Microsoft Global Services Center (India) Pvt. Ltd., Hyderabad V. The Deputy Commissioner of Income Tax, Hyderabad

WP/18721/2014

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The case involves Microsoft Global Services Center (India) Pvt. Ltd., Hyderabad, challenging the re-assessment order issued by the Deputy Commissioner of Income Tax, Hyderabad, for the assessment year 2009-10. The petitioner contested the notices issued under Sections 143(2) and 148 of the Income Tax Act, 1961, arguing that the Assessing Officer did not consider relevant judicial precedents and objections raised during the re-assessment proceedings. The court found that the Assessing Officer failed to address the judicial decisions and objections adequately, which is a facet of natural justice, and thus remanded the matter for re-evaluation.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 796120 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 17-07-2014
• Assessment Year: misc
• Other Referred Cases: DCIT vs. Planet Online Pvt. Ltd., Bartronics India Ltd. vs. ACIT, ACIT vs. Zavata India Pvt. Limited, ITO vs. Promantra Synergy Solutions Ltd., DCIT vs. Seven Hills Business Solutions Ltd., ITO vs. Keval Construction
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Jurisdiction; Natural Justice; Quasi-Judicial Function; Re-assessment
• Section: 147; 148; 143(2)

Judgement Text

"THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR Writ Petition No.18721 of 2014 DATED:17.07.2014 Between: Microsoft Global Services Center (India) Pvt. Ltd., Hyderabad. … Petitioner And The Deputy Commissioner of Income Tax, Hyderabad. ….Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR Writ Petition No.18721 of 2014 Order: (per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This writ petition is filed seeking to challenge the order dated 10.6.2014, impugned notice dated 13.3.2014 issued under Section 148 and notice dated 28.5.2014 issued under Section 143(2) of the Act relating to assessment year 2009-10, that preceded order dated 10th June, 2014. The Assessing Officer wanted to re-open the assessment under Section 147 of the Income Tax Act, 1961 (for short ‘the Act’). So, the assessee sought for reasons and as the reasons were supplied by the Revenue Officials, the writ petitioner raised objections thereto and, requested to allow a hearing to consider the objections. While overruling the objections, the Revenue officials have proceeded to make assessment once again. It is therefore against the aforesaid decision basically overruling the objections of the writ petitioner, this writ petition has been filed. Learned counsel for the petitioner submits that while passing impugned order, the Assessing Officer did not consider the relevant judgments cited by his client to support plea of objection, and taking note of the inappropriate decisions as a precedent, this matter has been proceeded with further. He has drawn our attention to paragraph-16 of the writ petition to advance his argument on the fact and also on Ground No.D at page 18 and he has also taken us to the written objections raised before the Assessing officer. According to him, had those decisions been considered, which are binding on the question of law, the Assessing Officer would have no option, but to decide that he has no jurisdiction to re-open the assessment. There is no answer in the counter filed on the ground taken as above. Mr. J.V. Prasad, learned counsel appearing for the Revenue contends that at this stage, once the formation of opinion of reason to believe is done, it is good enough. According to him, whether these judgments are applicable or not is for the Assessing Officer to decide and if for any reason, some judgments are not considered, it shall be deemed to have been irrelevant. Relying on some precedent, including the Hon’ble supreme Court, the order has been passed to proceed with the re-assessment. At this stage, in our view, after considering the above contentions of the parties, the Court has to see whether the Assessing Officer has decided the matter considering the relevant material or not. We have seen his order and we have taken note of the statement and averments in paragraph-16 and Ground-D of the writ petition accompanying documents, including written objections raised before the Assessing Officer. In the counter, these averments of the writ petition, have not been dealt with, but we are of the view that on this issue, counter affidavit filed by the Department has no relevance, as the act of the Assessing Officer is a quasi judicial function and not a departmental function. His recording of fact on any subject is reflected from his own order and no further material is required. In the context of this submission of the learned counsel for the petitioner, we have examined the written objections and we find that at page-64 of the writ petition, in paragraphs 2.2.3 and 2.2.4 thereof, it is specifically stated as follows: “2.2.3. Further the Company humbly wishes to bring to the notice of your goodself that various Courts have analyzed the similar facts and have affirmed that “profits” of the business of the undertaking for beneficial provision of Section(s) 80-IB/80HHC/10B/10A, are to be calculated as per the provisions of Section 28 of the Act. Hon’ble Jurisdictional ITAT in case of DCIT vs.Planet Online Pvt. Ltd., ITA No. (2008) 1016/HYD/07(Hyd- ITAT) (Copy enclosed as Annexure-5) has held that : “Profits and gains of business is defined in Section 28 and as per Section 29 income referred to in Section 28 shall be computed in accordance with the provisions of Section 30 to 43D. From the above provisions in the statute, it is thus clear that the profit of the undertaking in the case of the appellant has to be computed in accordance with the provisions of the Section 30 to 43D, i.e., including the provisions of Section 43-B of the Act. In view of the above legal provisions in my considered view, exemption under Section 10B has to be computed on the profits determined after taking into account the disallowances to be made under Section 43B of the Act.” (emphasis supplied). Hon’ble Jurisdictional ITAT in case of Bartronics India Ltd., vs. ACIT-ITA No. (2012) 2188 & 2189/HYD/2011 (Hyd-ITAT) (Copy enclosed as Annexure-6) has held that: “if AO re-computes profit from eligible business by disallowing certain expenditure and liability under Section 40(a)(ia) and 43B, such recomputed profit shall be considered for purpose of deduction under Section 10B”. 