TaxTMI 
TaxTMI 
2021 (8) TMI 1013
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....STPs) and Special Economic Zones (SEZs) and claims deduction under Sections 10A and 10AA of the Act. 3. The petitioner filed its return of income for the assessment year 2010-2011 on 13.10.2010. It was processed under Section 143(1) of the Act, on 27.02.2012. The petitioner filed revised return of income on 31.03.2012 and the case was selected for scrutiny by the Deputy Commissioner of Income Tax/second respondent under Section 143(2) of the Act on 06.09.2011. The details were called for by the first respondent and the petitioner also furnished all details, informations, books of accounts etc. 4. The case of the petitioner was referred to the Transfer Pricing Officer for necessary verification under Section 92CA of the Act, as the petitioner has international transactions with its group of Companies abroad. The Transfer Pricing Officer vide his order dated 22.01.2014, accepted the arm's length price of the transactions of the petitioner with that of its group Companies abroad. Consequently, no transfer pricing adjustments were made by the second respondent. 5. The second respondent passed the assessment order under Section 143(3) r/w Section 92CA of the Act for the ass....
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....n of income filed after correction, contended that the petitioner has not suppressed any facts, but provided those facts in detail for the purpose of assessment and the said particulars were scrutinised at length and an assessment order was passed. In proceedings dated 15.01.2014, issued under Section 142 (2) of the Act for scrutiny assessment, the said issues were elaborately considered. 12. In respect of stock compensation expenses, the petitioner relied on the query raised by the Assessing Officer at paragraph-7 in the proceedings dated 15.01.2014 and regarding forward contracts paragraph- 1(g) is relied on, as far as depreciation of software is concerned, paragraph- 8 of the said proceedings are relied upon and regarding excess double tax recovery under Section 90, paragraph-9 of the proceedings dated 15.01.2014 is relied upon. 13. Regarding the reasons furnished for reopening of assessment, it is clarified that the very same materials were initially sought for by the original Assessment Officer, the petitioner in turn submitted the informations and the materials, which were considered by the Assessing officer and a final assessment order was passed on 31.03.2014 for the ....
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.... and gains of business or profession'. (Points 1 and 3 of the letter dated 28th August, 2015) * Schedule 13 to profit and loss account for the year ended 31 March 2010, wherein an amount of Rs. 673,37,94,692/- has been claimed as Stock Compensation expense by the Assessee. * Disclosure of expenditure incurred in foreign currency as part of the Notes to accounts of the Financial Statements wherein stock compensation recharge expense is disclosed as expenditure incurred in foreign currency. * In Point No.7 of the notice under Section 142(1) dated 15 January 2014 [enclosed as Annexure 4(a)] the Assessee was asked to show cause as to why stock compensation expense should not be treated as notional loss and also to produce a copy of the response filed with Transfer Pricing Officer. * In this regard, the Assessee had provided its responses vide submission dated 28 January 2014 (Para 7) and 7 February 2014 (Para 4, Annexure 5) as to why the stock compensation expenses debited in the profit and loss account shall be treated as an allowable expenditure in computing the income under the head 'profits and gains of business or profession' [copies of the aforesaid sub....
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....39; is claimed at higher rate as part of computers. 4. Loss of Rs. 50,38,20,000/- on account of restatement of forward contracts incurred in AY 2009-10 disallowed in the said year not to be excluded in computing the income for AY 2010-11. (Point 5 the letter dated 28 August 2015). * Statement of Computation of total income wherein the said amount (disallowed in AY 2009-10) has been deducted to arrive at the income chargeable under the head 'profits and gains from business or profession'. * In Point No.11 of the notice under Section 142(1) dated 15 January 2014 the Assessee was asked to furnish necessary reconciliation for unrealised loss on forward contracts disallowed in AY 2009- 10. * In this regard, the Assessee had provided its response vide submission dated 0l6 March 2014. The statement of computation of total income for the AY 2009-10 wherein the said sum has been added back to arrive at the income under the head profits and gains of business or profession had been enclosed as Annexure 6 thereto [copy of the submission enclosed as Annexure 4(e)]. * Given that the amount of loss not claimed as a deduction in AY 2009-10 has now not been offered to t....
