Beyondkey Systems P Ltd, Indore V. The DY CIT 1(1), Indore

ITA 209/Ind/2022

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Beyondkey Systems Pvt. Ltd., an Export Oriented Undertaking registered with the Software Technology Park of India, appealed against the orders of the Commissioner of Income-Tax (Appeals) and the Assessing Officer, which involved the reopening of an assessment for the Assessment Year 2011-12 under section 147 of the Income Tax Act, 1961. The primary issues were the legality of the reopening of the assessment after four years and the disallowance of a deduction under section 10A. The Tribunal found that the reopening was justified due to non-disclosure of material facts by the assessee, but the deduction under section 10A should be allowed as it was correctly claimed and supported by necessary documentation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131034 (ITAT-INDORE)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-03-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 22-08-2022
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Audit objection; Reason to believe
• Section: 147; 148; 10; 139; 143(3); 10B

Judgement Text

Page 1 of 9 आयकर अपीलीय अिधकरण, इंदौर ायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) ITA No.209/Ind/2022 Assessment Year: 2011-12 Beyondkey Systems Pvt. Ltd. 901A & B, NRK Business Park, Block B1, PU4, Scheme No.54, Vijay Nagar Square, Indore बनाम/ Vs. DCIT 1(1) Indore (Appellant / Assessee) (Respondent / Revenue) PAN: AACCB 7622 G Assessee by Shri Manish Dafaria, CA & AR Revenue by Shri P.K. Mishra, CIT-DR Date of Hearing 08.12.2022 / 16.03.2023 Date of Pronouncement 18.04.2023 आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by appeal-order dated 01.07.2022 passed by learned Commissioner of Income-Tax (Appeal), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 23.12.2018 passed by learned DCIT/ACIT-1(1), Indore [“Ld. AO”] u/s 147 read with section 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2011-12, the assessee has filed this appeal on following effective grounds: Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 2 of 9 “1. On the facts and in the circumstances of the case and in law, the Ld. CIT Appeals erred in confirming the action of Ld. AO of reopening of the assessment u/s 147 based on audit objection which cannot be treated as reason to believe for income escaping assessment. 2. On the facts and in the circumstances of the case and in law and without prejudice to the above ground of appeal, the Ld. CIT Appeals erred in confirming the action of Ld. AO of reopening the assessment u/s 147 after 4 years of expiry of original assessment year without appreciating the fact that the assessment for the same year had already been under section 143(3) wherein assessee had disclosed truly and fully all the material facts necessary for assessment and as such in terms of first proviso of sec. 147, the assessment could not have been reopened after expiry of 4 years. 3. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal, the Ld. CIT Appeals erred in confirming the action of Ld. AO of disallowing the deduction under section 10A of the Act, despite assessee being eligible for the same.” 2. Heard the learned Representatives of both sides at length and case- records perused. 3. Briefly stated the facts are such that the assessee-company is an Export Oriented Undertaking (EOU) registered with Software Technology Park of India (STPI), engaged in the business of providing software and website development services. It submitted original income-tax return (ITR) of relevant AY 2011-12 on 30.09.2011 declaring a total income of Rs. 68,88,670/- which was assessed by way of scrutiny-assessment u/s 143(3) at a total income of Rs. 69,66,970/-. Subsequently, the case of assessee was re-opened u/s 147 through notice dated 21.03.2018 u/s 148. Thereafter, the Ld. AO completed the re-opened assessment vide order dated 23.12.2018 after disallowing deduction of Rs. 58,84,223/- claimed by assessee u/s 10A and allowed in original assessment. Aggrieved, the assessee filed first-appeal to Ld. CIT(A) but did not get any relief. Still aggrieved, the assessee has come in this appeal before us assailing the orders of lower authorities. We proceed to decide all grounds one by one in seriatim. Ground No. 1: Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 3 of 9 4. During hearing, Ld. AR representing the assessee prayed that the assessee is not pressing this ground. Being so, this ground is dismissed as not pressed. Ground No. 2: 5. In this ground, the assessee claims that the CIT(A) has erred in confirming the AO’s action of re-opening assessment u/s 147 after expiry of 4 years from end of the relevant assessment-year. 6. Ld. AR straightaway carried us to the 1 st proviso to section 147 which prescribes thus: “Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.” 