CITIUSTECH HEALTHCARE TECHONOLOGY PVT LTD vs. THE DY. COMMISSIONER OF INCOME TAX-1(2)(1), MUMBAI

Deputy Commissioner of Income Tax Circle- 1(2)(1) Room No.535, 5th Floor, Aayakar Bhavan, M.K.Road, Mumbai- 400020

Principal Commissioner of Income-tax-1 Aayakar Bhavan, New Marinelines, Mumbai-400020

National Faceless Assessment Centre Through the Principal Chief Commissioner of Income-tax, Room No.401, 2nd Floor, E- Ramp Jawaharlal Nehru Stadium, New Delhi- 110 003

The Union of India Through the Secretary, Government of India, Ministry of Finance, New Delhi-110 001 Respondents Mr. J.D.Mistri, Senior Advocate with Mr. Hiten Chande i/by Mint & Confreres for Petitioner. Mr. Suresh Kumar for Respondents. CORAM: K. R. SHRIRAM & NEELA GOKHALE, JJ. DATED: 25th September 2023 Shivgan SHAMBHAVI NILESH SHIVGAN SHAMBHAVI NILESH SHIVGAN Date: 2023.10.05 17:49:41 +0530 CNR No : HCBM020094322022 Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

Petitioner, vide letter dated 27th April 2021, requested Respondent No.1 to furnish a copy of “reasons recorded” under Section 148 of the Act for re-opening the assessment for AY under consideration. The reasons recorded were received by Petitioner on 31st August 2021 and on 14th September 2021 and Petitioner filed its objections contesting the re-opening of the assessment on various grounds. By notice dated 10th January 2022 followed by another notice dated 7th February 2022, Respondent No. 3 called upon Petitioner to submit details in connection with the re-assessment proceedings. Petitioner reminded Respondents that its objections were yet to be decided and requested them to dispose of the objections since the time limit to complete the re-assessment was expiring on 31st March 2022 and conveyed that in case its objections were eventually rejected, Petitioner would require time to challenge the decision of initiation of re-assessment by rejection of the objections raised by Petitioner.

Despite reminders from Petitioner, Respondent No.3 passed the impugned order dated 22nd March 2022 disposing the objections merely eight days before the time limit to complete the assessment. Petitioner thus filed the present Petition seeking quashing of the Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

Mr. Mistri, learned Senior Advocate appearing for Petitioner contested the notices and the order impugned on the grounds that firstly, Petitioner had made full disclosure regarding the deduction claimed under Section 10AA of the Act in the return of income, financial statements and statutory audit report in Form No. 56F during the original assessment in respect of the profits earned from SEZ unit and hence, there was no failure to disclose fully and truly material facts as required under the Act; secondly, there was nothing to indicate that the deduction claimed on the profits earned from the SEZ unit was a result of splitting up or reconstruction of STP unit; thirdly, no tangible material had come in the possession of Respondent No.3 after completion of the original assessment and all information was already available with the AO in the earlier assessment years and; finally that the entire re-opening was on the basis of ‘a change of opinion’ which was evident from the very language of the notice as well as the order impugned herein. Mr. Mistri emphasized that there was ample evidence to indicate that Respondent No.1 had perused all the relevant material furnished by Petitioner on his own as well as pursuant to the requirement made by the AO and hence, there was a full and complete disclosure regarding all material facts necessary for assessment. He also argued that the Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

Mr Suresh Kumar learned Counsel appearing for the Revenue attempted to justify actions of the Department by saying that petitioner had claimed deduction under Section 10AA of the Act in respect of its SEZ unit operating from Airoli and had submitted Form No.56F, without the signature, seal, membership number of the Chartered Accountant. Thus, the said form was not treated as valid. He further said that Petitioner was not eligible to claim deduction under Section 10AA of the Act, since its unit was formed by splitting up of or reconstruction of its business, which was already in existence. Mr. Suresh Kumar also argued that the expenditure shown by Petitioner in its profit and loss account towards Employees Benefit Expense including Employee Stock Appreciation Rights pertained to a prior period and the AO should have disallowed that expenditure not being for the current year and should have added it to the total income. Omission on the part of the AO, so to do, resulted in under- assessment of the income and thus, justified the re-opening of the assessment proceedings. Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

Mr. Suresh Kumar further argued that the profit and loss account submitted by petitioner depicted the finance cost claimed by it as Premium on Put options and from Note-15, it was also seen that Premium on Put options was not routed through the profit and loss account. According to the Revenue thus, the Mark to Market (MTM) losses claimed by petitioner as was allowed, should have also been routed through the profit and loss account and brought to taxation. This resulted in under-assessment of income and hence he justified re-opening on the ground of income escaping assessment.

