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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM I.T.A. No.4081/Mum/2018 (Assessment Year: 2010-11) M/s. Metropolitan Stock Exchange of Principal Commissioner of Income India Pvt. Ltd. Tax Act, 1961 Tax – 14, 4th Floor, Vibgyor Tower, R. No. 469, Aayakar Bhavan, Vs. 4th Floor, M. K. Road, Plot No. C-62, Opp. Trident Hotel, Bandra Kural Complex, Bandra (E), Mumbai-400 020 Mumbai-400 089 PAN/GIR No. AAFCM 6942 F (Appellant) (Respondent) : Appellant by : Shri Sumant Chadha & Shri Jitendra Trivedi : Shri Anadi Varma Respondent by Date of Hearing : 01.08.2018 Date of Pronouncement : 22.10.2018
O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order by the learned
Commissioner of Income Tax-14, Mumbai (‘ld.CIT for short) dated 28.03.2018
passed u/s. 263 of the Income Tax Act, 1961 (the Act for short) and pertains to the
assessment year (A.Y.) 2010-11.
In this case, the ld. CIT noticed that the re-assessment made was concluded without any apparent examination of items of expenditure that were the subject of verification in the Special Audit u/s I42(2A) that the assessee company was subjected to. That it was seen that expenses debited on account of Software support charges, SAP Licence, Shared service costs, and Legal & Professional charges (in part) were not
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subjected to any evident scrutiny that was called for in the circumstances. That it was also
noticed that such expenses were subjected to due verification and assessment in the
contiguous Assessment Years 2011-12 & 2012-13. That in the present assessment year
2010-11 the Assessing Officer had neither called for any details of the said expenditure
claims, nor subjected them to any apparent examination.
Therefore, notice was issued to the assessee proposing to treat the reassessment
order to be an erroneous so far as it is prejudicial to the interest of the revenue in terms of
section 263 of the Act.
Against the above, the assessee made an elaborate submission.
The assessee inter alia submitted that the special audit u/s. 142(2A) of the Act was
done in this case subsequent to the assessment order passed originally. Following was
also noted in the assessee’s reply:
The details in respect of all the expense's ware verified by the special auditors in detail and discussed in the special audit report dated 23.09.2014. The reference in the special audit report is tabulated hereunder: Expense Head Pg. No of Special Audit Report Software support charges Page 23 Shared service cost Page 26 Legal and professional Page 59 to 64 charges Software license fees Page 25 to 26 SAP license fees Page 24 to 25
Thereafter, the assessee further submitted that in the reasons for reopening, the
support software services, share support service and SAP license fees were not included
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in the reasons for reopening of assessment of A.Y. 2010-11. That the A.O. has disallowed
Rs.1,40,000/- out of legal expenses and for software license fees 25% of expenses were
disallowed. The assessee objected to the validity of notice u/s. 263 by submitting that it
was not valid for software support charge and share support services inasmuch as it was
passed after the expiry of two years from the end of the financial year in which the order
sought to be revised was passed.
As regards the legal and professional fee, it was submitted that the same was
examined in the original assessment as well as reassessment. The assessee also refered to
certain case laws in this regard.
The ld. CIT considered the submissions of the assessee. He noted that the
impugned items of expenditure are as under: a) Software support charges; b) Shared service cost; c) Legal and professional charges; d) Software license fees; and e) SAP license fees The ld. CIT noted that the assessee was making a submission that the impugned
items of expenditure were not subject matter of reassessment because they could not have
been considered in the re-assessment made on 30.03.2016 for the reasons that they were
not be a part of the reasons recorded before issue of notice u/s. 148. In this regard, the ld.
CIT noted that the assessee has referred to the decision of the Hon’ble Apex Court in the
case of CIT vs. Alagendran Finance Ltd. 293 ITR 1 [2007] as well as the Hon'ble
Bombay High Court decision in the case of CIT vs. Lark Chemicals Ltd. 368 ITR 655
(Bom). Both these case laws had expounded that the Commissioner could not exercise his
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revisionary power u/s. 263 on items which were not the subject matter of reassessment.
The ld. CIT distinguished these orders on the ground that because of Explanation 3
inserted below section 147, it provided that the reassessment can be done on any issue
which comes to his notice subsequently in the course of proceedings under this section,
notwithstanding that the reasons for such issue have not been included in the reasons
recorded. The ld. CIT found that the decision of the Hon’ble Apex Court in the case of
Alagendran Finance Ltd. (supra) was rendered before the insertion of this Explanation.