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....on-consideration of the objections in a subjective manner is improper and not in consonance with the directives issued for the disposal of the objections. 21. The learned counsel for the petitioner solicited the attention of this Court regarding the order impugned dated 02.11.2015, wherein the objections submitted by the petitioner were rejected. It is contended that the reasons furnished for reopening of assessment is verbatim reproduced and no findings are made available with reference to the objections raised by the petitioner. Thus, the said order impugned cannot be construed as a speaking order for the purpose of complying with the directives issued by the Apex Court of India. 22. In support of the grounds raised, the petitioner relied on the judgment in the case of Commissioner of Income Tx vs. Pentasoft Technologies Ltd [(2013) 33 Taxmann.com 570 (Madras)], wherein the Hon'ble Division Bench of this Court considered the question whether due to diminish in rupee value, the respondnet-Assessee gained a higher sum in rupee value while earning foreign exchange and the said difference in rupee value was allowable as a deduction under Section 10A of the Income Tax Act, 1....
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.... never disputed. So far as the reliance on Accounting Standard-11 is concerned, it would not by itself determine whether the activity was a part of the Respondent-assessee's regular business transaction or it was a speculative transaction. On present facts, it was never the Revenue's contention that the transaction was speculative but only disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar (supra) in the Revenue's favour would not by itself govern the issues arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that the facts in S. Vinodkumar (supra) are identical/similar to the present facts, then reliance would have been placed by the Revenue upon it at the hearing before the Tribunal. The impugned order does not indicate any such reliance. It appears that in S. Vinodkumar (supra), the Tribunal held the forward contract on facts before it to be speculative in ....
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....n 17-03-2005, in view of the decision of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd., referred to supra, the re-opening is liable to be held to be invalid as the same is beyond the period of 4 years and the re-opening is only on the basis of change of opinion. In the circumstances, the re-opening of the assessment stands quashed by following the principles laid down by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd., referred to supra. In the circumstances, the appeal of the Revenue is dismissed." 26. In the case of Commissioner of Income Tax-8 vs. I-Flex Solutions Ltd [(2014) 46 Taxmann.com 88 (Bombay)], the High Court of Bombay held that "Income Tax Rules computed software was clubbed with computers as the depreciable asset enjoying rate of depreciation at 60%". The High Court of Bombay, in paragraph-5 of its judgment, observed as under:- "5. The question is therefore for a prior year was the position as understood otherwise. In the facts and circumstances of the Assessee's case, both the Commissioner of Income Tax (Appeals) and the Tribunal found that the software cannot be seen in isolation and delinked from the co....
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.... 5 of Part A of New Appendix I, which states that computers including computer software are entitled to depreciation at 60%. Note 7 of the Appendix defines the expression 'computer software' to mean any programs recorded on CD or disc, tape, perforated media or other information storage devices. 10. We find that Part B of New Appendix I is a general entry whereas Entry 5 of Part A of New Appendix I is a specific entry read with Note 7. In the instant case, the Tribunal, in our considered view, rightly held that the assessee is eligible to claim depreciation at 60%." 28. The grounds raised regarding the depreciation, the case of Assistant Commissioner of Income Tax vs. Ashima Syntex Ltd [2000 SCC OnLine Guj. 470], wherein the Gujarat High Court, in paragraph-16 of its judgment, observed as under:- "16. Learned counsel for the Revenue placed strong reliance on the decision in the case of Additional CIT v. Speciality Paper Ltd., [1982] 133 ITR 879 (Guj) (Appex.) which is an appendix to the decision in the case of Hotel Alankar v. CIT, [1982] 133 ITR 866 (Guj). In the case of Speciality Papers Ltd., [1982] 133 ITR 879 (Guj), the question referred for opinio....
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....er (Appeals). Thus, the said judgment cannot be relied upon as the present writ petition is challenging the reopening proceedings. Therefore, adjudication of those facts in the case before the Bombay High Court is not applicable to the facts of the present case. 31. So also in the case of Pentasoft Technologies Ltd (cited supra), the Hon'ble Division of this Court considered the order passed by the Income Tax Appellate Tribunal (ITAT), wherein the question was raised whether on the facts and circumstances of the case, the ITAT was right in law in holding that gains on account of foreign exchange fluctuation held to have direct nexus with the export sales of the Assessee. In the present case also no doubt, the petitioner has stated that its foreign exchange transactions are protected by virtue of an agreement. However, those facts are to be adjudicated elaborately by the Assessing Officer in the present case. In the case of Pentasoft Technologies Ltd (cited supra), also was the tax case appeal, which was decided by the Division Bench and therefore, the said case cannot be applied without complete adjudication of facts and circumstances in the present case on hand. 32. In t....
