Rockwell Collins (India) Enterprises Private Limited , Hyderabad V. Income Tax Officer, Ward-3(2), Hyderabad

ITA 326/Hyd/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5325 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 16-09-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 29-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Revision of order; Assessment record; Reassessment proceedings; Set aside
• Section: 143(3); 10AA; 143(1); 147; 148; 263

Judgement Text

ITA NO 326/HYD /2020 1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO.326/HYD/2020 ASSESSMENT YEAR: 2010-11 ROCKWELL COLLINS (INDIA) ENTERPRISES PRIVATE LIMITED, PHASE I AND II, 7 TH FLOOR, PLOT NO.129-132, DLF COMMERCIAL DEVELOPERS, BLOCK III, APHB COLONY, GACHIBOWLI, TELANGANA 500019. PAN : AADCR7773H. VS. THE PRINCIPAL COMMISSIONER OF INCOME TAX 3, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI SRIRAM SESHADRI - AR REVENUE BY : SRI Y.V.S.T. SAI CIT-DR DATE OF HEARING: 16/09/2021 DATE OF PRONOUNCEMENT: 23/09/2021 ORDER PER S. S. GODARA, J.M. THIS ASSESSEES APPEAL FOR A.Y. 2010-11 ARISES AGAI NST THE PCIT 3, HYDERABADS ORDER DATED 30.03.2020 PASSE D IN CASE NO.ITBA/COM/F/17/2019-20/1026900464(1) INVOLVING PR OCEEDINGS UNDER SEC 263 OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). HEARD BOTH THE PARTIES. CASE FILES PERUSED. ITA NO 326/HYD /2020 2 2. THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS BA RRED BY LIMITATION BY 31 DAYS. THE ASSESSEE HAS MOVED A PET ITION REQUESTING THE BENCH TO CONDONE THE DELAY. WE HEARD THE PARTY ON THIS PRELIMINARY ISSUE. HAVING REGARD TO THE REASON S GIVEN IN THE PETITION, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 3. WE ADVERT TO THE BASIC RELEVANT FACTS REGARDING CORRECTNESS OF THE LEARNED PCITS ACTION ASSUMING SEC 263 REVISION JURISDICTION THEREBY TERMING THE RE-ASSESSMENT HERE IN DATED 31.12.2017 AS AN ERRONEOUS ONE CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE. THIS ASSESSEE IS A COMPANY ENGAGED IN SOFTWARE DEVELOPMENT SERVICES. IT FILED ITS RETURN ON 11.1 0.2010 DECLARING NIL INCOME. THE SAME STOOD SUMMARILY PROCESSED UNDER SE C 143(1) WHEREIN IT WAS SUBJECTED TO SEC 115 JB ASSESSMENT. THE ASSESSING OFFICER THEREAFTER TOOK UP SCRUTINY AND FRAMED SEC 143(3) REGULAR ASSESSMENT DATED 26.03.2014 AGAIN ASSESSING NIL INC OME UNDER NORMAL PROVISIONS. WE FURTHER NOTE THAT THE ASSESS ING OFFICER NEXT TOOK RECOURSE TO SEC. 148 / 147 REOPENING MECHANISM VIDE NOTICE DATED 31.03.2017 AFTER FORMING REASONS TO BELIEVE THAT THE ASSESSEES INCOME LIABLE TO BE ASSESSED HAS ESCAPED ASSESSMENT. THE SAME CULMINATED IN SEC 143(3) R.W.S 147 RE-AS SESSMENT DATED 31.12.2017. IT IS REGARDING THIS RE-ASSESSMENT TH AT LEARNED PCIT HOLDS AS A FIT CASE TO ASSUME HIS SEC 263 REVISION JURISDICTION VIDE FOLLOWING DETAILED DISCUSSION : ' 1) ASSESSEE HAS WRONGLY REDUCED RS. 21,60,940/- ( FOREIGN EXCHANGE LOSS) AND RS.1,33,99,440/- (TELECOMMUNICATION EXPEN SES ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA) FROM TOTAL TURN OVER OF THE UNDERTAKING. HOWEVER, THE PROVISION