As regards the decision of the Hon'ble Bombay High Court in the case of Lark Chemicals
Ltd. (supra), he distinguished the same by observing that the Hon'ble jurisdictional High
Court had no occasion to consider the impact of this explanation. Thereafter, the ld. CIT
made the following observations:
Reverting to the facts of the case on hand, it is seen that the original return filed on 30/09/2010 and assessed by an order u/s 143(3) dated 17/01/2010, contained a claim for five items of expenses viz., [a] Software support charges, [b)] Shared service cost, [c] Legal & Professional charges, [d] Software license fees, and [e] SAP license fees, The subsequent Special Audit took into its sweep all the above items of expenditure. The reasons recorded for initiating the reassessment proceedings after the Special Audit, however, did not discuss [a] Software support charges, [b] Shared service cost, and [e] SAP license fees. Only the other two issues viz., [c] Legal and professional charges, and [d] Software license fees were referred to in the reasons recorded, and the reassessment was concluded on 31/03/2016 with a disallowance of Rs I,40,000/- in the claim for Legal & Professional charges for want of/documentation, and a disallowance of 25% in the claim for Software Licence Fees. It is urged by the Ld. A R, on the authority of the precedents cited, that since matters not incorporated in the reasons recorded could not form part of the reassessment, the assessee could not be put on notice on these issues, on a date later than 31/03/2015. 9. The ld. CIT observed that having regard to the change in law after Finance Act,
2009, the other issues, viz. a) software support charges, b) share service charges and (c)
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SAP license fees could lawfully have been examined by the A.O. in the reassessment
made on 30.03.2016 despite explicit reasons not being recorded to such effect. He
observed that the claims for these expenses were in fact verified by the A.O. in the
assessment made earlier u/s. 143(3) vide order dated 21.11.2014 and 27.08.2015 for A.Y.
2011-12 and A.Y. 2012-13 respectively. Hence, the ld. CIT held that failure to do so, or
the omission to examine what was liable to be examined, in the circumstances of the
case, generated an erroneous assumption of fact. That such an error clearly entitles the
Commissioner to exercise the revisionary powers vested in him u/s. 263 of the Act. He
noted the assessee’s contention that the impugned issues have received the attention of
the A.O. and, therefore, there is no lack of enquiry in assessment concluded. In this
regard, the Commissioner noted judicial precedents from the Hon'ble Bombay High
Court’s submitted by the assessee as under:
The other plank of the objections to revision raised by the ld.AR is that the impugned issues have received the attention of the Assessing Officer and, therefore, there is no error of Jack of inquiry in the assessments concluded. Reliance was accordingly placed on a slew of judicial precedents such as C1T v. Gabriel India [1993] 203 ITR 108 (Bom), CIT v. Quality Steel Suppliers Complex, 84 taxmann.com 234 - 2017 (SC)P MOIL v, CIT, 8 taxmann.com 420 - 2017(Bom). CIT n Gen Developments (P) Uil. 71 taxrnan.corn 65 - 2016 (Bom), Pr CIT v. Kttmc/iam/ni Nttidn - R5 taxmun.com 127 - 2017 (Bom), and Melacaps Engineering & Mahindra Construction Co. - 86 tax man, com 128 - 2017 ITAT Mumbai Bench.
It noted that this case law provided that the order did not become erroneous merely
because there was no elaborate discussion. He noted that these case laws also mention
that if two views are possible, the order did not become erroneous. Despite noting these
case laws he held that in absence of any articulation of a view purportedly taken, it would
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be a case of non application of mind rather than taking one of the two possible views in
the matter. The ld. CIT accordingly concluded as under:
In the light of the above, the order of reassessment dated 30/03/2016 is held (o he erroneous in so far as it is prejudicial to the interests of Revenue, in terms of section 263 of the Income Tax Act, 1961, for the omission to cause an examination of issues required to be examined in the circumstances of the case, and which were lawfully within the scope of such jurisdiction assumed. The order is therefore, set aside for the limited purpose set out above, with a direction (o the Assessing Officer pass a fresh order after calling for the details and examining admissibility of the following items of expenditure with reference to section 37(1) and section -40A(2)(b): a. Software support charges; b. Shared service cost; c. Legal & Professional charges; and, d. SAP license fees
Against the above order, the assessee is in appeal before us.
