J RAY MCDERMOTT ENGINEERING SERVICES PRIVATE LIMITED ,CHENNAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2), CHENNAI

2. That on the facts and circumstances of the case and in law, the order passed by the AO under section 143(3) read with section 147 of the Act is illegal, bad in law, without jurisdiction and thus, liable to be quashed. Further, the CIT(A) has erred in upholding the said order.

3. That on the facts and circumstances of the case and in law, the re- assessment order passed by the AO is invalid and thus, liable to be quashed as the same was initiated merely on the basis of change of opinion as all the material information was already available with the AO while passing the original assessment order. Further, the CIT(A) has erred in upholding the said order.

4. That on the facts and circumstances of the case and in law, the proceedings initiated by the AO under section 147/ 148 of the Act for the subject assessment year without issuing the mandatory notice under section 143(2) of the Act are bad in law, without jurisdiction and thus, liable to be quashed. Further, the CIT(A) has erred in upholding the said order. 5. That on the facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that the order dated December 18, 2019 passed by the AO under section 143(3) read with section 147 of the Act is bad in law and liable to be quashed as the same was passed manually without the issuance of the Document Identification Number ("DIN"), as mandated by the CBDT Circular No. 19/2019. 6. That on the facts and circumstances of the case and in law, the AO/ CIT(A) have erred in disallowing INR 5,79,19,094, being expenditure incurred by the Appellant in respect of software/ license fee, alleging the same to be capital in nature. 7. That on the facts and circumstances of the case and in law, the AO has erred in concluding, on assumptions, surmises and ignoring the submissions filed by the Appellant, that since tax was withheld only in respect of software/ license fee expenditure amounting to INR 50,50,223, the balance amount represented capital expenditure. Further, the CIT(A) has erred in upholding the said order. 8. That on the facts and circumstances of the case and in law and without prejudice to the above-mentioned grounds of appeal

, the AO/ CIT(A) have erred in allowing depreciation in respect of software/ license fee at the rate of 25% instead of the applicable rate of 60% per the provisions of section 32 of the Act read with Income Tax Rules 1962 ("Rules").

9. That on the facts and circumstances of the case and in law and without prejudice to the above-mentioned grounds of appeal, the A0 has erred in incorrectly computing the assessed income of the Appellant at INR 23,43,39,095 instead of INR 22,44,39,095. Further, the CIT(A) has erred in upholding the said order.

10. That on the facts and circumstances of the case and in law, the AO has erred in levying interest under section 234A of the Act of INR 12,86,768 not appreciating the fact that the return of income was filed by the Appellant on or before the due date prescribed under section 139(1) of the Act. Further, the CIT(A) has erred in upholding the said order.

11. That on the facts, and circumstances of the case and in law, the AO has erred in levying interest under section 234B of the Act amounting to INR 1,50,55,679.

4.1 The assessee had filed four sets of paper-book. In two sets of paper-book, the assessee had enclosed the case laws relied upon. In the other two sets of paper-book, the assessee had enclosed the submissions made before the First Appellate Authority, before the AO, sample copies of invoices, TDS made by the assessee to non- resident, the license agreement entered by the assessee and the vendors etc. On merits, the Ld.AR submitted that license fee expenses pertain to only one year and the same is evident from the invoices / purchase orders and agreements entered between vendors and the assessee company. It was submitted that since these documents clearly show that the licenses are valid only for one year and is renewed annually if required, it is evident that the expenditure incurred is on the revenue front. Further, it was submitted that software license fee amounting to Rs.5,79,19,094/- should not be considered as capital expenditure given that such expenditure is incurred to increase and support the organization efficiency and it is incurred on yearly basis. In support of the contention raised on merits, the Ld.AR relied on the following case laws:- i. Eimco Elecon (India) Ltd., vs. ACIT, [2013] 33 taxmann.com 476 (Ahmedabad – Trib) ii. CIT vs. Shriram Chits Tamilnadu (P.) Ltd., [2024] 303 Taxman 24 (Madras) iii. CIT vs. Shriram City Union Finance Ltd. [2024] 460 ITR 232 (Madras) iv. CIT vs. Danfos Industries (P.) Ltd., [2022] 284 Taxman 475 (Madras) v. CIT vs. Karur Vysya Bank Ltd., [2015] 229 Taxman 396 (Madras) vi. CGI Information Systems and Management Consultants (P.) Ltd., vs. ITP, [2023] 455 ITR 270 (Karnataka) vii. Indian Aluminium Co. Ltd., vs. CIT, [2016] 384 ITR 386 (Calcutta)

