ASSIT CIR 3(1), MUMBAI V. AGILISYS I.T. SERVICES P. LTD ( FORMERLY KNOWN AS NET DECISIONS P. LTD), MUMBAI

ITA 2224/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3384 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-06-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 18-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Reopening of assessment; Business income; Audit objection; Bonafide belief; Difference of opinion; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 234B; 10B; 147; 148; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.2111/MUM/2011 (ASSESSMENT YEAR: 2001-02) M/S. AGILSYS IT SERVICES INDIA P. LTD. INCOME TAX O FFICER - 9(2)3 (FORMARLY KNOWN AS NET DECISION P. LTD.) 2ND FLOOR, AAYAKAR BHAVAN 6TH FLOOR, MUMBAI EDUCATON TRUST VS. M.K. ROAD, MUMBAI 400020 GENERAL A.K. VAIDYA CHOWK, BANDRA RECLAMATION, MUMBAI 400050 PAN - AABCN0192Q APPELLANT RESPONDENT ITA NO.2224/MUM /2011 (ASSESSMENT YEAR: 2001-02) INCOME TAX OFFICER - 9(2)3 M/S. AGILSYS IT SERVICES INDIA P. LTD. 2ND FLOOR, AAYAKAR BHAVAN (FORMARLY KNOWN AS NET DECISION P. LTD.) M.K. ROAD, MUMBAI 400020 VS. 6TH FLOOR, MUMBAI EDUCATON TRUST GENERAL A.K. VAIDYA CHOWK, BANDRA RECLAMATION, MUMBAI 400050 PAN - AABCN0192Q APPELLANT RESPONDENT ASSESSEE BY: SHRI RONAK G. DOSHI REVENUE BY: SHRI SURINDER JIT SINGH DATE OF HEARING: 21.03.2013 DATE OF PRONOUNCEMENT: 17.05.2013 O R D E R PER D. MANMOHAN, V.P. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 12.01.2011 PASSED BY THE CIT(A), VISAKHAPATANAM AND THEY PERTA IN TO A.Y. 2001-02. 2. IN THE APPEAL FILED BY THE ASSESSEE A PRELIMINARY I SSUE CONCERNING THE VALIDITY OF REOPENING OF ASSESSMENT UNDER SECTION 1 48 OF THE INCOME TAX, 1961 WAS RAISED. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEALS ARE STA TED IN BRIEF. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY WAS E NGAGED IN THE ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 2 BUSINESS OF DEVELOPMENT OF COMPUTER SOFTWARE. THE V ISAKHAPATNAM UNIT IS SITUATED IN THE SPECIAL ECONOMIC ZONE, I.E. SOFTWAR E TECHNOLOGY PARK OF VISAKHAPATNAM. THE COMPANY PROVIDES CONSULTANCY IN SOFTWARE DEVELOPMENT. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ADMITTING A LOSS OF ` 3,20,10,425/- ON 30.10.2001 WHEREIN THE NET PROFIT FROM THE STPI UNIT WAS SHOWN, ON WHICH DEDUCTION UNDER SECTION 10 A WAS CLAIMED. IT ALSO CLAIMED ADJUSTMENT OF THE LOSS FROM NON-STPI UNITS SITUATED AT VISAKHAPATNAM AND MUMBAI. ACCORDING TO THE ASSESSEE THE MUMBAI UNIT IS A RESEARCH AND DEVELOPMENT UNIT AND ITS SERVICES AR E UTILISED BY THE STPI UNIT AT VISAKHAPATNAM. SINCE IT IS A CAPTIVE R&D UN IT, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, IT CANNOT HAVE A SEPARATE COMMENCEMENT DATE. IT IS NOT IN DISPUTE THAT THE STPI UNITS COMM ENCED ITS OPERATIONS ON 08.03.2000 AND HENCE THE NON-STPI UNITS, WHICH ARE ONLY PART OF THE MAIN UNIT, CANNOT BE SAID TO HAVE A SEPARATE COMMENCEMEN T DATE. IN FACT, FROM A.Y. 2003-04 