7. Then, the Ld. AR submitted that the assessment-year involved in present case is 2011-12 which was already subjected to scrutiny- assessment u/s 143(3) vide order dated 12.12.2013. Subsequently, the AO took action of re-opening u/s 147 through notice dated 21.03.2018 though the time period of four years had already expired on 31.03.2016. Ld. AR submitted that there is no failure on the part of assessee to file ITR u/s 139/142(1)/148. Further, during the course of original assessment, Ld. AO has already verified the claim of deduction u/s 10A by making requisite enquiry from assessee which is very much clear from the query-letter dated 17.10.2013 issued by AO (copy placed in Paper-Book Page No. 98 to 99), wherein the AO raised this query to assessee “2.9 In the return of income, you had claimed deduction of Rs. 58,84,223/- u/s 10B of the I.T. Act. In this context, you are requested to please furnish necessary details/evidences to Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 4 of 9 justify your claim of deduction especially in view of the conditions laid down in the aforesaid section.” In response, the assessee filed reply dated 29.10.2013 (copy placed at Page No. 100 to 102 of the Paper-Book) making a clear submission that it is 100% EOU located in STPI and claiming deduction u/s 10A; the assessee also filed copies of documentary evidences being (i) registration certificate under STPI, and (ii) copy of CA certificate in Form No. 56F as prescribed in section 10A. Thus, all material facts relating to the deduction of Rs. 58,84,223/- were fully and truly disclosed by assessee to then AO and it is thereafter that then AO allowed deduction u/s 10A while passing assessment-order. Ld. AR submitted that since none of the failures as mentioned in the later part of 1 st proviso to section 147 (reproduced earlier) was committed by assessee; the case of assessee is perfectly governed by the said 1 st proviso according to which the AO cannot take action u/s 147 after expiry of four years. Ld. AR submitted that despite such legal bar, the AO has taken action u/s 147, which is clearly violative of the 1 st proviso to section 147; therefore the whole proceeding done by AO is invalid and liable to be quashed. 8. Replying to above, Ld. DR appearing on behalf of revenue submitted that the assessee has raised identical ground before CIT(A) but the CIT(A) has dismissed the same. Ld. DR submitted that the present case has a unique fact, which cannot be overlooked. He drew our attention to Page No. 7 of the order of CIT(A) and pointed out that the assessee itself admitted its own reporting mistake in the ITR i.e. while filing original ITR, the assessee wrongly mentioned/claimed deduction in the Schedule of section 10B instead of section 10A. Thus, the ITR filed by assessee revealed that the assessee claimed deduction u/s 10B and not u/s 10A. Therefore, the Ld. CIT(A) has treated this as a case of “non-disclosure” and dismissed the identical ground raised by assessee in first-appeal by holding thus: “7.7 In the original proceedings u/s 143(3) the claim of deduction u/s 10A was neither made nor examined by the AO. The appellant has itself stated that the claim in the return was made u/s 10B of the Act Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 5 of 9 [and not 10A]. This issue was neither examined nor revealed by the appellant during the proceedings u/s 143(3) of the Act and to that extent it amounts to non-disclosure by the appellant. The action of the AO in reopening the assessment on this ground is thus correct as per law and procedure. The reopening of the assessment u/s 147 by issue of a notice u/s 148 is thus held to be as per law and the ground in this respect is accordingly dismissed.” 9. Ld. DR strongly contested that at the time of initiating action u/s 147, what is required is only a reasonable satisfaction on the part of AO that the income chargeable to tax has escapement; once such reasonable satisfaction is found to be existent, nothing more is required and the initiation of proceeding u/s 147 cannot be said to be illegal. In the present case, the assessee claimed deduction u/s 10B in the return of income and still did not file report in Form No. 54G as prescribed u/s 10B; therefore the AO had a reasonable satisfaction that the deduction u/s 10B was wrongly availed/granted. Ld. DR submitted that in the original assessment proceeding, the assessee has not clearly apprised the AO about its reporting mistake in the return of income; therefore also it is a case failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment. 10. We have considered the rival submissions of both sides and perused the orders of lower-authorities as also the relevant documents placed in the Paper-Book. After a careful consideration, we observe that firstly it is the assessee who made a reporting mistake in the return of income whereby the deduction was reported u/s 10B and not u/s 10A. Secondly, the documents placed before us do not demonstrate that the assessee has particularly apprised the AO about this reporting-mistake in original assessment- proceeding. Therefore, the Ld. DR has merit in his submission that it is a case of failure on the part of assessee to disclose fully and truly all material facts. We also agree with Ld. DR that at the time of initiating action u/s 147, what is required is a reasonable satisfaction on the part of AO that the income chargeable to tax has escapement; once such reasonable satisfaction Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 6 of 9 is found to be existent, nothing more is required and the initiation of proceeding u/s 147 cannot be said to be illegal. Therefore, in such a scenario, we subscribe to the view taken by Ld. CIT(A) that the re-opening u/s 147 is as per law. We are not inclined to reverse the view taken by Ld. CIT(A). The assessee fails in this ground. Ground No. 3: 11. In this ground, the assessee claims that the CIT(A) has erred in confirming the action of AO of disallowing the deduction u/s 10A, despite assessee being eligible for the same. 12. Ld. AR carried us to the relevant paragraphs of the assessment-order as well as the order of Ld. CIT(A) where the deduction claimed by assessee has been disallowed. Since the order of CIT(A) is on the same line of reasoning as adopted by AO, we extract below the order of CIT(A): “8.3 The appellant in order to claim deduction u/s 10 A; needs to file the return of income alongwith the prescribed statutory Forms. The rules regarding these cannot be relaxed for an error by the appellant while filing it. The claim of the appellant becomes defective, if the forms filed by the appellant are incorrect/wrongly filed. The AO has allowed the claim of the appellant u/s 10A in earlier years as in evident from the assessment orders for AY 2009-10 & 2010-11 filed by the appellant since the claim was correctly made as per prescribed procedure & accompanied by the prescribed statutory forms. 