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....dicated and findings are arrived. In the absence of any factual findings, the principles in certain circumstances cannot be applied for the purpose of grant of exoneration from the reopening proceedings. As the writ petition is filed challenging the very reopening of assessment, this Court is of an opinion that the judgments, relied on by the petitioner, are of no avail to the petitioner. 34. The learned Senior Standing Counsel, appearing on behalf of the respondents, disputed the grounds raised on behalf of the petitioner and contended that the reopening was not made based on change of opinion. It is a case where the Assessing Officer has reason to believe for reopening of assessment. The reasons were furnished as per the directives of the Apex Court in the case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and Others [(2003) 1 SCC 72] has been scrupulously followed. The objectives submitted by the petitioner were also considered by the Assessing Officer as required under law and therefore, there is no infirmity as such and the reopening proceedings initiated may be allowed to be concluded by following the procedures as contemplated under the Act. 35. To substantiate....
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....ion of reopening proceedings under Section 147/148 of the Act. It is not as if all the merits disputed facts raised by way of an objection needs to be adjudicated in entirety. While disposing of the objections, what is required under the provisions of the Act is that the Assessing Officer must have reason to believe for reopening of assessment and therefore, the contentions raised in this regard by the petitioner that the objections were not considered in entirety is far beyond the truth. 40. The Assessing Officer, while disposing of the objections filed by the petitioner, considered the same and passed orders. However, adjudication of the disputed facts on merits need not be done at the stage of disposing of the objections filed with reference to the reasons furnished for reopening of assessment. The petitioner/Assessee would be getting further opportunity to furnish further documents and informations for the purpose of completing the reassessment proceedings. Therefore, what is required is to submit objections on the reasons to believe and such objections are to be disposed of objectively. The disposal of the objections submitted by the Assessee on the reasons furnished cannot....
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....ective satisfaction may not be required at the stage of disposal of the objections filed on the reasons furnished. If the reasons to believe exist it is sufficient enough for reopening of assessment, and the sufficiency of the reasons cannot be gone into at that stage. In this context, the spirit of the directives issued in GKN Driveshafts case (cited supra) is to be looked into and applied. 44. Considering the arguments advanced in this regard, it is necessary to understand the spirit of the directives issued by the Hon'ble Supreme Court of India in GKN Driveshafts case (cited supra). As per the directives, the Assessing Officer is bound to furnish the reasons for reopening within a reasonable time. On receipt of the reasons, the Noticee is entitled to file objections, if any, to the Assessing Officer, who is bound to dispose of the same by passing a speaking order. 45. The Hon'ble Supreme Court of India formulated procedures for disposing of the objections in order to ensure that the principles of natural justice has been complied with. Thus, the directives in GKN Driveshafts case (cited supra) must be understood in its context and certainly not beyond the context i....
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....he Assessing Officer is sufficient enough for reopening of assessment. Sufficiency of the reasons need not be gone into in writ proceedings under Article 226 of the Constitution of India, as the writ proceedings are filed challenging the very reopening itself. 47. As the case on hand is falling within the period of four years, the other conditions contemplated under the proviso clause, is not required. What is required is reasons to believe. The reasons furnished by the respondents in the present case, are elaborate in nature and the relevant portions of such reasons are extracted as under:- "It is observed from Schedule 13 to the Profit and Loss Account for the year ended March 31, 2010 that the Assessee claimed a sum of Rs. 6,73,37,94,692/- towards stock compensation expenses, the year wise details of which with a difference of Rs. 53 are as under:- Particulars AY 2009-10 (Rs.) AY 2010-11 (Rs.) Total (Rs.) Towards ESO 2,42,35,33,959 4,11,60,05,775 6,53,95,39,734 Towards RSU 1,33,88,420 18,08,66,486 19,42,54,906 Total 2,43,69,22,379 4,29,68,72,261 6,73,37,94,639 It was observed that in computing the total income of the....
