QX KPO SERVICES PVT LTD vs. DEPUTY COMMISSIONER OF INCOME TAX

CAV JUDGMENT (PER : HONOURABLE Mr. JUSTICE B.N. KARIA) Petitioner has challenged a notice dated 10th January 2017 issued by the respondent under Section 148 of the Income-tax Act, 1961 [“the Act” for short] seeking to reopen the petitioner’s assessment for the Assessment Year 2011-2012.

Brief facts are as under : The petitioner is a Company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of providing accountancy, outsourcing and IT infrastructure management services. For the Assessment Year 2011-2012, the petitioner filed its return of income on 30th November 2011 declaring total income at Rs. 10,52,887/= after claiming deduction of Rs. 56,96,695/= under Section 10B of the Act. The petitioner had obtained Form No. 56G, being a report under Section 10B of the Act. Such return was taken in scrutiny by the Assessing Officer. During such scrutiny assessment, the Assessing Officer had raised queries about deduction under Section 10B of the Act. The petitioner replied to such queries, upon which the order of assessment under Section 143[3] of the Act came to be passed on 6th January 2014 choosing not to make any disallowance in respect of the claim of deduction under Section 10B of the Act. Thereafter, after passing the period of four years from the end of the year under consideration, the Assessing Officer issued the impugned notice seeking to reopen such assessment. The petitioner thereupon requested the AO to treat original return of income as return filed in response to the notice and to supply a copy of the reasons recorded for reopening the assessment. The respondent thereafter supplied a copy of reasons for reopening the assessment vide communication dated 12th May 2017, which read thus- “In this case, assessee filed its return of income on 30.11.2011 which is beyond the due date of filling of return ie., 30.09.2011 and claimed deduction u/s 10B (1) of Rs. 56,96,695/-. No deduction under this section shall be allowed to an assessee who does not finish a return of his income on or before the due date specified under sub section (1) of Section 139. Secondly, as per explanation claimed under Sub-section 2(iv) to Section 10B, 100% EOU means “Hundred percent export-oriented undertaking” means an undertaking which has been approved as hundred percent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 and 1951), and the rules made under Act. As per Instruction dated 09th March, 2009 issued by the CBDT in respect of deduction u/s. 10B of the Income-tax Act 1961, the approval of 100% EOU will be considered valid, once such approval is ratified with the Board of Approval for EOU Scheme. Even, the Export Promotion Council for EOUs and SEZs vide EPCES Circle Co. 68 dated 14.05.2009 circulated instruction dated 9th March, 2009 issued by the CBDT in respect of deduction u/s. 10B of the Income-tax Act, 1961. It is observed that there is no proof on record that there is ratification from Board of Approval for EOU Scheme. Therefore, the assessee is not entitled to deduction u/s. 10B of Rs. 56,96,695/-. Further as stated above the assessee has filed the return of income after the due date specified u/s. 139(1) of the Act. Therefore, I have reason to believe that income has escaped assessment for A.Y. 2011-12 to the tune of Rs. 56,96,695/- and accordingly assessment is required to be reopened u/s. 147 of the I.T. Act.” The petitioner raised objections to the notice of reopening vide letter dated 5th June 2017 pointing out that the return of income was filed previously and issue as to deduction under Section 10B of the Act was decided in favour of the petitioner. Thereafter, the respondent-Assessing Officer disposed of the objections raised by the petitioner and held that reopening was valid, and hence, this petition. Heard learned advocate Shri Tushar Hemani appearing with Ms. Vaibhavi K Parikh, learned advocate for the petitioner-assessee and learned advocate Ms. Mauna M Bhatt appearing for the Revenue. It was submitted by learned advocate for the petitioner that the notice of reopening had been issued beyond the period of four years from the end of relevant assessment year, the original assessment having been framed after scrutiny. It is further submitted that there was no failure on the part of the assessee to disclose truly and fully all material facts necessary for the assessment and hence, the impugned notice is bad in law. Learned advocate has further argued that during the scrutiny assessment,the Assessing Officer had minutely examined benefit of deduction under Section 10B of the Act and had chosen not to make any disallowance in respect of the claim of deduction under Section 10B of the Act, while framing assessment under Section 143 [3] of the Act. It is further submitted that for AY 2008-2009 also, deduction under Section 10B of the Act was denied by the respondent and such disallowance was confirmed by the Commissioner of Income-tax [Appeals]. The issued was decided by this Court in Tax Appeal no. 439 of 2016 and the appeal preferred by Revenue was dismissed on 14th June 2016. That, benefit under Section 10B of the Act was granted to the petitioner from the first year of its claim [ie., AY 2007-2008] and subsequent years, and therefore, the petitioner cannot be denied claim for deduction under Section 