ONWARDS LOSSES FROM R&D UNIT WAS REDUC ED FROM STPI UNITS AND CLAIMED AS EXEMPT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE CLAIMED SET OFF OF LOSSES FROM NON-STPI UN ITS AND ALSO ISSUED NOTICE SEEKING DETAILS WITH REGARD TO THE EXPENDITURE IN E XCESS OF ` 1,00,000/-. THE LEARNED COUNSEL FOR THE ASSESSEE ADVERTED OUR ATTEN TION TO PAGES 1- 3, 16, 19, 23, 27, 29 AND 34 OF THE PAPER BOOK TO SUBMIT T HAT THE ASSESSEE FURNISHED COMPLETE DETAILS WITH REGARD TO THE LOSSE S INCURRED FROM NON-STPI UNITS AND THE AO MADE A THOROUGH INVESTIGATION IN T HAT REGARD BEFORE MAKING ASSESSMENT UNDER SECTION 143(3) OF THE ACT. INITIALLY THE ASSESSEE MADE A CLAIM UNDER SECTION 10A OF THE ACT BUT IN TH E ALTERNATIVE CLAIMED DEDUCTION UNDER SECTION 10B WHICH WAS DENIED BY THE AO BUT THE FACT REMAINS THAT THE AO MADE A THOROUGH ENQUIRY BEFORE COMPLETING THE REGULAR ASSESSMENT ON 19.03.2004. 5. ON 26.11.2007 THE AO ISSUED A NOTICE UNDER SECTION 148 OF THE ACT ON THE GROUND THAT THE INCOME CHARGEABLE TO TAX FOR A. Y. 2001-02 HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. SINCE REASSESSMENT PROCEEDINGS WERE TAKEN UP BEYOND A PER IOD OF FOUR YEARS, ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 3 RECKONED FROM THE ASSESSMENT YEAR UNDER CONSIDERATI ON, ASSESSEE REQUESTED THE AO TO PROVIDE THE REASONS FOR REOPENING OF THE ASSESSMENT. IN RESPONSE THERETO THE AO COMMUNICATED THE REASONS AS UNDER: - AS PER PROFIT & LOSS ACCOUNT ENCLOSED TO THE RETUR N OF INCOME, THE COMPANY HAD STIP UNIT AT VISAKHAPATNAM AND TWO NON- STPI UNITS, ONE AT VISAKHAPATNAM AND OTHER AT MUMBAI. THE STPI UNIT AT MUMBAI WAS ENGAGED IN RESEARCH AND DEVELOPMENT WORK AND LOSS OF RS.3,38,49,429/- WAS DECLARED FROM THE UNIT. IT IS SEEN FROM THE PROFIT & LOSS ACCOUNT OF NON-ST PI THAT THE COMPANY HAD CREDITED INTEREST INCOME (OTHER INCOME) OF RS.1 ,92,328/- AND DEBITED EXPENDITURE OF RS.3,40,41,756/- AND ARRIVED AT LOSS OF RS.3,38,49,429/-. NO BUSINESS INCOME WAS OFFERED FR OM MUMBAI NON- STPI UNIT. FURTHER, THE UNIT BEING R&D UNIT AND THE EXPENDITURE CLAIMED HAD NO CONNECTION WITH STPI, VISAKHAPATNAM, THE SAME WAS TO BE CAPITALIZED IN THE ABSENCE OF COMMENCEMENT OF BUSINESS BY THE UNIT AND INCOME FROM THE BUSINESS THEREOF WAS T O BE DISALLOWED. 6. THEREUPON THE ASSESSEE CONTENDED THAT THE REASSESSM ENT PROCEEDINGS ARE BAD IN LAW. IN THIS REGARD IT WAS STATED THAT I N THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT NO REASONS WERE RECORDED FOR REOPENING AND EVEN IN THE REASONS SUBSEQUENTLY COMMUNICATED IT IS NOT THE CASE OF THE REVENUE THAT THERE WAS FAILURE TO DISCLOSE TRUE FACTS AT TH E TIME OF MAKING ORIGINAL ASSESSMENT. IT WAS CONTENDED THAT THE ASSESSEE COMP ANY DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS RELATING TO THE INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. AUDIT REPORT, BALANCE SHEET AND SCHE DULE TO ACCOUNTS DISCLOSE THE INCOME AND EXPENDITURE AS WELL AS FIXE D ASSETS OF R&D UNIT AT MUMBAI