We have heard both the counsel and perused the records. The ld. Counsel of the
assessee has summarized his submissions by making the following written submissions:
Original Assessment order passed under section 143(3) of the Act -17.01.2013 Re-Assessment order passed under section 143(3) r.w.s 147 of the Act - 30.03.2016 1st notice for revision proceedings issued on - 28.06.2016 Order under section 263 of the Act passed on - 28.03.2018
Brief Background: During the subject year, Appellant had, inter-alia, claimed deduction in respect of the following expenditure under section 37 of the Act.
s. Nature of Expense Amount Amount (In Rs.) (In Rs.) 1 Legal and Professional 7,53,56,610 charges 2 Software support charges a) Software support 12,00,00,000 charges b) SAP License Fees 3,89,391
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c) Software license fees 6,38,13,476 d] IT Support Services 15,29,662 18,57,32,529 3 Shared Service Cost 4,20,00,000 During the original scrutiny proceedings, details were called for the above expenses, which were duly submitted by the Appellant and after verification, AC had allowed the claim of the Appellant in respect of all the above expenses. [Ref: Page No. 49,63,66, 70,73 to 77 and 83 of Paper Book] During the course of the assessment proceedings for AY 2011-12, the Appellant was directed to get its books of account audited pertaining to AYs 2008-09 to 2011-12 by special auditor under section 142(2A) of the Act. Based on observations in the special audit report, the case of the Appellant for AY 2010-11 was reopened under section 147 of the Act. The reasons for re-opening the assessment for AY 2010-11 were provided vide letter dated 30.04.2015, which included observations of special auditors with respect to legal and professional charges and software license fees. The observations of special auditors with respect to software support charges, shared support service and SAP License fees [Ref: Page No.85 to 95 of Paper Book] did not form part of reasons for re-opening of assessment of AY 2010-11. [Ref: 97 to 106 of Paper Book] Ld. AO passed the reassessment order dated 30.03.2016 under section 143(3) r.w.s. 147 of the Act, making the following disallowances: a) Legal and Professional Charges - Rs.1,40,000 (for want of documentary evidences) b) Software license fees - Rs.1,55,18,705 (25% disallowance of expense) Thereafter, notice under section 263 of the Act was issued seeking revision i) Software Support Charges, ii) Shared Service Cost, iii) Legal and Professional Charges and iv) SAP License fees. [Ref: Page No. 46 and 47 of Paper Book] 2. Appellant's Contention: Legal Arguments for notice issued under section 263 of the Act: The notice issued by Pr. CIT u/s 263 of the Act lacks jurisdiction on account of following two merits: A. Time barring; B. Change of opinion; A. Notice time barring: 2.1. When a notice under section 263 raises new issues, which are not subject matter of re-assessment proceedings, then two year period contemplated under sub-section (2) of section 263 of the Act would begin to run from date of original
8 ITA No. 4081/Mum/2018
assessment order and not from date of re-assessment. This view is supported by following judicial decisions: a) CIT vs Alagendran Finance Ltd. [2007] 162 Taxmann.com 465 (SC) "...We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income Tax exercising its revisiona! jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under Sub-section (2) of Section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisionaljurisdiction having, thus, been invoked by the Commissioner of Income Tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity." b) CIT vs Lark Chemicals Ltd. [2015] 55 Taxmann.com 446 (Bom) "... We have considered the rival submissions. It is not disputed that save and except the issue of non-genuine purchases all other issues dealt with by the Commissioner of Income-tax in the order dated March 30,2009, were not a subject matter of the assessment order passed on June 28,2006, under section 143(3}/147 of the Act. All the other issues on which the Commissioner of Income-tax is seeking to exercise the jurisdiction under section 263 of the Act were concluded by virtue of an intimation under section 143(1} of the Act which admittedly was done beyond a period of two years prior to the notice dated March 17,2009, issued under section 263 of the Act. Section 263(2) of the Act provides that no order would be made in exercise of the jurisdiction under section 263(1} of the Act after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. It is an admitted position that the Commissioner of Income-tax has not exercised the revisional jurisdiction in respect of the order/intimation passed section 143(1] of the Act within two years of it being passed. Therefore, exercise of jurisdiction on those issues under section 263 of the Act is time barred as held by this court in CITv. Anderson Marine & Sons (P.) Ltd. [2004] 266 ITR 694/139 Taxman 16. Moreover, in view of the decision of the apex court in the matter of Alagendran Finance Ltd.'s case (supra) as well as our court in the matter ofAshoka "~ Buildcon Ltd.'s case (supra) the jurisdiction under section 263 of the Act cannot be exercised on issues which were not subject matter of consideration while passing the order of reassessment under section 143(3)/147 of the Act but a part of an assessment done earlier under the Act." c) CIT vs ICICI Bank Ltd. [2012] 19 taxmann.com 142 (Bom) ".....The order under section 143(3} passed on 10-3-1999 cannot stand merged with the orders of reassessment in respect of those issues which did not form the subject-matter of the reassessment Consequently, Explanation 3 to section 147 will not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under
