E-INFOCHIPS LIMITED V. ASST. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1)

SCA/13566/2018

AI Insights

E-Infochips Limited challenged a notice issued by the Assessing Officer under section 148 of the Income Tax Act, 1961, for reopening their assessment for the year 2011-2012. The notice was based on the reassessment of the company's eligibility for a deduction under section 10B, which had been previously scrutinized and allowed in the original assessment. The High Court, referencing a prior judgment where a similar notice was quashed, found that the current notice was issued beyond the four-year limit and did not meet the criteria for reopening as there was no new evidence or failure to disclose material facts by the assessee. The court emphasized that the deduction under section 10B had been thoroughly examined during the original assessment, and reopening the case on these grounds was not permissible.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 750892 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 15-10-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: B S SOPARKAR
• Keywords: Assessment Year 2011-2012; Deduction under section 10B; Income Tax; Reopening of assessment
• Section: 148; 143(3); 10B

Judgement Text

"C/SCA/13566/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 13566 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== E-INFOCHIPS LIMITED Versus ASST. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1) ========================================================== Appearance: MR B S SOPARKAR(6851) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 15/10/2018 ORAL JUDGMENT Page 1 of 9 C/SCA/13566/2018 JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated 31.3.2018 issued by the respondent ­ Assessing Officer under section 148 of the Income Tax Act, 1961 (“the Act” for short) for reopening the assessment of the petitioner for the assessment year 2011­2012. 2. Brief facts are as under. The petitioner is a limited company and is engaged in I.T. Enabled Services and Software business. For the assessment year 2011­2012, the petitioner had filed return of income on 29.11.2011 declaring total income of Rs.34.08 lacs (rounded off). Such return was taken in scrutiny. The Assessing Officer passed order under section 143(3) of the Act on 28.2.2014 making certain additions to the income of the assessee. To reopen such assessment, the Assessing Officer had issued a notice dated 28.3.2016. The reasons cited for issuing such notice pertained to the petitioner's eligibility for deduction under section 10B of the Act. The petitioner challenged such notice before the High Court mainly arguing that the petitioner's claim for deduction under such provision was examined by the Assessing Officer during the original assessment. Same cannot be made the subject matter of reexamination under reassessment proceedings. High Court allowed the petition by judgment dated 12.6.2017 holding that : “8. It can thus be seen that the Assessing Officer was acutely conscious of the assessee's claim of deduction under section 10B of the Act during the original assessment. To verify such claim, the Assessing officer had Page 2 of 9 C/SCA/13566/2018 JUDGMENT raised certain queries and asked the assessee to provide complete details with respect to such a claim. It was in response to these queries that the assessee supplied a detailed reply, as noted above. Along with the reply, assessee had annexed documents giving further details. It was after undertaking such exercise, the Assessing Officer by his order of assessment dated 28.02.2014, made a minor disallowance of a sum of Rs. 10,40,714/­ out of the claim of deduction made by the assessee under section 10B of the Act. “ 3. Once again the impugned notice came to be issued in which the following reasons were recorded by the Assessing Officer : “i) The assessee company is engaged in the business of software development and information technology enabled services and production of EVM and VBS board, filed its return of income for AY 2011­12 on 29.11.2011 declaring returned loss at Rs 34,08,157/­. The case was finalized u/s 143(3) of the Act on 28.02.2014 determining loss at Rs. 22,31,544/ ii) 0n perusal of the records, it is seen that the assessee company had claimed deduction u/s 108 amounting to Rs 1.1,22,56,604/­ from 2 units at Pune and Kandla. However, huge losses from Head Office and Sales unit amounting to Rs 94.52 lacs and 31.41 lacs were shown, because of which there was net business loss. I have gone through the specific audit reports furnished by the assessee in respect of 10B claim but it has not given any details as to how the income of 10B units and non­lOB units had been computed, especially the apportionment of common administrative expenses. It is further seen that the assessee had debited Head Office with huge amount of administrative expenses which is much more than what has been debited to other units in spite of the fact that these 10B units were having much higher turnovers. in the audit report also, the assessee has not disclosed as to in what manner such general and administrative expenses Page 3 of 9 C/SCA/13566/2018 JUDGMENT have been bifurcated amongst various units. Because of which it is seen that much less general and administrative expenses have been apportioned to the 10B units so as to inflate the claim u/s 108 and thereby claiming losses in operations from Head Oflice. If we take proportionate amounts in all units, there will be considerable taxable income from Head Office rather than loss. Thus, taxable income has escaped assessment. Further, the assessee has claimed huge losses from sales unit, which by the name Itself would be an adjunct and cost centre of all the units and, therefore, the cost of sales units should have been apportioned amongst all units which has not been done. Looking at all these facts, I have reason to believe that income has escaped assessment and that too because of assessee's failure to disclose truly and fully all material facts necessary for assessment. Accordingly, it is a fit case for re­opening of the assessment by invoking the provision of section 147 of the Income Tax Act, 1961. Accordingly, notice U/s 148 of the Act is issued.” 4. After raising the objections to the notice of reopening, the petitioner has filed this petition. 