OF THE SECTION 10AA HAS NOT DEFINED THE TERM 'TOTAL TURNOVER' AND THEREFORE THE SAID EXCLUSIONS NEED TO BE DISALLOWED. ITA NO 326/HYD /2020 3 2) THE ASSESSEE CLAIMED EXPENDITURE OF RS.6,51,94,8 12/- TOWARDS 'SHARED SERVICES' WHICH INCLUDED AN AMOUNT OF RS. 6, 35, 45 , 847/- TOWARDS 'SERVICES PURCHASED' AND PAID IN FOREIGN EXCHANGE ( VIDE 2.7 - EXPENDITURE IN FOREIGN CURRENCY OF NOTES TO ACCOUNTS). THE SAID EXPENDITURE IN FOREIGN CURRENCY TOWARDS 'SERVICES PURCHASED NEED TO BE RE DUCED FROM THE 'EXPORT TURNOVER' VIDE (I) OF EXPLANATION 1 BELOW SUB-SECTI ON 9 OF SECTION 1 10AA. ' BUT THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S.1 47 ON 31.12.2017 ACCEPTING THE INCOME RETURNED AT RS. NIL . 2. BY VIRTUE OF POWERS VESTED IN ME U/S 263 OF THE I.T. ACT, 1961, THE RECORDS PERTAINING TO THE INCOME-TAX ASSESSMENT IN THE CASE OF M/S. ROCKWELL COLLINS (INDIA) ENTERPRISES PVT. LTD. FOR THE ASST. YEAR 2010-11 WERE CALLED FOR AND EXAMINED. AS SEEN FROM THE INCO ME TAX ASSESSMENT RECORD, IT IS OBSERVED THAT THE ASSESSING OFFICER F AILED TO EXAMINE THE ABOVE ISSUES ON WHICH THE PROCEEDINGS U/S 147 OF THE ACT BY ISSUING NOTICE U/S 148 AND PASSED ORDER U/S 143(3) R.W.S.147 ON 31.12. 2017. 3. SHOW-CAUSE NOTICES DATED 30.01.2020 AND 27.02.20 20 WERE ISSUED TO THE ASSESSEE. IN REPLY TO THE SAME, ASSESSEE FILED THE DETAILS I OBJECTIONS DATED 09.03.2020. 4. AS PART OF 263 PROCEEDINGS, NOTICES WERE ISSUED, MAINLY STATING THAT IN THE REASSESSMENT PROCEEDINGS, THE AA HAS NOT EXAMIN ED THE ISSUES FOR WHICH EARLIER NOTICES U/S 148 WERE ISSUED AND ASSES SMENT WAS REOPENED AS MENTIONED IN THE FORGOING PARAS. VARIOUS ITEMS, AS MENTIONED ABOVE, HAVE BEEN ALLOWED AS DEDUCTIONS WITHOUT PROPER VERI FICATION BY THE AA. HENCE, IT WAS PROPOSED TO TREAT THE ASSESSMENT ORDE R, PASSED BY THE AA, AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE ON THOSE ISSUES. 5. THE ASSESSEE'S REPLY I OBJECTIONS FOR PROCEEDING S U/S 263 ARE AS UNDER: - FOR CALCULATION OF DEDUCTIONS U/S 10AA, FOR BOTH DENOMINATOR AND NUMERATOR, THE SAME ITEMS HAVE TO BE CONSIDERED FOR INCLUSION I EXCLUSION. - FOR SUBSEQUENT ASSESSMENT YEAR I.E. 2011-12, THE IT AT GAVE DECISION IN FAVOUR OF ASSESSEE, WHICH WAS ALSO ACCEPTED BY THE REVENUE. - THE SUPREME COURT JUDGEMENT IN THE CASE OF HCL TE CHNOLOGIES LTD., M/S. SUDARSHAN CHEMICALS AND SUBSEQUENT CBDT CIRCULAR DA TED 14.08.2018 ALSO SUPPORT THE SAME ISSUE. 6. I HAVE CONSIDERED THE ASSESSEE'S OBJECTIONS AND THE LEGAL POSITION. 7. W.R.T. THE ISSUE OF FOREIGN EXCHANGE LOSS OF RS. 21.61 LAKHS AND TELECOM EXPENSES OF RS. 133.99 LAKHS, THE ASSESSMENT RECORD S DO NOT CONTAIN THE FORM NO. 56F SAID TO HAVE BEEN FILED ALONG-WITH THE RETURN OF INCOME. 8. COMING TO THE ISSUE OF RS.635.40 LAKHS CONSIDERA TION PAID IN FOREIGN EXCHANGE TOWARDS SERVICES PURCHASE, THE AO MENTIONS THAT THE SAME IS NOT EXCLUDED FROM THE EXPORT TURNOVER, AS THE SAID AMOU NT HAS BEEN PAID FOR SERVICES RENDERED IN INDIA BUT NOT OUTSIDE INDIA. H OWEVER, EVIDENCES / DOCUMENTS BASING ON WHICH HE HAS COME TO SUCH CONCL USION THAT SERVICES ARE RENDERED IN INDIA ARE NOT AVAILABLE ON RECORD. 