SEPARATELY. ELABORATE SUBMISSIONS WERE MADE TO THE AO ON ALL THE ISSUES RAISED DURING THE COURSE OF ASSESSMENT PROCE EDINGS. THE AO TOOK INTO CONSIDERATION ALL THE FACTS AND DETAILS AND PASSED A DETAILED ORDER UNDER SECTION 143(3) OF THE ACT. FURTHER, DESPITE HAVING SUFFICIENT INFORMATION WITH REGARD TO THE R&D UNIT, AT NO POINT OF TIME THE AO OBJECTED TO ASSESSEES CLAIM OF CARRY FORWARD OF THE LOSSES OF THE SAID UN IT. IT WAS THEREFORE CONTENDED THAT THE PRESENT NOTICE, ISSUED UNDER SEC TION 148, IS ONLY ON ACCOUNT OF CHANGE OF OPINION ON THE PART OF THE AO AND HENCE NOTICE ISSUED IS NOT VALID IN LAW. IT WAS ALSO CONTENDED THAT NO ACTION CAN BE TAKEN FOR REOPENING OF THE ASSESSMENT AFTER FOUR YEARS UNLESS THE AO HAS REASONS TO ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 4 BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT BY REASO NS OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY FOR ASSESSMENT. IN OTHER WORDS, IF THE ASSESSEE DIS CLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, NOTICE UND ER SECTION 148 OF THE ACT IS LIABLE TO BE QUASHED. RELIANCE WAS PLACED UPON S EVERAL CASE LAWS IN THIS REGARD. IT WAS ALSO CONTENDED THAT REOPENING IS DON E ON THE BASIS OF AUDIT OBJECTIONS AND HENCE THE REASSESSMENT PROCEEDINGS A RE INVALID. WITHOUT PREJUDICE TO THE ABOVE IT WAS CONTENDED THAT THE UN IT SETUP AT MUMBAI WAS TO FACILITATE USE OF LATEST AND SPECIFIC TECHNOLOGI CAL SKILLS AND INNOVATIVE PROJECTS, THE NEED FOR WHICH WAS STRONGLY FELT BY T HE BUSINESS. MUMBAI IS ONE OF THE MAIN HUBS FOR INNOVATIVE I.T. TECHNOLOGY AND IN MUMBAI THE BUSINESS HAD AN OPPORTUNITY TO HAVE A TIE-UP WITH M UMBAI EDUCATIONAL TRUST (MET), A DEEMED UNIVERSITY, FOR ACCESSING AND SHARING TECHNOLOGY AND RESOURCES AND MET OFFERED FACILITIES AND INFRASTRUC TURE WHICH SUPPORTED WIDER OPERATIONS TO EXPLORE NEW TECHNOLOGY. IT WAS ALSO CONTENDED THAT BUSINESS HAD ALREADY COMMENCED IN THE YEAR 1999. SI NCE THE UNIT WAS EXCLUSIVELY FORMED TO SUPPORT BUSINESS REQUIREMENTS , WITH NO OUTSIDER AS ITS CUSTOMER, THE R&D UNIT CANNOT HAVE A SEPARATE DATE OF COMMENCEMENT OF BUSINESS AND HENCE THE ASSESSEE RIGHTLY CLAIMED THE EXPENDITURE INCURRED ON R&D UNIT AS REVENUE IN NATURE. THE MAIN FOCUS OF THE ASSESSEE WAS THAT ALL THE EVIDENCES WERE PRODUCED BEFORE THE AO AT TH E TIME OF MAKING REGULAR ASSESSMENT AND THE THEN AO HAS NOTED THE NON-STPI L OSSES CLAIMED BY THE ASSESSEE IN THE FIRST PARAGRAPH OF THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT AND THE AO HAVING ALSO ADMITTED THAT THE BO OKS OF ACCOUNT, BILLS AND VOUCHERS, INFORMATION AND DOCUMENTS WERE PRODUCED B EFORE HIM FOR VERIFICATION, IT CANNOT NOW BE STATED THAT THE AO H AD NO KNOWLEDGE OF THE EXPENDITURE CLAIMED BY THE ASSESSEE, SO AS TO REOPE N THE ASSESSMENT BY HOLDING THAT INCOME HAS ESCAPED ASSESSMENT. 