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....mpany as compensation. The recharge expense is equal to the difference between fair market value on the date of exercise for stock options or distribution date for the stock awards as reduced by the grant price. Based on this agreement, the holding company has recharged an amount of Rs. 6,73,37,94,639/- for the equity compensation expense relating to all the exercise made by the employees of the company during the period April 1, 2008 till March 31, 2010. In this connection, it is to be pointed out that with effect from AY 2010-11, sub-clause (vi) was introduced to Section 17(2), to tax the stock option benefits extended to the employees. Under Section 192, any person responsible for paying any income tax from the amount payable. In the Notes on Accounts, under expenditure in foreign currency, the entire amount of stock compensation expenses amount to Rs. 6,73,37,94,692/- was shown as expenditure incurred in foreign currency implying the fact that no tax was recovered on the said expenses. Part of the above expenses amounting to Rs. 4,29,68,72,261/- related to AY 2010-11 and as no tax was deducted on the expenditure so incurred, the amount of Rs. 4,29,68,72,261/- requires disall....
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....ncome that while computing the tax payable under Section 115JB, the Assessee had claimed a sum of Rs. 1,02,96,469/- at the rate of 16.995% as relief under Section 90, evidently on an income of Rs. 6,05,85,284/- which was doubly taxed. But, in the income tax computation from which is appended to the assessment order, relief under Section 90 was allowed to the extent of Rs. 23,91,75,527/-, resulting in excessive allowance of relief under Section 90 to the tune of Rs. 1,36,19,058/-. .. ... ... ... ... ... ... In the computation of income, the Assessee was allowed a total deduction of Rs. 12,17,34,81,284/- under Section 10A/10AA. In computing the said deduction, the loss of undertakings which were within the tax holiday regime was set off against the income of the out of holiday units. One such unit was KALKATTA BANTALLA SEZ (IN223) which incurred a loss of Rs. 23,01,71,774/-. The loss of the SEZ unit which is eligible to claim deduction under Section 10AA was set off against the income of the non-eligible units. Scrutiny of the computation of depreciation of the said undertaking under the income tax revealed that being the initial year, the undertaking had accounted for the a....
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....al of objections vide proceedings dated 02.11.2015, the Authority Competent has recorded the objections broadly raised by the petitioner, more specifically, the audit objections and change of opinion. The decisions relied on by the petitioner were also taken into consideration. The Authority has stated that the Assessee's submissions are carefully considered separately and not accepted for the reasons stated. No doubt, in the initial paragraph, the authority has reproduced the reasons furnished to the Assessee in proceedings dated 28.08.2015, however, after considering the reasonings, the Authority Competent formed an opinion that on the issues raised by the Assessing Officer for reopening of assessment, certain informations/materials are not considered in the manner the said materials or facts are to be considered and accordingly rejected by stating that the question of change of opinion does not arise at all. 51. The scope of reopening of assessment was also considered by the Competent Authority. The first respondent has stated that the Assessing Officer has not formed any opinion on the issues stated in proceedings dated 28.08.2015 furnishing the reasons. When such issues....
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....ith the reopening proceedings. 55. The very purpose and object of reopening of assessment is to ensure that the income chargeable to tax escaped assessment is brought under the tax network. Undoubtedly, the original assessment order has been passed based on the return of income filed by the Assessees. Therefore, there are possibilities to gather further informations and materials after passing an assessment order. In such circumstances, if the Assessing Officer has reason to believe that the particular issue has not been considered or scrutinised during the course of original assessment proceedings, then he is empowered to reopen the assessment under Section 147/148 of the Act. Thus, Section 147 provides an opportunity to the Revenue to reopen the proceedings if the Revenue is able to trace out new informations or materials within or from any other source for the purpose of reopening. The very same materials in which certain issues were not considered and such non-consideration resulted in escapement, then also reopening is permissible. 56. However, change of opinion is a ground for setting aside the reopening of assessment. Change of opinion is nothing but if the Assessing A....
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....on subjective satisfaction. An elaborate adjudication is required and such adjudications are to be done during the course of reopening proceedings and certainly not at the stage of disposal of objections filed by the Assessee on the reasons furnished. Once the Assessing Officer prima facie arrived a conclusion that he has reason to believe and reasons are furnished, objections received and disposed of by the authority, the said procedure as directed by the Hon'ble Supreme Court of India in GKN Driveshafts case (cited supra), is to be construed as completion of compliance of the principles of natural justice. 58. To clarify the objective satisfaction, which is required for the disposal of the objections filed on the reasons furnished, the Authority Competent cannot simply reject the objections without providing convincing reasons for rejection. The disposal of objections must contain an acceptable reason in the point of view of a prudent man and such rejection must be in the context of the reopening proceedings and the reasons furnished. To further clarify, the disposal does not mean mere disposal of objection and such disposal must be meaningful and sensible and relatable to....