DCIT 10(1)(1), MUMBAI V. HEXAWARE TECHNOLOGIES LTD, NAVI MUMBAI

ITA 64/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2719 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 05-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SATHYA MOORTHYDR
• Assessee Lawyers: ANUJ KISHANDWALA
• Keywords: Depreciation; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion; Reassessment proceedings
• Section: 143(3); 148; 139

Judgement Text

1 , , , , INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/64/MUM/2015, /ASSESSMENT YEARS: 2006-07 DCIT, 10-(1)(1) ROOM NO.209. AAYAKAR BHAVAN MK ROAD,MUMBAI-20. VS. M/S . HEXAWARE TECHNOLOGIES LTD. 152, MILLENIUM BUSINESS PARK, SECTOR-3, TTC INDL AREA MAHAPE,NAVI MUMBAI-400 710. PAN:AABCA 3203 F ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI N. SATHYA MOORTHY-DR ASSESSEE BY: SHRI ANUJ KISHANDWALA / DATE OF HEARING: 21.07.2016 / DATE OF PRONOUNCEMENT : 21.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 24/10/2014 OF THE CIT ( A)-17,MUMBAI THE ASSESSING OFFICER (AO)HAS FILED THE PRESENT APPEAL.ASSESSEE COMPANY E NGAGED IN THE BUSINESS OF DESIGN, DEVELOPMENT AND EXPORT OF COMPUTED SOFTWARE ETC.FIL ED ITS RETURN OF INCOME ON 29. 11. 2006,DECLARING TOTAL INCOME AT RS.NIL,AFTER SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION OF RS.9.52CRORES.THE AO COMPLETED THE ASSESSMENT U/S.143(3)OF THE ACT ON 23. 12.2009,DETERMINING THE INCOME OF THE ASSESSEE AT R S.NIL.SUBSEQUENTLY,THE ASSESSMENT WAS REOPENED U/S.147 OF THE ACT VIDE NOTICE,DATED 22.03 .2013.THE AO COMPLETED THE ASST. U/S. 143(3) R.W.S. 147 OF THE ACT DETERMINING THE INCOME OF THE ASSESSEE AT RS.12.55 CRORES.AFTER SETTING OFF OF UNABSORBED DEPRECIATION THE TAXABLE INCOME WAS COMPUTED AT RS. NIL.VIDE ITS LETTER DATED 11/04/2013,THE ASSESSEE ASKED THE AO T O PROVIDE THE REASONS RECORDED FOR REOPENING THE ASSESSMENT.THE AO SUPPLIED THE COPY O F THE REASONS VIDE HIS LETTER DATED 26/11/2013.HE DIRECTED THE ASSESSEE TO FURNISH EXPL ANATION AS TO WHY THE SHORT-TERM CAPITAL GAINS SHOULD NOT BE COMPUTED BY CONSIDERING THE RET URNED DOWN VALUE OF BANGALORE UNIT AT RS.2.25 CRORES WHICH WAS NET OF DEPRECIATION ALLOWE D BY THE AO IN THE ORIGINAL ASSESSMENT ORDER. IN ITS REPLY, DATED 27/12/2013,THE ASSESSEE RAISED OBJECTIONS TO THE REOPENING OF THE ASSESSMENT. AFTER DEALING WITH THE OBJECTIONS AND REFERRING TO THE PROVISIONS OF SECTION 147 OF THE ACT,THE AO HELD THAT IT WAS NOT A CASE OF MERE CHANGE OF OP INION. HE RECOMPUTED THE SHORT-TERM CAPITAL GAINS ON TRANSFER OF BANGALORE UNIT UNDER S LUMPS A AS PER THE PROVISIONS OF SECTION 50B OF THE ACT. 64/MUM/2015(HEXAWARE ) 2 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM, THE ASSESSEE A RGUED THAT THE ASSESSMENT PROCEEDINGS WERE INVALID IS NO NOTICE U/S.143(2) OF THE ACT WAS ISSUED,THAT THE REASSESSMENT PROCEEDINGS HAD BEEN INITIATED U/S.147 OF THE ACT BEYOND THE PE RIOD OF FOUR YEARS FROM THE END OF THE SUBJECT ASSESSMENT YEAR WITHOUT APPRECIATING THE FA CT THAT THERE WAS NO FAILURE ON PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL F ACTS RELEVANT TO THE MATTER,THAT THE AO HAD NOT RECORDED IN DEFINING IN THE REASONS FOR THE INI TIATION OF THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD FAILED TO DISCLOSE MATERIAL FACTS, THAT IN ABSENCE OF SUCH A FINDING THE REASSESSMENT PROCEEDINGS WERE NOT VALID,THAT THE RE ASSESSMENT PROCEEDINGS WERE MERELY BASED ON CHANGE OF OPINION HAVING REGARD TO THE SAM E FACTS AVAILABLE ON RECORD DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THAT THE AO WAS DUTY-BOUND TO ISSUE A NOTICE U/S.143(2)OF THE ACT WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE RETURN FOR THE REASSESSMENTS PROCEEDINGS HAD BE EN FILED, THAT THE RETURN OF INCOME IN COMPLIANCE WITH SECTION 148 OF THE ACT WAS FILED ON 11/04/2013 BY THE ASSESSEE,THAT NO NOTICE U/S.143(2)OF THE ACT WAS ISSUED BY THE AO AN D SERVED UPON THE ASSESSEE.THE ASSESSEE RELIED UPON VARIOUS CASES.THE MATTER WAS ALSO ARGUE D ON MERITS ALSO. 3.1 AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBM ISSIONS OF THE ASSESSEE,THE FAA HELD THAT RE-OPENING IN ABSENCE OF ANY FRESH MATERIAL W AS NOT JUSTIFIED, THAT THE ASSESSEE HAD FURNISHED ALL MATERIAL FACTS IN RELATION TO TRANSFE R OF BANGALORE UNIT, THAT THE AO HAD NOT ALLEGED THAT THERE WAS FAILURE ON PART OF THE ASSES SEE TO DISCLOSE MATERIAL FACTS. 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(AR)ARGUED THAT IN THE REA SONS RECORDED BY THE AO FOR REOPENING THE ASSESSMENT THERE IS NO MENTION OF FAILURE OF TH E ASSESSEE TO DISCLOSE MATERIAL FACTS,THAT IN ABSENCE OF ALLEGED FAILURE OF AN ASSESSEE MATTER CA NNOT BE REOPENED AFTER A PERIOD OF FOUR YEARS,THAT THE AO HAD NOT ISSUED NOTICE U/S.143(2)O F THE ACT WITHIN A PERIOD OF SIX MONTHS AND PASSED THE REASSESSMENT ORDER,THAT THE ORDER OF THE AO WAS AB-INITIO VOID.HE RELIED UPON THE CASES OF DYNACRAFT AIR CONTROLS (355 ITR 102); HINDUSTAN LEVER LTD. (268 ITR 332) AND INTERACTIVE MARKETING (ITA 6959/MUM/2012,DT.20.8.20 14, A.Y. 2003-04). 64/MUM/2015(HEXAWARE ) 3 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.BEFORE PROCEEDINGS FURTHER WE WOULD LIKE TO REPRODUCE THE REASONS RECO RDED BY THE AO FOR RE-OPENING THE ASSESSMENT FOR THE YEAR UNDER APPEAL AND SAME READS AS UNDER: AS PER THE PROVISION OF SECTION50B OF THE I.T ACT, ANY PROFIT AND GAINS ARISING FROM SLUMP SALE AFFECTED IN THE PREVIOUS YEAR SHALL BE TAXED A S CAPITAL GAIN. FURTHER, VIDE EXPLANATION 2(A) BELOW SUB-SECTION (3) IT IS ENVISAGED THAT IN THE CASE OF DEPRECIABLE ASSETS THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSET SHALL BE CONSIDER ED FOR COMPUTING THE NET WORTH. THE ASSESSEE COMPANY IS ENGAGED IN DESIGN, DEVELOPM ENT AND EXPORT OF COMPUTER SOFTWARE ETC. THE ASSESSEE COMPANY'S TAX PAYABLE UNDER NORM AL PROVISIONS OF THE ACT IS NIL DUE TO SET OFF OF BROUGHT FORWARD LOSSES AND ALSO THERE IS HUG E CARRY FORWARD OF LOSSES ELIGIBLE FOR SET OFF AGAINST FUTURE INCOME. THE ASSESSEE IS HAVING THREE 10A UNITS AT MAHAPE, BANGALORE AND CHENNAI OF WHICH .' BENGALORE UNIT' WAS TRANSFERRED AND THE ASSESSEE HAS OFFERED SHORT TERM CAPITAL GAINS OF RS.5,15,63,568/- ON LUMP SUM SALE IN ITS RETURN OF RETURN OF INCOME WHICH WAS ACCEPTED DURING SCRUTINY ASSESSMENT. IT IS SEEN THAT THE ASSESSEE HAD CONSIDERED WDV OF DEPRECIABLE ASSET AS RS.4,85,83,994/- ON GROSS BASI S. HOWEVER, DURING SCRUTINY ASSESSMENT WHILE ALLOWING DEDUCTION