Mr. Suresh Kumar also pointed to ‘new and tangible’ information made available to the AO pursuant to an audit objection raised by the Revenue, although this does not find place in the reasons recorded for re-opening conveyed through the notice dated 19th July 2021 under Section 143(2) read with Section 147 of the Act.

We have heard the learned Counsels appearing for the parties and with their assistance have gone through the record of the proceedings. In our opinion, the following issues arise for consideration in this case: - (i) Whether in the facts and circumstances of the case, it can be adduced that the petitioner failed to disclose fully and truly all material facts during the course of original Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

It is trite law that the AO can only re-open an assessment if he has ‘reason to believe’ that undisclosed income has escaped assessment. Mere change of opinion of the assessing officer is not sufficient to meet the standard of ‘reason to believe’. As far as the first issue regarding full and true disclosure by Petitioner is concerned, since admittedly the notice under Section 148 of the Act has been issued more than four years after the expiry of the relevant assessment year and assessment under Section 143(3) of the Act has been completed, the proviso to Section 147 of the Act will apply. Therefore, there is a bar in reopening unless there is a failure to truly and fully disclosed material facts. The reasons to believe itself shows that there was no non disclosure of material facts. Paragraphs 2, 3 and 4 of the reasons read as under:

On perusal of the case records it is seen that the assessee has claimed deduction u/s. 10AA of Rs.104,14,77,844/- In respect of its SEZ unit operating from Mindspace, Serene Properties SEZ, Airoli. The assessee has submitted a Form No.56F vide covering letter dated 19.09.2017. However, the same lack name of the Accountant, signature, seal and the Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

Further from P & L account, it was seen that the assessee has claimed finance cost of Rs.1,61,93,313/- as Premium on Put options. Further, as per note 27, it was stated that the company enters into forward foreign exchange contracts and vanilla put options. The company purchases forward contracts and option to mitigate the risks of change in foreign exchange rate on receivables denominated in foreign currency. The Mark to Market (MTM) is considered on portfolio approach wherein the hedging instrument and the hedging items are evaluated together. Further, from note-15 other assets, it was also seen that Premium on Put Options of Rs.2,27,38,682/- was not routed through P&L account. As the assessee claimed MTM losses and was allowed, this amount should have also been routed through P&L Account and brought to taxation. This has resulted into underassessment of income to the tune of Rs.2.27,38,682/-.

Further, it is seen from P&L, the assessee has claimed an amount of Rs.127,29,02,550/- as Employees Benefit Expense. Further, it was noticed from the Note-30 (Prior Period Items) of financial statements, Employee benefit Expense includes Employee

The notice conveying its ‘reasons to believe’ itself cites profit and loss statement and notes to the financial statements in relation to SEZ point which was already before the AO during the initial assessment proceedings. The notice also records that Petitioner had furnished Form No. 56F, copy of return of income along with the computation of income in which deduction under Section 10 AA of the Act was claimed in AY 2015-16 to the AO. The fact that Petitioner is conducting its operations from STP unit and SEZ unit is also evident in the notes to accounts forming part of the financial statements furnished by Petitioner during assessment proceedings 2015-16. Petitioner was specifically asked to produce Form No. 56F with respect to STP and SEZ units during proceedings for AY 2011-12 and the deduction under 10A of the Act was allowed after the scrutiny of the said forms. Petitioner furnished the same and other relevant documents as required by the AO from time to time, including financial statements for AY 2012-13 and AY 2013-14, wherein again details of SEZ were mentioned. Further financial statements of AY 2014-15 also mention details of the SEZ unit and Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on an assessee. Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn. It is not for somebody else – least of all an assessee – to tell the AO what inferences should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that an assessee must disclose what inferences – whether of facts or law – he would draw from the primary facts. On this aspect we draw strength from the decision of the Apex Court in the matter of New Delhi Television Ltd v. Deputy Commissioner of Income Tax1 where the Apex Court, relying upon a decision of its Constitutional Bench in the matter of Calcutta Discount 1 2020 SCC OnLine SC 446. Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