9. IN ASSESSEE'S SUBMISSIONS DATED 07.06.2017 BEFOR E THE AO AND SUBMISSIONS DATED 09.03.2020 BEFORE THE UNDERSIGNED , IT IS BEING ARGUED ITA NO 326/HYD /2020 4 BY THE ASSESSEE THAT IF SUCH CONSIDERATION PAID IN FOREIGN EXCHANGE IS INCLUDED BOTH IN EXPORT TURNOVER AS WELL AS TOTAL T URNOVER, THEN NO DISALLOWANCE CAN BE MADE. HOWEVER, THE FACT THAT IT HAS BEEN INCLUDED BOTH IN EXPORT TURNOVER AS WELL AS TOTAL TURNOVER I S NOT VERIFIABLE FROM ASSESSMENT RECORDS. 10. CORRESPONDENCE AVAILABLE ON ASSESSMENT RECORD M ENTIONS THE PAYMENT OF RS.6.35 CRORES AS 'SERVICES PURCHASED'. IF SERVI CES ARE PURCHASED BY ASSESSEE COMPANY FOR RENDERING SOFTWARE DEVELOPMENT SERVICES, THEN CONSIDERATION RECEIVED FOR PROVIDING SOFTWARE DEVEL OPMENT SERVICES WOULD FORM EXPORT TURNOVER OR ASSESSEE BUT NOT SERVICES P URCHASED FROM THIRD PARTY. THEREFORE, QUESTION OF EXCLUDING IT FROM EXP ORT TURNOVER DOES NOT ARISE FOR PURPOSE OF COMPUTATION OF DEDUCTION. HENC E, MATERIAL AVAILABLE ON RECORD DOES NOT PROVIDE CLARITY WITH REGARD TO NATU RE OF SERVICES PURCHASED FOR RS. 6.35 CRORES, WITH REGARD TO LOCATION OF REN DERING OF SUCH SERVICES AND ALSO WITH REGARD TO EITHER OR NOT THEM FORMING PART OF EXPORT TURNOVER. 11. PRECISELY ON THESE TWO ISSUES, EARLIER NOTICES U/S 148 WERE ISSUED AND ASSESSMENT WAS REOPENED. BUT WHILE COMPLETING THE A SSESSMENT U/S 143(3) R.W.S. 147, THE AO BLINDLY ACCEPTED THE VERS ION OF THE ASSESSEE WITHOUT BRINGING THE DETAILS ON RECORD OR WITHOUT E XAMINING THE SAME. 12. THE INACTION OF THE AO REGARDING HIS PRIMARY RE SPONSIBILITY OF VERIFYING THE ISSUES BEFORE HIM AND ACCEPTING THE ASSESSEE'S VERSION AND PASSING ORDER IS TREATED AS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE. 13. IN THE LIGHT OF THE ABOVE DISCUSSIONS, THE ORDE R DATED 31.12.2017 PASSED BY THE AO, ON THE ISSUES RAISED IN THE SHOW- CAUSE LETTERS, AS MENTIONED ABOVE, IS TREATED AS ERRONEOUS TO THE EXT ENT THAT IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AND IS HEREBY SET ASIDE. THE AO IS DIRECTED TO GIVE NECESSARY OPPORTUNITY TO ASSESSEE AND REDO THE ASSESSMENT AS DEEMED FIT BY CAUSING NECESSARY ENQUIRIES, CONSIDER ING THE FACTS AND THE LEGAL POSITION. 4. BOTH THE LEARNED REPRESENTATIVES REITERATE THEIR RESPECTIVE STANDS AGAINST AND IN SUPPORT OF CORRECTNESS OF THE FOREGOING EXERCISE OF REVISIONARY JURISDICTION BY THE LEARNED PCIT THEREBY HOLDING THAT THE ASSESSING OFFICERS RE-ASSESSMENT HEREIN IS AN ERRONEOUS ONE CAUSING PREJUDICE TO THE INTEREST OF REVENUE. THERE COULD BE NO DISPUTE ABOUT THE SETTLED LEGAL PROPOSI TION IN VIEW OF THE HON'BLE APEX COURTS LANDMARK DECISION IN M/S MALAB AR INDUSTRIES CO., VS. CIT 243 ITR 83 (SC) THAT AN ASSESSMENT HAS TO BE BOTH ERRONEOUS AS WELL AS CAUSING PREJUDICE TO THE INTER EST OF REVENUE; SIMULTANEOUSLY, BEFORE THE CIT OR THE PCIT; AS THE CASE MAY BE, SETS INTO MOTION SEC 263 REVISION MECHANISM. AND THAT N OT EACH AND EVERY ASSESSMENT FULFILLS THE FOREGOING TWIN CONDIT IONS IN CASE THE ITA NO 326/HYD /2020 5 ASSESSING OFFICER ADOPTS ONE OF THE TWO POSSIBLE