5. Appearing for the petitioner, learned counsel Shri Soparkar raised the following contentions : 1) Impugned notice has been issued beyond a period of four years from the end of relevant assessment year. There is no allegation that the assessee had failed to disclose truly and fully all material facts necessary for assessment. Impugned notice is therefore, bad in law. 2) The entire claim of deduction under section 10B was examined by the Assessing Officer in original scrutiny Page 4 of 9 C/SCA/13566/2018 JUDGMENT assessment. Any attempt on part of the Assessing Officer to reexamine this issue would be based on change of opinion. 3) In the previous round, High Court had quashed such notice. Reasons recorded by Assessing Officer in the present case may be different from those cited in previous instances, nevertheless, both pertained to the assessee's claim of deduction under section 10B of the Act. The High Court in earlier judgment held that the assessee's claim of deduction under section 10B was examined in the original assessment and, therefore, reexamination would not be permissible. The same principle would apply in the present case also. 4) Counsel lastly contended that the reasons proceed on wrong footing. Contrary to what is suggested by the Assessing Officer in such reasons, in the audit report, break­up of claim of expenditures between the two units of assessee being one which is eligible for deduction under section 10B and other which is not eligible had been provided. 6. On the other hand, learned counsel Mrs. Mauna Bhatt opposed the petition contending that in the original assessment these questions were not at issue. The assessee had claimed exaggerated expenditure. In relation to the non eligible unit, break­up of the expenditures was not given in the audit report. 7. As noted, the impugned notice has been issued beyond a Page 5 of 9 C/SCA/13566/2018 JUDGMENT period of four years from the end of relevant assessment year. There is not even a suggestion on record that there was any failure on part of the assessee to disclose truly and fully all material facts. Only on this ground, impugned notice should have been set aside. Nevertheless, there are additional grounds on which we would like to make few comments. We have recorded the reasons. In such reasons, the Assessing Officer principally alleges is disproportionate bifurcation of expenditures between eligible and non eligible units. He is obviously hinting at inflated profit of eligible unit and deflated profit of non eligible units. Nevertheless, entire issue pertained to assessee's claim of deduction under section 10B of the Act. In the previous judgment, the High Court had noted that this claim was examined by the Assessing Officer in the original assessment proceedings. It would therefore, not be open for him to reexamine the claim, may be on another aspect or element of the claim being raised through reassessment proceedings. In the present case, yet another element of the claim being cited as a ground for reopening the assessment. We have noticed that during the original assessment, the Assessing Officer had raised multiple queries with respect to this claim. In response to that Assessing Officer had given the following reply : “Furnish complete details with respect to the claim of exemption u/s. 10B. (Para 35 of notice): We have enclosed two Audit Reports in Form 56G in support of our claim u/s 10B for our Pune Unit and Kasez Unit (Anneure'P'). Please note that we have claimed the deduction u/s 10B as under : Page 6 of 9 C/SCA/13566/2018 JUDGMENT Unit name Consecutive year of claim Deduction Rs. Pune Unit 7th 10.66.05.096 Kasez Unit 4th 56.51.508 Similar claims of deductions have been allowed in all the earlier years. The details party wise foreign currency sales and receipts are enclosed in a chart form (AnnexureP­1) It will be found that in the Audit Report in form 56G, the auditor has given details unrealized sales Bills. We give in the table below the details of subsequent receipts non­ receipts of the said outstanding sales Bills. We have enclosed herewith Annexure P­2, the copies of FIRC (Foreign Inward Remittance certificates) issued by Indian Bank in respect of realization of such Bills. In the chart enclosed (Annexure P­3). We have given the details of subsequent realization which is within the time of six months (and further extended) from the date of Invoice as per Reserve Bank of India guidelines. However, we are unable to realize value of following invoices as a result of which amount of deduction will be reduced by Rs.10,40,714/­ as calculated below : Amount of Total Export Turnover : Rs.19,45,07,450/­ Amount of Export as reduced by unrealized amount Rs.19,26,08,605/­ Total Profits of the Business Rs.10,66,05,096/­ Amount of Deduction as Claimed in Form 56G : Rs10,66,05,096/­ Revised Amount of Deduction Rs.19,26,08,606/­ ­­­­­­­­­­­­­­­­­­­­­­ X Rs.10,66,05,096 = Rs10,55,64,382/­ Rs.19,45,07,450/­ Page 7 of 9 C/SCA/13566/2018 JUDGMENT Please note the business of both the Pune and Kasez Units is the same as in earlier years i.e. computer software (as defined in section 10B) and Hardware. The sales Invoices are produced before Your Honour of both the periods in support of the above. We have also enclosed the Unit wise statement of Income (Annexure­P­4) The unit wise Statement of Income shows the computation of Profits of the business each Unit separately. It will be found that MD salary etc has been allocated over all units in equal proportion. The unit wise Profits and Gains of business has been arrived after deducting the allocated MD salary. The unit wise Profits and Gains of Business arrived at has been considered for computing the deduction u/s 10B (4). The computation of deduction has to be made as per section 10B(4) i.e. Profits of the business of unit x Export Turnover ­­­­­­­­­­­­­­­­­­­­­­ Total Turnover The computation of Export Turnover and total Turnover has been given in the Audit Report u/s 56G. The Audit Report carries the computation of deduction as per section 10B(4). We have claimed the deduction u/s 10B as per the amount mentioned in Audit Report in Form 56G. As such we comply with all the conditions mentioned in section 10B. In view of the above, our claim of deduction u/s 10B is justified to the extent of the amount realized from the seller.” 8. Thus the claim having been examined by the Assessing Officer during the assessment proceedings, it would not be Page 8 of 9 C/SCA/13566/2018 JUDGMENT open for reopening on such grounds. 9. The impugned notice is therefore, quashed. Petition is allowed and disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) Raghu Page 9 of 9 "