7. THE AO AS WELL AS THE CIT(A) REJECTED THE CONTENTIO N. THE AO OBSERVED THAT THE THEN AO HAD NOT CALLED FOR SPECIFIC DETAIL S OF EXPENDITURE INCURRED IN THE NON-STPI UNIT LOCATED AT MUMBAI THE ASSESS MENT ORDER UNDER SECTION 143(3) DISCUSSED ABOUT THE ALLOWABILITY OF EXEMPTION UNDER SECTION 10A/10B AND NOWHERE A MENTION WAS MADE ABOUT THE NO N-STPI UNIT. WITH ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 5 REGARD TO THE CLAIM OF THE ASSESSEE THAT THE AO IN THE FIRST PARAGRAPH OF HIS ORIGINAL ASSESSMENT PROCEEDINGS NOTED ABOUT THE LOS SES INCURRED BY THE NON- STPI UNIT, IN THE REASSESSMENT PROCEEDINGS THE AO O BSERVED THAT A MERE MENTION WOULD NOT AMOUNT TO GIVING A SPECIFIC FINDI NG. IN FACT THERE IS NEITHER ANY EVIDENCE GATHERED BY THE EARLIER AO NOR THE ASSESSEE PRODUCED ANY EVIDENCE WITH REGARD TO COMMENCEMENT OF BUSINES S AND THE EXPENSES INCURRED IN R&D UNIT AND NON-STPI UNITS AND EVEN WI TH REGARD TO THE DATE OF COMMENCEMENT OF BUSINESS OF THE STPI UNIT AT VIS AKHAPATNAM. IN SHORT, THERE IS NO EVIDENCE TO PROVE THAT THE EXPENDITURE BOOKED AGAINST THE R&D UNIT IS RELATED TO BUSINESS OF STPI UNIT AT VISAKHA PATNAM. THE AO THEREFORE CAPITALIZED THE EXPENDITURE INCURRED BY THE R&D UNI T OF MUMBAI BY HOLDING THAT IT CANNOT BE TREATED AS REVENUE EXPENDITURE. 8. THE LEARNED CIT(A) OBSERVED THAT W.E.F. 01.04.1989 THE SCOPE OF SECTION 147 HAS BEEN ENLARGED SO AS TO EMPOWER THE AO TO INITIATE REASSESSMENT PROCEEDINGS IN CASES WHERE IT IS APPAR ENT FROM RECORD THAT INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED. IN HIS OPINION THE CONCEPT OF CHANGE OF OPINION AT A SUBSEQUENT STAGE BECOMES IRRELEVANT AFTER THE AMENDMENT BROUGHT INTO SECTION 147 W.E.F. 01.04 .1989. HE ALSO OBSERVED THAT THERE WAS A BONAFIDE BELIEF ON THE PA RT OF THE AO WHO INITIATED THE REASSESSMENT PROCEEDINGS IN AS MUCH AS THERE IS NOTHING ON RECORD TO INDICATE THAT THE UNIT AT MUMBAI WAS AN R&D UNIT OF THE STPI UNIT AT VISAKHAPATNAM FOR THE PURPOSE OF SUPPORTING THE LAT TER. MERELY BECAUSE THE AO EXAMINED THE BOOKS OF ACCOUNT, BILLS AND VOUCHER S, ETC. DURING THE STAGE OF ORIGINAL ASSESSMENT PROCEEDINGS IT CANNOT BE ASS UMED THAT THE AO PROPERLY EXAMINED THE CLAIM OF LOSS FROM MUMBAI UNI T AND THE NEXUS, WHATSOEVER, WITH THE STPI UNIT AT VISAKHAPATNAM. IN ADDITION THERETO THE ASSESSEE COMPANY DID NOT MAKE FULL AND TRUE DISCLOS URE OF ALL MATERIAL FACTS NECESSARY FOR COMPLETION OF ASSESSMENT. IN THIS REG ARD THE LEARNED CIT(A) OBSERVED THAT DURING THE ORIGINAL ASSESSMENT PROCEE DINGS, THOUGH THE ASSESSEE CLAIMED THAT MUMBAI UNIT HAD INCURRED A LO SS OF ` 3.22 CRORES, IT DID NOT REVEAL THE NATURE OF THE ACTIVITIES OF MUMB AI UNIT AND THE YEAR OF COMMENCEMENT OF BUSINESS RELATING TO SUCH UNIT SO A S TO ENABLE THE ERSTWHILE AO TO EXAMINE THE CORRECTNESS AND LEGITIM ACY OF SUCH LOSS FROM ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 6 MUMBAI UNIT. CONSEQUENTLY, THE THEN AO HAD TAMELY A CCEPTED SUCH CLAIM WITHOUT BRINGING ON RECORD THE NECESSARY INFORMATIO N AND MATERIAL ABOUT THE CORRECTNESS AND LEGITIMACY OF SUCH CLAIM. HE TH EN CONCLUDED