4.2 As regards to legal contention, the Ld.AR submitted that reopening of assessment is bad in law since it is on a mere change of opinion. It was submitted during the course of original scrutiny assessment proceedings u/s.143(3) of the Act, the assessee TDS on various payments made by the assessee and the same having been examined by the AO, it cannot be said that the AO had any tangible evidence on record to reopen the assessment. In support of the above contention, the Ld.AR relied on the following case laws:- i. ACIT vs. BSIFS P. Ltd., [2025] 171 taxmann.com 416 (SC) [upheld BSIFS (P) Ltd vs. ACIT [2024] 161 taxmann.com 443 (Bombay)] ii. ACIT vs. AIM Fincon (P.) Ltd., [2024] 468 ITR 110 (SC) [upheld AIM Fincon (P.) Ltd., vs. ACIT [2024] 166 taxmann.com 680 (Gujarat)] iii. PCIT vs. Fibres and Fabrics International (P.) Ltd., [2022] 288 taxman 20 (SC) iv. DCIT vs. MSEB Holding Co. Ltd., [2020] 113 taxmann.com 163 (SC) v. CIT vs. Kelvinator of India Ltd., [2010] 320 ITR 561 (SC) vi. ITO vs. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC) vii. Changepond Technologies (P.) Ltd., vs. DCIT, [2024] 168 taxmann.com 516 viii. Unitech Exhibition (P.) Ltd., vs. DCIT, [2024] 168 taxmann.com 516 (Madras) ix. Tenzing Match Works vs. DCIT, [2019] 110 taxmann.com 543 (Madras)

4.3 The Ld.AR also submitted that the reassessment is bad in law since no statutory notice u/s.143(2) of the Act has been issued. In support of this above contention of the Ld.AR, he relied on the following case laws:- i. ITO vs. Lakhmani Mewal Das, [1976] 103 ITR 4337 (SC) ii. ACIT vs. Hotel Blue Moon, [2010] 321 ITR 362 (SC) iii. Amec Foster Wheeler Iberia SLU vs. DCIT, [2023] 451 ITR 117 (Madras) iv. Sapthagiri Finance & Investments vs. ITO, [2012] 210 Taxman 78 (Madras) v. PCIT vs. Oberoi Hotels (P.) Ltd., [2018] 409 ITR 132 (Calcutta) vi. CIT vs. Alstom T&D India Ltd., [2014] 45 taxmann.com 424 (Madras) vii. Netherlands Operating Company B.V. vs. ACIT, [2024] (Chennai-Trib) PCIT vs. Silver Line, [2016] 383 ITR 455 (Delhi) viii.

4.4 Alternatively, it was contended that depreciation is to be allowed at 60% on the software license acquired by the assessee which is covered under Entry 5 of Part A of New Appendix I. In support of the alternative contention, the Ld.AR relied on the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. Computer Age Management Services (P) Ltd., reported in [2019] 267 Taxman 146.

6.1 The AO is empowered to initiate penalty proceedings u/s.147 of the Act if there is reason to believe that income chargeable to tax in respect of relevant assessment year had escaped assessment. The expression ‘reason to believe’ in section 147 of the Act (i) should postulate belief (ii) the existence of reason for that belief (iii) it should not be subjective satisfaction and (iv) belief of officer must not be arbitrary or irrational. In the instant case, during the course of original assessment proceedings u/s.143(3) of the Act, the assessee company had duly furnished the detailed submissions on 21.01.2016 and 28.01.2016 along with the relevant annexures. The following information and documents were furnished along with the submission:- “1. Details of Taxes Deducted at Source (“TDS”) by the Assessee on the payments made to non-residents along with copy of challans.

6.4 Moreover, for the relevant assessment year 2012-13, notice u/s.148 of the Act has been issued beyond four years and by virtue 147 of the Act, no reassessment notice can be issued when there was no failure on the part of the assessee to disclose fully and truly all material facts during the course of original proceedings. In the instant case, assessee had disclosed in the original proceedings, the relevant details and the AO has merely issued notice u/s.148 of the Act on presumption that for the amount for which payment has been made where there is no TDS made (wrong assumption), the said expenditure is to be termed as capital expenditure instead of revenue expenditure. Moreover, on perusal of the invoices / purchase orders and agreement entered between the vendors and the assessee company, we find that software license fee expenses incurred are valid for one year and may be renewed annually if required. In the case of Eimco Elecon (India) Ltd., vs. ACIT reported in [2013] 33 taxmann.com 476, the Ahmedabad Bench of the Tribunal had held that where license fee is paid only for increasing the organizational efficiency, the same cannot be treated as forming part of the profit-making apparatus, and such expenditure made on the license fee should be treated as revenue expenditure. For the aforesaid reasoning and relying on the judicial pronouncement cited supra, we are of the view that the AO had issued notice u/s.148 of the Act on a mere change of opinion and has not satisfied the necessary ingredients for initiating reassessment proceedings u/s.148 of the Act. Hence, we accept the contention of the Ld.AR on the legal issue that the reopening of assessment is invalid and quash the reassessment order. Since, we quash the reassessment on legal ground, the other grounds raised by the assessee is left open and is not adjudicated. It is ordered accordingly.

Order pronounced in the open court on 30th April, 2025 at Chennai.