9 ITA No. 4081/Mum/2018
section 148(2). This, however, will not obviate the bar of limitation under section 263(2). Where the jurisdiction under section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under section 143(3) and which does not form the subject-matter of the reassessment, as in the instant case, limitation must necessarily begin to run from the order under section 143(3)" [Emphasis Added] d) Indira Industries vs Pr. CIT [2018] 95 taxmann.com 103 (Madras) "...3 (xvi) In the instant case, we have already noticed that while the original issue (in the reassessment proceedings) waswith regard to disallowance of interest paid by the Assessee, asthe loan amount has been diverted to the partners, the issue now raised in the impugned notice under Section 263 is not restricted to the disallowance of interest on loan alone. It deals with other aspects such as claims of the assessee regarding administrative, selling and distribution expenses made by the Assessee to the tune ofRs.3.23 crores and claim of bad debts written off to the tune of Rs.33.06 lakhs etc., 3(xvii) Therefore, as the impugned notice deals with several issues other than the one raised earlier, the limitation period in the instant case has to necessarily run from 31.3.2015 being the end of the fmancialyear as 25.02.2015 is the date on which the scrutiny assessment was admittedly made for the Assessee under Section 143 (3) of the IT Act. 3(xviii) We therefore have no hesitation in holding that the reckoning date qua the impugned notice for the purpose of Section 263(2) of IT Act is not the date of re- assessment being 30.12.2016, but the date of scrutinizing the assessment i.e, 25.02.2015." .....In the instant case, owing to all that have been stated supra, as the impugned notice, though is a show-cause notice as noticed by the learned single Judge, is invalid, as it has been issued beyond two years from the reckoning date and is clearly hit by Sub-section (2) of Section 263. In other words, the impugned notice is hit by the vice of lack of jurisdiction." 2.2. In the instant case, the reassessment proceedings were initiated for specific reasons mentioned in notice dated 30.04.2015 which did not include i) Software support charges, ii) Shared support service and iii) SAP License fees. And only, legal and professional and software license fees were reassessed and disallowances were made. 2.3. Original assessment order was passed on 17.01.2013 of the Act, which was subject to revision under section 263 of the Act upto 31.03.2015 in terms of provisions of section 263(2] of the Act, whereas the notice for revision was issued on 28.06.2016, which is beyond the period of limitation. Hence, time barred. 2.4. Pr. CIT has made following contentions against our submissions as under: [Ref: 6.4 to 6.7, Page 19 to 21 of Paper Book] a) After the insertion of explanation 3 to Section 147 of the Act [Vide Finance Act, 2009, with retrospective effect], the AO can assess / re-assess any matters
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which come to their notice during proceedings, even though the same did not form part of reasons for re-opening. b) Further, decision of CIT vs Alagendran Finance Ltd. (supra] was passed in year 2007 i.e., before the amendment to section 147 of the Act. c) In the case CIT vs Lark Chemicals Ltd. (supra), Hon'ble Bombay HC had no occasion to consider the impact of amendment enacted in 2009, with retrospective effects. Arguments against the above observations are as under: (Relying on decision of CIT vs ICICI Bank Ltd. [2012] 19 taxmann.com 142 (Bom), discussed below) • It is submitted that matters which did not form part of reassessment proceedings should be considered to concluded in the original assessment order passed under section 143(3] of the Act. • The original assessment order cannot stand merged with order of reassessment in respect of those issues which did not form the subject-matter of the reassessment. Insertion of explanation 3 to section 147 of the Act does not alter the bar of limitation under section 263(2) of the Act. This view is supported by following judicial decision: CIT vs ICICI Bank Ltd. [2012] 19 taxmann.com 142 (Bom] ".....The order under section 143(3) passed on 10-3-1999 cannot stand merged with the orders of reassessment in respect of those issues which did not form the subject-matter of the reassessment. Consequently, Explanation 3 to section 147 will not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under section 148(2). This, however, will not obviate the bar of limitation under section 263(2). Where the jurisdiction under section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under section 143(3) and which does not form the subject-matter of the reassessment, as in the instant case, limitation must necessarily begin to run from the order under section 143(3)" [Emphasis Added] Therefore, considering the fact that there are several issues being raised in the revision proceedings other than the one raised earlier, then two years period contemplated under section 263(2) of the Act should be reckoned from date of original assessment and hence revision proceedings under section 263 are void-ab initio and time barred. B. Change of Opinion: 3.1. Without prejudice to above, it is hereby submitted, that vide notice issued under section 263 of the Act, the Pr. CIT also sought revision of legal and professional expenses, which were duly verified and for which appropriate disallowances were made Id. AO during reassessment proceedings. 3.2. The legal and professional expenses have already been verified during original assessment proceedings, special audit proceedings and re-assessment proceeding.