THAT THE REASSESSMENT PROCEEDINGS ARE VALID SINCE IT WAS ONL Y DURING SUCH PROCEEDINGS IT HAS COME TO LIGHT THAT THOUGH THE AS SESSEE TREATED THE PROJECT EXPENDITURE IN RESPECT OF MUMBAI OPERATIONS AS A NE T LOSS FROM AN INDEPENDENT UNIT BUT FROM SUBSEQUENT YEARS IT SOUGH T TO SET OFF SIMILAR EXPENDITURE IN RESPECT OF MUMBAI OPERATIONS AGAINST THE PROFITS OF ITS VISAKHAPATNAM UNIT. IN THE OPINION OF THE LEARNED C IT(A) THE ASSESSEE HAS THUS BEEN BLOWING HOT AND COLD ON DIFFERENT TIMES C ONTRADICTING ITS OWN STAND TAKEN EARLIER WHICH IN TURN HIGHLIGHTS THAT T HE ASSESSEE FAILED TO MAKE FULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS RELA TING TO ITS MUMBAI OPERATIONS FOR A.Y. 2001-02 AND 2002-03. 9. FURTHER AGGRIEVED, ASSESSEE COMPANY IS IN APPEAL BE FORE US. THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE ADVERTED OUR ATTENTION TO PAGES 1-4, 16, 19, 27, 29, 34, 36, 37 AND 56 TO 74 OF THE PAPER BOOK IN SUPPORT OF HIS CONTENTION THAT THE ASSESSEE FURNISH ED SUFFICIENT MATERIAL BEFORE THE AO WITH REGARD TO THE STPI UNIT AS WELL AS THE NON-STPI UNITS AT VISAKHAPATNAM AND MUMBAI AND WHATEVER DETAILS WERE CALLED FOR WERE PRODUCED BEFORE THE AO. THE AO VERIFIED THE CLAIM O F THE ASSESSEE WITH REGARD TO THE LOSS FROM NON-STPI UNIT. HE HAS ALSO NOTICED THAT THE PROFIT FROM STPI UNIT WAS ADJUSTED AGAINST NON-STPI LOSS. SINCE ALL THE DETAILS WERE FURNISHED BY THE ASSESSEE, WHAT INFERENCE HAS TO BE DRAWN FROM THE DETAILS AVAILABLE FROM RECORD IS THE JUDICIAL PRERO GATIVE OF THE AO AND, MERELY BECAUSE THE LATTER INCUMBENT AO HOLDS A DIFFERENT V IEW ON THE MATTER, ASSESSMENT CANNOT BE REOPENED AFTER A PERIOD OF FOU R YEARS WITHOUT POINTING OUT THAT THERE WAS FAILURE ON THE PART OF THE ASSES SEE TO FURNISH FULL AND TRUE PARTICULARS FOR COMPLETION OF ASSESSMENT. SINCE THE ASSESSEE FURNISHED MATERIAL FACTS AT THE TIME OF MAKING REGULAR ASSESS MENT, REASSESSMENT PROCEEDINGS BASED UPON SAME SET OF FACTS IS NOT PER MISSIBLE IN THE LIGHT OF THE FOLLOWING DECISIONS: - ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 7 I. HINDUSTAN LEVER LTD. VS,. R.B. WADLAR 268 ITR 332 ( BOM) II. BHAVESH DEVELOPERS VS. AO 329 ITR 249 (BOM) III. KIMPLAS TRENTON FITTINGS LTD. VS. ACIT 340 ITR 299 (BOM) IV. ICICI BANK LTD. VS. K.J. RAO AND ANOTHER 268 ITR 2 03 (BOM) V. CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561 (SC) VI. ACIT VS. ICICI SECURITIES PRIMARY DEALERSHIP LTD. 3 48 ITR 299 (SC) VII. CIT VS. VINIYAS FINANCE & INVESTMENT P. LTD. 2013-T IOL-135-DEL-IT 10. IN THE CASE OF ICICI SECURITIES PRIMARY DEALERSHIP LTD. (SUPRA) THE APEX COURT OBSERVED THAT UPON COMPLETION OF ASSESSM ENT UNDER SECTION 143(3) AFTER TAKING INTO CONSIDERATION THE DETAILS FURNISHED BY THE ASSESSEE, ON A MERE RELOOK OF THE ACCOUNTS, WHICH WERE EARLIE R FURNISHED BY THE ASSESSEE, THE AO CANNOT REOPEN THE ASSESSMENT AFTER LAPSE OF FOUR YEARS FROM THE RELEVANT ASSESSMENT YEAR SINCE IT AMOUNTS TO CHANGE OF OPINION. IN THE CASE OF