The above discussion clearly indicates that Petitioner has furnished all the details and relevant documents itself as also those required to be furnished by the AO from time to time during the assessment proceedings. The AO has perused the documents and thereafter passed the original order. There is, thus, no failure on the part of Petitioner to make a full and true disclosure during the assessment proceedings to justify re-opening of the proceedings on this account. We thus answer the first issue accordingly.

Coming to the second issue arising in the Petition with respect to re-opening the proceedings based on “change of opinion”, it is evident that the original order was passed based on all the necessary information that was already available at the time of regular assessment. In the assessment year subsequent to AY 2011-12 up to AY 2014-15, deduction under section 10AA of the Act was always allowed to petitioner after thorough examination of the documents by the AO. Paragraph 3 of the notice of ‘reasons to believe’ clearly conveys that the MTM losses claimed by Petitioner and allowed by AO should have been routed through profit and loss account and 2 AIR 1961 SC 372. Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

The impugned order dated 22nd March 2022 rejecting the objections of Petitioner to the ‘reason to believe’ notice merely justifies the reopening on the ground that Explanation I to Section 147 of the Act provides that ‘production before the assessing officer of books of accounts or other evidence from which material evidence could, with due diligence, have been discovered by the assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso’. This is the only basis on which the objection of Petitioner is rejected. The impugned order does not even deal with any of the objections taken by Petitioner. The order is also silent on the objections of Petitioner in respect to the language of the notice indicating clearly that the reopening is based on a change of opinion. This Court in its decision rendered in Ananta Landmark Pvt. Ltd. v. Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

This Court in the matter of Ashraf Chitalwala v. Deputy Commissioner of Income Tax and Ors4 has also relied upon the decision in Ananta Landmarks (supra) to hold that the reopening of assessment cannot be justified based on a change of opinion. Strength has also been drawn from the decision in the matter of Aroni Commercials Ltd. v Deputy Commissioner of Income Tax 2 (1), Mumbai and Anr5 which has also held that when the AO has clearly applied his mind while computing the capital gains and deductions after forming a view, the view cannot be changed and it will amount to a clear case of change of opinion which is impermissible in law.

Thus, we are firmly of the view that there is no failure on the part of Petitioner in making true and full disclosure to the AO during the original assessment leading to the deductions being allowed by the assessing order. The Notice conveying reasons to believe as well as the Order rejecting Petitioner’s objections clearly indicate that the original order was passed by the AO upon his satisfaction in respect of the material furnished by Petitioner. The notice simply says that 3 (2021) 131 taxmann.com 52 Bombay. 4 2023:BHC-OS: 9873-DB. (Internal citation). 5 2014 (44) taxmann.com 304 Bombay. Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

In view of the foregoing, we allow the Petition and hold that the Revenue has failed to show non-disclosure of facts by Petitioner and the reason to believe there was escapement of income is purely based on a change of opinion. The Petition is allowed. Rule is thus made absolute in terms of prayer clause (a) which reads as thus: - (a) That this Hon’ble Court be pleased to issue a writ of Certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction under Article 226 and/or Article 227 of the Constitution of India calling for the records of the Petitioner’s case and after examining the legality and validity thereof quash and set aside the impugned notice dated 27th March 2021 (Exhibit ‘I’) the impugned order dated 22nd March 2022 (Exhibit ‘W’) and consequential notice dated 19th July 2021 under section 143(2) of the Act (Exhibit ‘L’) and notices dated 10th January 2022 (Exhibit ‘Q’) and 7th February 2022 (Exhibit ‘T’) issued under Section 142(1) of the Act; Shivgan Uploaded on - 05/10/2023 Downloaded on - 27/10/2026 22:36:05

There will be no order as to costs.