10B of the Act for the year under consideration. That, the respondent is not permitted to make any disallowance under Section 10B of the Act in case of the petitioner, and therefore, question of escapement of income chargeable to tax would not arise. Hence, it was requested by learned advocate for the petitioner to quash and set-aside the impugned notice of reopening by allowing this petition. On the other hand, Ms. Mauna M Bhatt, learned advocate for the Revenue vehemently opposed the submissions made by learned advocate for the petitioner and submitted that while filing return for the year under consideration, the petitioner has not fulfilled the condition for claiming deduction under Section 10B of the Act. It is further submitted that though the petitioner was knowing requirement for claiming the benefit under Section 10B, it was not brought to the notice of the respondents during the course of earlier assessment which has resulted into escapement of income. In that view of the matter, reopening of assessment even beyond the period of four years would be permissible. Merely because the Assessing Officer during the course of assessment proceedings had examined the issue would not preclude him from resorting to reopening of the assessment when it has come to the notice of the Assessing Officer that there was no full and true disclosure by the assessee fulfilling the condition of claiming deduction under Section 10B of the Act. That, the Assessing Officer had applied his mind and formed a belief that income chargeable to tax had escaped assessment, that too, on account of failure on the part of the assessee to disclose truly and fully all material facts. Learned advocate for the Revenue further submitted that at this stage, in exercise of judicial review, the Court would not go into the sufficiency of the reasons, as long as it is pointed out that the Assessing Officer had tangible material at his command to form such a belief and he after application of mind, formed such bona fide belief, the Court would not scuttle the reopening process. Ultimately, it was requested by learned advocate for the Revenue to dismiss the present writ application. Considering the submissions made by the respective sides and record of this case, it appears that the petitioner had filed its return of income on 30th November 2011 declaring total income at Rs. 10,52,887/=, after claiming deduction of Rs. 56,96,695/= under Section 10B of the Act. Thereafter, the Assessing Officer issued a notice dated 4th September 2013 calling upon the petitioner to furnish various details; including details pertaining to deduction under Section 10B of the Act. It appears from the record that on 19th September 2013, the petitioner furnished required details to the respondent explaining the claim of deduction under Section 10B of the Act [as at Annexure “E” collectively]. The Assessing Officer then was convinced with the explanation given by the petitioner claiming deduction under Section 10B of the Act and accepted the return for the year under consideration by making no disallowance in respect of the claim of deduction under Section 10B of the Act, while framing assessment under Section 143 [3] of the Act, by his Order dated 6th January 2014. It also appears from the decision rendered by this Court dated 14th June 2016 passed in Tax Appeal No. 439 of 2016 that for the Assessment Year 2008- 2009, deduction under Section 10B of the Act was claimed by the petitioner, which was denied earlier. CIT [A] also disallowed the deduction claimed by the petitioner. In second appeal before the ITAT, the claim made by the petitioner under Section 10B of the Act was allowed by an Order dated 4th November 2015. Against this order, the Revenue preferred Tax Appeal No. 439 of 2016 and this Court was pleased to dismiss the above said Appeal by an Order dated 14th June 2016 for A.Y 2008-2009 and confirmed the deduction under Section 10B of the Act. From the letter dated 19th September 2013, while furnishing the explanation in support of the claim of deduction under Section 10B of the Act, it cannot be stated that there was any failure on the part of the petitioner in disclosing truly and fully all material facts necessary for its assessment for the year under consideration. The then Assessing Officer, at the time of original assessment as such had scrutinized the claim of deduction under Section 10B of the Act and did not chose to make any disallowance against the claim of deduction under Section 10B of the Act. It is the settled legal position that when a particular claim has been scrutinized by the Assessing Officer at the time of original assessment, as such, the Assessing Officer cannot reopen such assessed case in order to examine another facet of the same claim. In light of the facts that the very basis for reopening no longer survives, the assumption of jurisdiction under Section 147 of the Act by the Assessing Officer of issuing notice under Section 148 of the Act is without the authority of law and cannot be sustained. For the foregoing reasons, this writ petition succeeds. Impugned notice dated 10th January 2017 issued by the respondent-Assessing Officer under Section 148 of the Income-tax Act, 1961 is hereby quashed and set-aside. Petition stands disposed of accordingly. [Akil Kureshi, J.] [B.N Karia, J.] Prakash