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3.3. Hence, revision of aforesaid expense will tantamount to change of opinion. This view is supported by decision of Indira Industries vs Pr. CIT (supra), wherein it is observed that: "....The Principle of law is, it can be construed to be 'Change of Opinion' only when the same issue dealt with in re-assessment is raised again in proceedings under section 263." 4. Legal Position discussed in paras 2 and 3 above is summarized below: s. Nature of Expense Amount (In Rs.) Remarks 1 Software Support 12,00,00,000 Time barring Charges 2 Shared Support 4,20,00,000 Time barring Services 3 SAP License Fees 3,89,391 Time barring 4 Legal and Professional 7,53,56,610 Change of Opinion 5. Other Contentions: 5.1. Without prejudice to above, it is hereby submitted that inquiry in respect of expenses were made during the original assessment proceedings, special audit proceedings and re-assessment proceedings, thus it is not a case of'lack of inquiry'or'inadequate inquiry'made by Id. AO. 5.2. The expressions 'erroneous1, 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to the definition, 'erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment1 refers to an assessment that deviates from the law and is, therefore, invalid. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles'. 5.3. It is not a case where the claim of the Appellant is factually incorrect or not in accordance with law and hence, the same is not 'erroneous'. Ld. AO has considered the details and allowed the claim of the Appellant, which is accordance with law. The judgment of Id. AO for allowing the expenses is in accordance with law and does not involve any mistake or erroneous application of legal principles. Reliance is placed on following judicial decisions: a) CIT vs Kwality Steel Suppliers Complex (2017) 84 taxmann.com 234 (SC) b) CIT vs Gabriel India Ltd. (1993) 203 ITR 108 (Bom.) c) MOIL vs CIT (2017) 81 taxmann.com 420 (Bom.) d) CIT vs Gera Developments (P.) Ltd. (2016) 71 taxmann.com 65 (Bom.) e) Pr. CIT vs Ramchandra Naidu (2017) 85 taxmann.com 127 (Bom.) f) Metacaps Engineering & Mahendra Construction Co. (2017) 86 taxmann.com 128 (Mum. ITAT)(Ref: Page No. 33 to 36 of Paper Book) 5.4. Pr. CIT has made reference to assessment orders for AY 2011-12 and AY 2012-13 wherein disallowance of i) software support charges, ii) shared service cost and iii) legal and professional charges were made.
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5.5. In this regard, it is pertinent to note that expenses in AY 2011-12 and AY 2012-13 had been disallowed on adhoc basis on account of suspicion, surmises and conjectures. Each year is a separate assessment year and has to be assessed on facts and circumstances prevailing in the said year. Considering the merits discussed above, the order dated 28.03.2018 under section 263 of the Act needs to be quashed.
Per contra, the ld. Departmental Representative submitted that the original
assessment u/s. 143(3) in this case was done on 17.1.2013 and the special audit was done
on 23.09.2014. That the items upon which the ld. CIT has exercised his jurisdiction u/s.
263 were not part of the original assessment. He submitted that even the issue of legal
and professional fee was not logically dealt with. He submitted that all the issues
submitted by the ld. Counsel of the assessee have been duly dealt with by the ld. CIT.