2.2.4 Further following the decision of Planet Online Pvt Ltd., (Supra) similar view has been taken by Jurisdictional Hyderabad ITAT in the following judgments wherein the profit of the undertaking is arrived in accordance with the provisions of Section 30 to 43D of the Act for computing the tax holiday benefit under Section 10A of the Act. Hon’ble Jurisdictional ITAT in case of ACIT vs. Zavata India Pvt. Limited (2010) ITA No. 1100/Hyd/2009 (Hyd- ITAT) has held that : (copy enclosed as Annexure-7) “the profit of the undertaking which has to be considered for computing deduction under Section 10B of the Act, is the profit which has been arrived in accordance with the provisions of Section 30 to 43D of the Act and thus taking into account the disallowance made under Section 43B of the Act and the disallowance covered under the provisions of the above sections has to be taken into account for the purpose of computation of deduction under Section 10A of the Income Tax Act.” Hon’ble Jurisdictional ITAT in case of ITO vs. Promantra Synergy Solutions Ltd., (2013) ITA No. 140/Hyd/2013 (Hyd-ITAT) has held that: (copy enclosed as Annexure-8) “We find that as per Section 10A of the Act, a deduction shall be allowed of such profits and gains as are derived by an undertaking from the export of such articles or things or computer software. By reading the Section 29 of the Act read with Section 28 of the Act, it is clear that income shall be computed in accordance with the provisions of Section 30 to 43D of the Act. Hence, the profit of the undertaking in the present case has to be computed in accordance with the provisions of Section 30 to 43 D i.e., including the provisions of Section 40a(ia) of the Act. In view of the above, in our considered opinion, exemption under Section 10A has to be computed on the profits determined after taking into account the disallowance to be made under Section 40a(ia) of the Act.” Hon’ble Jurisdictional ITAT in case of DCIT vs. Seven Hills Business Solutions Ltd. (2012) ITA No. 819/Hyd/2011 (Hyd-ITAT) has held that: “that enhanced income, if any, on account of any disallowance is construed as income from exports only, consequently boosting the income eligible for exemption under Section 10A of the Act.” Hence in view of the above submissions and judicial pronouncements, it is submitted that tax holiday benefit under Section 10A of the Act should be calculated on the profit as per the provisions of Section 29 of the Act i.e., after giving effect to allowance/disallowance provided in Section 30 to 43D of the Act. Also in the scenario where the returned income is enhanced by making addition/disallowances in the assessment order, tax holiday benefit under Section 10A of the Act should be recomputed considering such enhanced income. Again in paragraph 2.5 at page 67 of the writ petition, it is specifically stated thus: 2.5. Further, the judgment of Ahmedabad ITAT in the case of Keval Constructions (Supra) was also upheld by the Hon’ble Gujarat High Court in the case ITO vs. Keval Construction (2013) 354 ITR 13 (Guj HC) (Judgment dated 10.12.2012), wherein the Hon’ble High Court held that: “we find no error in the Tribunal’s ultimate conclusion. Even if a certain expenditure which was incurred by the assessee for the purpose of developing housing project was not allowable by virtue of section 40(a)(ia) of the Act, since the assessee had not deducted the tax at source as required under law, it cannot be denied that such disallowance would ultimately go to increase the asssessee’s profit from the business of developing housing project. Whatever be the ultimate profit of assessee as computed even after making disallowance under Section 40a(ia) of the Act, would qualify for deduction as provided under the law.” We find from the impugned order, there is no mention of consideration of the aforesaid decisions. According to us, whenever any materials are produced whether on fact or on law, it is the duty of the Officers of any level in discharging his quasi judicial function to consider as to whether those are relevant or not. He is required to say why such materials are not acceptable, at least, this duty should be performed as being part of the compliance of the principles of natural justice. There are many a facets of natural justice. We think that this is one of the facets of natural justice, to be informed why the materials were rejected. We accordingly pass the following order: We hold that the impugned order has not been passed with appropriate decision making process. Consequently, the order passed thereon is not in appropriate exercise of jurisdiction. We, therefore, feel that the Assessing Officer before proceeding further, must consider those decisions, which have been mentioned in the written objections. After considering them, he would come to a fresh conclusion. In that process, it would be open for him either to withdraw the order or to vary, modify or retain the same. We think that the impugned order should be kept in abeyance till such time a decision is taken in the matter in terms of this order. This exercise is to be completed within a period of three weeks from the date of communication of this order. We make it clear that the decision will be rendered only on the non-considered decisions. The writ petition is accordingly disposed of. Consequently, the miscellaneous applications, if any pending, shall also stand closed. No order as to costs. __________________ K.J. SENGUPTA, CJ _________________ SANJAY KUMAR, J 17h July, 2014 pnb "