ICICI BANK LTD. (SUPRA) THE HON'BLE BOM BAY HIGH COURT OBSERVED THAT IF THE LEGAL INFERENCE DRAWN FROM THE MATERIAL FACTS IS ERRONEOUS IT CANNOT BE SAID THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRUE AND CORRECT PARTICULARS AND ON THE RELOOK OF T HE SAME MATERIAL REASSESSMENT PROCEEDINGS CANNOT BE INITIATED. IN TH E CASE OF VINIAYS FINANCE & INVESTMENT P. LTD. (SUPRA) THE HONBLE DELHI HIGH COURT OBSERVED THAT IF THE REASONS RECORDED DO NOT CONTAIN ANY ALLEGATIONS THAT ESCAPEMENT OF INCOME HAD BEEN OCCURRED ON ACCOUNT OF FAILURE OF T HE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT, THE AO WOULD BE BARRED FROM REOPENING THE ASSESSMENT. IN FACT TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN LEVER LTD. (SUPRA) O BSERVED THAT ONCE THE REASONS WERE RECORDED BY THE AO THEY CANNOT BE SUPP LEMENTED BY FILING AN AFFIDAVIT OR MAKING AN ORAL SUBMISSION. IN OTHER WO RDS, REASSESSMENT PROCEEDINGS SHOULD BE DIRECTLY BASED UPON REASONS R ECORDED. ADVERTING OUT ATTENTION TO PAGE 54 OF THE PAPER BOOK THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE NOTICE WAS ISSUED UNDER SECTION 148 ONLY ON THE GROUND THAT INCOME CHARGEABLE TO TAX ESCAPED ASSESSMENT BU T THERE IS NO WHISPER WITH REGARD TO THE ISSUE AS TO WHETHER THERE IS FAI LURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS RELEVANT FOR MAKING ASSESSMENT AND HENCE AT A LATER STAGE THE AO IS NOT ENTITLED TO SUBSTITUTE ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 8 THE REASON. IT WAS THUS STRONGLY CONTENDED THAT THE REASSESSMENT PROCEEDINGS ARE INVALID IN LAW. 11. WITHOUT PREJUDICE TO GROUND NO. 1 URGED BEFORE US, THE ASSESSEE COMPANY RAISED TWO GROUNDS, I.E. ALLOWABILITY OF DE DUCTION UNDER SECTION 10B OF THE ACT AND CORRECTNESS OF THE INTEREST CHAR GED UNDER SECTION 234B AND 234C OF THE ACT. AT THE TIME OF HEARING THE LEA RNED COUNSEL SUBMITTED THAT IN THE EVENT OF DECIDING THE FIRST ISSUE IN FA VOUR OF THE ASSESSEE COMPANY THERE IS NO NEED TO GO INTO THE OTHER TWO G ROUNDS BUT AT THE SAME TIME HE SUBMITTED THAT THE ASSESSEE IS NOT INTEREST ED IN PROSECUTING GROUND NO. 2 AND GROUND NO. 3 IS CONSEQUENTIAL IN NATURE. WITH REGARD TO THE APPEAL FILED BY THE REVENUE THE LEARNED COUNSEL SUBMITTED THAT THE ISSUES REQUIRE TO BE GONE INTO ONLY IN THE EVENT OF HOLDING THAT T HE REASSESSMENT PROCEEDINGS ARE VALID IN LAW. 12. THE LEARNED D.R., ON THE OTHER HAND, STRONGLY RELIE D UPON THE ORDERS PASSED BY THE AO AS WELL AS THE CIT(A). IT WAS CONT ENDED THAT THE RECORDS FURNISHED BY THE ASSESSEE DO NOT CLEARLY INDICATE T HAT THE NON-STPI UNIT AT MUMBAI IS A CAPITVE UNIT OF STPI UNIT AT VISAKHAPAT NAM. ONLY DURING THE REASSESSMENT PROCEEDINGS THE ASSESSEE, FOR THE FIRS T TIME, EXPLAINED THAT THE MUMBAI UNIT COMMENCED ITS OPERATIONS FROM 1999 ONWA RDS AND IT IS A CAPTIVE R&D UNIT BUT THESE FACTS WERE NOT EXPLAINED AND THERE WAS NO OCCASION, AT THE TIME OF MAKING REGULAR ASSESSMENT, TO GO INTO THESE DETAILS SINCE THE AO MAINLY FOCUSSED HIS ATTENTION ON ELIGI BILITY TO CLAIM DEDUCTION UNDER SECTION10A AND 10B OF THE ACT; THOUGH HE MENT IONED ABOUT THE LOSSES FROM NON-STPI UNIT NO DETAILED ENQUIRY WAS MADE IN THAT REGARD AND HENCE THE REASSESSMENT PROCEEDINGS ARE VALID IN LAW. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELE VANT ASSESSMENT YEAR AND IN A CASE WHERE THE ORIGINAL ASSESSMENT WAS COMPLET ED UNDER SECTION 143(3) OF THE ACT TWO CONDITIONS HAVE TO BE SATISFIED TO I SSUE A NOTICE UNDER SECTION 148 OF THE ACT, I.E., (A) FAILURE ON THE PART OF TH E ASSESSEE TO MAKE A RETURN UNDER SECTION 143 OR TO A NOTICE ISSUED UNDER SUB-S ECTION (1) TO SECTION 147 ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 9 OR SECTION 148 OR DISCLOSE FULLY AND TRULY ALL MATE RIAL FACTS NECESSARY FOR ASSESSMENT, AND (B) INCOME CHARGEABLE TO TAX HAS ES CAPED ASSESSMENT. AS CAN BE NOTICED FROM THE DECISIONS CITED ABOVE BY TH E LEARNED COUNSEL FOR THE ASSESSEE, BOTH THE CONDITIONS HAVE TO BE FULFILLED IN ORDER TO INITIATE PROCEEDINGS UNDER SECTION 148 OF THE ACT AND THE AO CANNOT SUPPLEMENT REASONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS . IN THE INSTANT CASE THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT MERE LY SUGGESTS THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WIT HIN THE MEANING OF SECTION 147 OF THE ACT AND THEREAFTER THE ASSESSEE WAS COMMUNICATED THE REASONS RECORDED BY THE AO WHEREIN THE AO HAS NOT S PECIFIED THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED BECAUSE OF FAILURE ON THE PART OF THE ASSESSEE TO FURNISH FULLY AND TRULY ALL MATERIAL FA CTS NECESSARY FOR MAKING ASSESSMENT. IN THE INSTANT CASE COMPUTATION OF TOTA L INCOME ALONGWITH ANNEXURES AS WELL AS THE DETAILS FURNISHED DURING T HE COURSE OF REGULAR ASSESSMENT PROCEEDINGS CLEARLY INDICATE THAT THE AS SESSEE FURNISHED ALL THE DETAILS NECESSARY FOR THE PURPOSE OF MAKING AN ASSE SSMENT AND IN THE ABSENCE OF RECORDING A REASON THAT REASSESSMENT PRO CEEDINGS WERE ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE TO F URNISH TRUE AND CORRECT PARTICULARS OF INCOME, REOPENING OF ASSESSMENT CANN OT BE SAID TO BE VALID IN LAW. UNDER THESE CIRCUMSTANCES WE QUASH THE REASSES SMENT PROCEEDINGS. SINCE THE NOTICE ISSUED UNDER SECTION 148 OF THE AC T IS HELD TO BE BAD IN LAW, OTHER ISSUES URGED BY THE ASSESSEE IN ITS APPEAL AS WELL AS THE GROUNDS URGED BY THE REVENUE IN THE CROSS APPEAL DO NOT SUR VIVE FOR CONSIDERATION. 14. IN THE RESULT, THE APPEAL FILED THE ASSESSEE IS TRE ATED AS ALLOWED WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSE D ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MAY, 2013. SD/- SD/- (N.K. BILLAIYA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 17 TH MAY, 2013 ITA NO.2111 & 2224/MUM/2011 M/S. AGILSYS IT SERVICES INDIA P. LTD. 10 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VISAKHAPATANAM 4. THE CIT VISAKHAPATANAM - 1 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.