VI EWS. WE OBSERVE IN THIS BACKDROP THAT THE LEARNED PCITS DETAILED D ISCUSSION IN REVISION EXERCISE DOES NOT DESERVE TO BE CONCURRED WITH. THIS IS FOR THE REASON THAT HE HOLDS THAT THE ASSESSMENT REPORT S HEREIN NOWHERE CONTAINED FORM NO.56F REGARDING THE ISSUE O F ASSESSEES FOREIGN EXCHANGE LOSS OF RS.21.61 LACS. LEARNED CI T-DR FAILS TO DISPUTE THAT THIS FROM 56F (PAGE 45 IN THE PAPER BO OK) IS A REPORT UNDER SEC 10AA OF THE ACT AS ON 31.03.2010 BY CHART ERED ACCOUNTANT (IN COMPLIANCE OF RULE 16D) WHICH HAS TH ROUGHOUT FORMED PART OF ASSESSMENT / RE-ASSESSMENT RECORDS. WE THUS HOLD THAT THE LEARNED PCIT HAS ERRED IN LAW AND ON FACTS IN QUOTING THE ASSESSEES DEFUNCT IN NOT PLACING ON RECORD ITS FOR M NO.56F. THE IMPUGNED DIRECTIONS IN PARA 7 OF THE LEARNED PCITS ORDER UNDER CHALLENGE TO THIS EFFECT STAND REVERSED. 5. NEXT COMES THE LATTER ISSUE OF ASSESSEES EXPORT AS WELL AS TOTAL TURNOVER SO FAR AS ITS SHARED SERVICES OF RS. 6,51,94,812/-; INCLUDING THE SERVICE PURCHASE OF RS.635.40 LACS IS CONCERNED, LEARNED CIT-DRS VEHEMENT CONTENTION IS THAT THE AS SESSING OFFICER HAD NOT EXCLUDED IT FROM EXPORT TURNOVER. WE WISH TO MAKE IT CLEAR THAT IT IS PARA NOS.8 AND 9 OF THE PCITS DIRECTION S HOLD THESE TWIN ITEMS REGARDING LATTER ISSUE TO BE NOT VERIFIABLE F ROM THE ASSESSMENT RECORDS. WE MAKE IT CLEAR HEREIN THAT THE ASSESSEE S COMPUTATION AS WELL AS BOOK RESULTS HAVE BEEN FILED ALL ALONG BOTH DURING THE COURSE OF REGULAR ASSESSMENT AS WELL AS RE-ASSESSMENT (SUP RA). AND ALSO THAT ONCE IT IS TREATED AS NOT VERIFIABLE FROM ASSE SSMENT RECORDS, WE FAIL TO UNDERSTAND AS TO WHAT MANNER LEARNED PCIT H AS EXERCISED ITS 263 REVISION JURISDICTION WHICH GOES CONTRARY TO HI S SHOW CAUSE. WE THUS MADE IT CLEAR THAT THE ISSUE OF EXCLUSION OF A PARTICULAR ITEM EXPORT AND TOTAL TURNOVER ALREADY STANDS SETTLED T O REST BY HONBLE APEX COURTS DECISION AS REITERATED IN THE CBDT CIR CULAR (SUPRA) ITA NO 326/HYD /2020 6 HOLDING IT TO BE A REVENUE NEUTRAL ITEM. WE THERE FORE ARE UNABLE TO EXPRESS OUR AGREEMENT WITH THE REVENUES ARGUMENTS THAT THE SINCE THE ASSESSING OFFICER HAD ERRED IN NOT VERIFYING ACCOUNTS, THE ASSESSMENT IS PREJUDICIAL TO THE INTEREST OF THE RE VENUE. WE ACCORDINGLY HOLD THAT LEARNED PCIT HAS ERRED IN LA W AND ON FACTS IN EXERCISING HIS SEC 263 REVISIONARY JURISDICTION IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. THIS ORDER UNDE R CHALLENGE IS REVERSED. THE RE-ASSESSMENT IN ISSUE DATED 31.12.2 017 STANDS RESTORED AS A NECESSARY COROLLARY. 6. THIS ASSESSEES APPEAL IS ALLOWED IN ABOVE TERMS . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2021. SD/- SD/- (LAXMI PRASAD SAHU) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER HYDERABAD, DATED 23 RD SEPTEMBER, 2021. TYNM/SPS COPY TO: S.NO AD DR ES S E S 1 RO CKWELL COLLIN S (INDIA) ENTERPRISES PRIVATE LIMITED, PHASE I AND II, 7 TH FLOOR, PLOT NO.129-132, DLF COMMERCIAL DEVELOPERS, BLOCK III, APHB COLONY, GACHIBOWLI, TELANGANA 500019. 2 THE PCIT 3, HYDERABAD. 3 ADDL. CIT, RANGE 3, HYDERABAD 4 DR , ITAT HYDERABAD BE NCHES 5 GUARD FILE BY ORDER