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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Shri S.S. Godara & Shri Laxmi Prasad Sahu
Per S. S. Godara, J.M.
This assessee’s appeal for A.Y. 2010-11 arises against the PCIT – 3, Hyderabad’s order dated 30.03.2020 passed in case No.ITBA/COM/F/17/2019-20/1026900464(1) involving proceedings 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
The captioned appeal filed by the assessee is barred by limitation by 31 days. The assessee has moved a petition requesting the bench to condone the delay. We heard the party on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.
We advert to the basic relevant facts regarding correctness of the learned PCIT’s action assuming sec 263 revision jurisdiction thereby terming the re-assessment herein 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 11.10.2010 declaring nil income. The same stood summarily processed under sec 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 income under normal provisions. We further note that the Assessing Officer next took recourse to sec. 148 / 147 reopening mechanism vide notice dated 31.03.2017 after forming reasons to believe that the assessee’s income liable to be assessed has escaped assessment. The same culminated in sec 143(3) r.w.s 147 re-assessment dated 31.12.2017. It is regarding this re-assessment that 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 expenses attributable to delivery of software outside India) from total turnover 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
2) The assessee claimed expenditure of Rs.6,51,94,812/- 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 reduced from the 'export turnover' vide (i) of Explanation 1 below sub-section 9 of section 1 10AA. " But the assessment was completed u/s 143(3) r.w.s.147 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 income tax assessment record, it is observed that the Assessing officer failed 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 27.02.2020 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 examined the issues for which earlier notices u/s 148 were issued and assessment was reopened as mentioned in the forgoing paras. Various items, as mentioned above, have been allowed as deductions without proper verification by the Aa. Hence, it was proposed to treat the assessment order, passed by the Aa, as erroneous and prejudicial to the interest of revenue on those issues. 5. The assessee's reply I objections for proceedings 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 Technologies Ltd., M/s. Sudarshan Chemicals and subsequent CBDT Circular dated 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 records 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 consideration paid in foreign exchange towards services purchase, the AO mentions that the same is not excluded from the export turnover, as the said amount has been paid for services rendered in India but not outside India. However, evidences / documents basing on which he has come to such conclusion that services are rendered in India are not available on record. 9. In assessee's submissions dated 07.06.2017 before the AO and submissions dated 09.03.2020 before the undersigned, it is being argued 3
ITA No 326/Hyd/2020
by the assessee that if such consideration paid in foreign exchange is included both in export turnover as well as total turnover, then no disallowance can be made. However, the fact that it has been included both in export turnover as well as total turnover is not verifiable from assessment records. 10. Correspondence available on assessment record mentions the payment of Rs.6.35 crores as 'services purchased'. If services are purchased by assessee Company for rendering software development services, then consideration received for providing software development services would form export turnover or assessee but not services purchased from third party. Therefore, question of excluding it from export turnover does not arise for purpose of computation of deduction. Hence, material available on record does not provide clarity with regard to nature of services purchased for Rs. 6.35 crores, with regard to location of rendering 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 assessment u/s 143(3) r.w.s. 147, the AO blindly accepted the version of the assessee without bringing the details on record or without examining the same. 12. The inaction of the AO regarding his primary responsibility of verifying the issues before him and accepting the assessee's version and passing order is treated as erroneous and prejudicial to the interest of revenue. 13. In the light of the above discussions, the order 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 extent 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, considering 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 Officer’s re-assessment herein is an erroneous one causing prejudice to the interest of Revenue. There could be no dispute about the settled legal proposition in view of the hon'ble apex court’s landmark decision in M/s Malabar Industries Co., Vs. CIT 243 ITR 83 (SC) that an assessment has to be both erroneous as well as causing prejudice to the interest of Revenue; simultaneously, before the CIT or the PCIT; as the case may be, sets into motion sec 263 revision mechanism. And that not each and every assessment fulfills the foregoing twin conditions in case the
ITA No 326/Hyd/2020
Assessing Officer adopts one of the two possible views. We observe in this backdrop that the learned PCIT’s detailed discussion in revision exercise does not deserve to be concurred with. This is for the reason that he holds that the assessment reports herein nowhere contained form No.56F regarding the issue of assessee’s foreign exchange loss of Rs.21.61 lacs. Learned CIT-DR fails to dispute that this from 56F (Page 45 in the paper book) is a report under sec 10AA of the Act as on 31.03.2010 by Chartered Accountant (in compliance of rule 16D) which has throughout formed part of assessment / re-assessment records. We thus hold that the learned PCIT has erred in law and on facts in quoting the assessee’s defunct in not placing on record its form No.56F. The impugned directions in para 7 of the learned PCIT’s order under challenge to this effect stand reversed.
Next comes the latter issue of assessee’s 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-DR’s vehement contention is that the Assessing Officer had not excluded it from export turnover. We wish to make it clear that it is para nos.8 and 9 of the PCIT’s directions hold these twin items regarding latter issue to be not verifiable from 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 (supra). And also that once it is treated as not verifiable from assessment records, we fail to understand as to what manner learned PCIT has exercised its 263 revision jurisdiction which goes contrary to his show cause. We thus made it clear that the issue of exclusion of a particular item export and total turnover already stands settled to rest by hon’ble apex Court’s decision as reiterated in the CBDT circular (supra)
ITA No 326/Hyd/2020
holding it to be a revenue neutral item. We therefore are unable to express our agreement with the Revenue’s arguments that the since the Assessing Officer had erred in not verifying accounts, the assessment is prejudicial to the interest of the Revenue. We accordingly hold that learned PCIT has erred in law and on facts in exercising his sec 263 revisionary jurisdiction in the given facts and circumstances of the instant case. This order under challenge is reversed. The re-assessment in issue dated 31.12.2017 stands restored as a necessary corollary.
This assessee’s appeal is allowed in above terms.
Order pronounced in the Open Court on 23rd September, 2021.
Sd/- Sd/- (LAXMI PRASAD SAHU) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, dated 23rd September, 2021. TYNM/sps
Copy to:
S.No Addresses 1 Rockwell Collins (India) Enterprises Private Limited, Phase I and II,7th 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 Benches 5 Guard File
By Order