if he is satisfied that on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, income has escaped assessment, he may assess or reassess the income. But when the primary facts necessary for assessment are fully and truly disclosed, he is not entitled on change of opinion to commence proceedings for the reassessment. 31. It is beneficial to refer to the case Indian Oil Corporation Vs. Income Tax Officer, Central Circle V, Calcutta and Others (1986) 159 ITR 957(S.C.), wherein the Hon'ble Apex Court has observed thus: "As is well-settled now by the several authorities of this court and of several High Co....
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....ot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far- fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment though wide are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, con....
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....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 precondition 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, the 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, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, o....
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....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 s. 147[a] two conditions were required to be satisfied firstly the AO 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 omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under s. 148 r/w s. 147[a]. But under the substituted s. 147 existence of only the first conditions suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to s. 147. The case at hand is covered by the main provision and not the proviso. So long as the ingredients of s. 14....
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....t the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to re-assess and not the power to review. 10) To check whether it is a case of change of opinion or not one has to see its meaning in literal as well as legal terms. The word change of opinion implies formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. 13) The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice dated 10.02.2005 reflects the ground for reassessment in the present case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of Rs. 57,36,811. In the order in question dated 17.08.2005, th....
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....examined. Explanation 3 to sections 10A and 10B and Explanation 2 to section 10AA clearly declare that profits and gains derived from 'services for development of software' outside India would also be deemed as profits derived from export. It is therefore clarified that profits earned as a result of deployment of Technical Manpower at the client's place abroad specifically for software development work pursuant to a contract between the client and the eligible unit should not be denied benefits under sections 10A, 10AA and 10B provided such deputation of manpower is for the development of such software and all the prescribed conditions are fulfilled." 39. Though the aforesaid circular was not available before the Assessing Authority at the time of issue of notice under Section 147/148 of the Act, the same throws light on the aspect of deployment of technical manpower vis-à-vis deduction under Section 10A of the Act. This circular clarifies that the profits earned as a result of deployment of technical manpower at the client's place specifically for software development work pursuant to contract between the client and the eligible unit should not be denied benefits under S....