8.4 In the year under appeal the appellant has not made any claim u/s 10A of the Act in its own return of income. In the absence of the claim u/s 10A accompanied by the required statutory forms; the same is not allowable. At the same time, the claim u/s 10B made by the appellant in its return is also not allowable since the claim should have been made u/s 10A as already allowed earlier years. The claim u/s 10B is not maintainable as it is incorrect and ineligible.” 13. Analysing above order of CIT(A), Ld. AR submitted that both of the lower authorities have disallowed the claim of assessee with a very hyper- technical reasoning i.e. the assessee has claimed deduction u/s 10B in the ITR. Ld. AR submitted that during the course of re-opened assessment- Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 7 of 9 proceeding, the assessee has repeatedly submitted to both of the lower- authorities that it had claimed deduction u/s 10A and the mention in Schedule 10B of ITR was by mistake. Ld. AR submitted that the assessee has also filed (i) registration certificate under STPI, and (ii) copy of CA certificate in Form No. 56F as prescribed in section 10A, in support of the claim of deduction u/s 10A. Further, the assessee has also filed copy of the assessment-order dated 28.11.2011 for AY 2009-10 and assessment-order dated 08.03.2013 for AY 2010-11, both u/s 143(3), wherein the deduction u/s 10A claimed by assessee had been allowed. Ld. AR submits that neither there is any change in facts or law nor there is any doubt or ambiguity qua the eligibility or allowability of deduction u/s 10A to assessee. Ld. AR emphasized that even during the original assessment-proceeding, the Ld. AO has allowed deduction and the denial of same deduction in the re- opened assessment is due to hyper-technical reason alone, which is not justified. 14. Per contra, Ld. DR supported the orders of lower-authorities. 15. We have considered rival submissions of both sides. After a careful consideration, we find merit in the submission of Ld. AR that there is no doubt or ambiguity on the eligibility or allowability of deduction u/s 10A to the assessee, which was also allowed in the scrutiny-assessments of immediately preceding AY 2009-10 and 2010-11 as well as original scrutiny- assessment of current year also. We find that during the course of re-opened assessment, the AO has disallowed deduction only on the basis that it was claimed u/s 10B in the ITR and the Ld. CIT(A) has also supported the reasoning given by AO. But the assessee has repeatedly explained to the authorities that the mention in section 10B in ITR was by mistake and the assessee has in fact claimed u/s 10A. It is further on record that the assessee has filed a copy of registration-certificate under STPI and also a CA certificate in Form No. 56F certifying that the deduction u/s 10A has been correctly claimed. Thus, there is no question or dispute with respect to Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 8 of 9 eligibility or allowability of deduction u/s 10A. In fact, even during the course of re-opened proceeding also, the lower-authorities have not found any fallacy in the claim of deduction u/s 10A. Therefore, the revenue- authorities ought to have maintained the status quo i.e. the deduction as granted in the original assessment-order must have been allowed in re- opened assessment, rather than taking advantage of assessee’s reporting mistake. At this stage, we are consciously aware of the Circular No. 14(XL-35) dated 11.4.1955 and letter No. F.81/27/65-IT(B) dated 18.5.1965 in which the CBDT, the apex income-tax authority, has guided the assessing officers to assist the tax-payers in a reasonable way and to provide the relief if due to the assessee. In that view of matter, we are inclined to hold that the lower- authorities are not justified in denying the deduction u/s 10A lawfully claimed by assessee which stand allowed by AO in original assessment- order. Consequently, we direct the AO to allow deduction. The assessee succeeds in this ground. 16. Resultantly, this appeal of assessee is partly allowed. Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on ....../....../2023. Order pronounced in the open court on 18/04/2023. Sd/- Sd/- (SUCHITRA KAMBLE) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक /Dated : 18.04.2023 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) Beyond key Systems P. Ltd. ITA No.209/Ind/2022 Assessment year 2011-12 Page 9 of 9 (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore 1. Date of taking dictation 2. Date of typing & draft order placed before the Dictating Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the approved draft is placed before other Member 5. Date on which the fair order is placed before the Dictating Member for pronouncement 6. Date on which the file goes to the Bench Clerk 7. Date on which the file goes to the Head Clerk 8. Date on which the file goes to the Assistant Registrar for signature on the order 9. Date of dispatch of the Order