U/S. 10A IN RESPECT OF THE ABOVE UNIT THE ASSESSING OFFICER HAS THRUSTED DEPRECIATION OF RS.2,60,35,586/- BEIRIG C URRENT YEAR DEPRECIATION AFTER ELABORATE DISCUSSION AND TAKING INTO ACCOUNT VARIOUS JUDICIAL PRONOUNCEMENTS. AS SUCH WHILE COMPUTING SHORT TERM CAPITAL GAINS ON SLUMP SALE W DV OF RS.2,25,48,408/- NET OF CURRENT YEAR DEPRECIATION SHOULD HAVE BEEN TAKEN. HENCE, I HAVE REASON TO BELIEVE THAT RS. 2,60,35, 5 86/- OF INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE A.Y.2006-07 WITHIN THE MEANING OF SUB-CLAUSE (III) OF CLAUSE (C) OF EXPLANATION 2 OF SECTION 147 OF THE INCOME TAX AC T, 1961. THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IS MORE THAN RS. 1 LAKHS. 5.1 A CURSORY LOOK AT THE REASONS CLEARLY REVEAL THAT T HERE WAS NO FAILURE ON PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY THE MATERIAL F ACTS NECESSARY FOR MAKING ASSESSMENT.PROVISIO TO SECTION 147 CLEARLY MANDATES THAT FOR RE-OPENING THE ASSESSMENT,AFTER FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR,THERE SHOULD BE FAILURE ON PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS.IN THE MATTER O F NIRMAL BANG SECURITIES (382ITR93)HONBLE BOMBAY HIGH COURT HAS HELD AS FOL LOW : SECTION 147 OF THE INCOME-TAX ACT, 1961PROVIDES THA T IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 T O 153 OF THE ACT ASSESS OR REASSESS THE SAID INCOME CHARGEABLE TO TAX. HOWEVER, THIS IS SUBJECT TO CERTAIN LIMITATIONS. THE FIRST PROVISO TO SECTION 147 STIPULATES THAT WHERE AN ASSESSMENT HAS BEEN MADE NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM TH E 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 R ETURN 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, FO R THAT ASSESSMENT YEAR. 5.2 SIMILARLY,IN THE CASE OF ORACLE INDIA P. LTD.(370 I TR 91)THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER: IN ORDER TO REOPEN AN ASSESSMENT BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, IT IS AN ESSENTIAL CONDITION THAT THE INCOME CHARGEABLE TO TAX WHICH HAS 64/MUM/2015(HEXAWARE ) 4 ESCAPED ASSESSMENT MUST BE OCCASIONED, INTER ALIA, BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR THE ASSESSMENT, FOR THAT ASSESSMENT YEAR. THUS,THE LEGAL POSITION IS VERY CLEAR-ANY REASSESSM ENT AFTER A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR REQUIRES FAILUR E ON PART OF THE ASSESSEE.NOT ONLY THERE SHOULD BE FAILURE,WHAT IS IMPORTANT THAT IT SHOULD BE HIGHLIGHTED THAT AS TO HOW THE FAILURE TOOK PLACE. IN THE CASE UNDER CONSIDERATION THE AO HAS NOT MENTIONED THE VERY BASIC FACT THAT WOULD HAVE GIVEN HIM THE RIGHT TO RE-OPEN THE COMPL ETED ASSESSMENT.SECONDLY,IT IS ALSO AN ADMITTED FACT THAT THE AO HAD NOT ISSUED NOTICE U/S .143(2)OF THE ACT WITHIN THE PERIOD OF SIX MONTHS.THUS,ON BOTH THE COUNTS,ORDER PASSED BY THE AO IS INVALID.THEREFORE,IN OUR OPINION,THE ORDER OF THE FAA DOES NOT SUFFER FROM A NY LEGAL INFIRMITY.CONFIRMING HIS ORDER, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST TH E AO. AS A RESULT APPEAL FILED BY TH E AO STANDS DISMISSED. ORDER PRONOUNCED IN T HE OPEN COURT ON 21 ST ,JULY,2016. 21 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :21.07.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.