The ld. Counsel of the assessee further placed reliance upon the decision of Hon’ble
Apex Court in the case of Amitabh Bachchan 389 ITR 200 (SC), and the Hon’ble Apex
Court in the case of Deniel Merchants P. Ltd. & Anr. Vs. ITO (in Special Leave to
Appeal (C) Nos.23976/2017) and Kolkata Tribunal decision in the case of Rising Tracom
Pvt. Ltd. & Ors. Vs. CIT (2015) 45 CCH 201 Kol/Trib vide order dated 3.11.2015.
We have carefully considered the submissions and perused the records. We find
that in this case, the reassessment order was passed on 30.3.2016. The ld. CIT is of the
opinion that following expenditure which were subject matter of the special audit have
not been properly enquired into by the A.O. These expenditures are as under:
1 Software Support Charges 2 Shared Support Services 3 SAP License Fees 4 Legal and Professional charges
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The assessee’s case is that the above items of expenditure except legal and
professional charges were not subject matter of notice for reassessment issued. Hence, the
assessee’s plea is that the order u/s. 263 passed by the ld. CIT relate to the original
assessment in this case passed on 17.01.2013. Hence, the assessee’s plea is that the order
passed u/s. 263 for this issue is time barred. In support of this proposition, the assessee
has placed on record case laws from the Hon'ble jurisdictional High Court. In this
context, we may gainfully refer to the decision of the Hon'ble jurisdictional High Court in
the case of CIT vs. ICICI bank Ltd. [2012] 343 ITR 74 (Bom), wherein the Hon’ble High
Court has referred to another decision in Ashoka Buildcon Ltd. vs. Asst. CIT [2010] 325
ITR 574 for the following proposition:
"...Where a reassessment has been made pursuant to a notice under Section 148, the order of reassessment prevails in respect of those items which form part of reassessment. On items which do not form part of the reassessment, the original assessment continues to hold the field. When the Assessing Officer reopens an assessment on a particular issue, it is open to him to make a reassessment on that issue as well as in respect of other issues which subsequently come to his notice during the course of the proceedings under Section 147. The submission of the revenue is that by not passing an order of reassessment in respect of other independent issues, the order of the Assessing Officer can be construed to be erroneous and to be prejudicial to the interests of the Revenue within the meaning of Section 263. The submission cannot be accepted in the facts of the present case. The substantive part of Section 147 as well as Explanation 3 enables the Assessing Officer to assess or reassess income chargeable to tax which he has reason to believe had escaped assessment and other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. There is nothing on the record of the present case to indicate that there was any other income which had come to the notice of the Assessing Officer as having escaped assessment in the course of the proceedings under Section 147 and when he passed the order of reassessment. The Commissioner, when he exercised his jurisdiction under Section 263, in the facts of the present case, was under a bar of limitation since limitation would begin to run from the date on which the original order of assessment was passed. We must however clarify that the bar of limitation in this case arises because the revisional jurisdiction under Section 263
14 ITA No. 4081/Mum/2018
is sought to be exercised in respect of issues which did not form the subject matter of the reassessment proceedings under Section 143(3) read with 147. In respect of those issues, limitation would commence with reference to the original order of assessment. If the exercise of the revisional jurisdiction under Section 263 was to be in respect of issues which formed the subject matter of the reassessment, after the original assessment was reopened, the commencement of limitation would be with reference to the order of reassessment. The present case does not fall in that category."
Thereafter, the Hon’ble High Court has held as under:
Sub-section (2) of Section 263 stipulates a period of limitation of two years within which an order under sub-section (1) has to be passed. Under sub-section (2) no order under Section 263(1) can be made after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. The order of assessment under Section 143(3) in the present case allowed the deduction which was claimed under Section 36(1)(vii), Section 36(1)(viia) and in respect of foreign exchange rate difference. Neither in the first order of reassessment dated 22 February 2000 nor in the second order of reassessment dated 26 March 2002 were these aspects determined. In other words on the aforesaid three issues, the original order of assessment dated 10 March 1999 passed under Section 143(3) continued to hold the field. Once that is the position, then clearly the doctrine of merger would not apply. The order under Section 143(3) passed on 10 March 1999 cannot stand merged with the orders of reassessment in respect of those issues which did not form the subject matter of the reassessment. Consequently Explanation 3 to Section 147 will not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under Section 148(2). This, however, will not obviate the bar of limitation under Section 263(2). Where the jurisdiction under Section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under Section 143(3) and which does not form the subject matter of the reassessment, as in the present case, limitation must necessarily begin to run from the order under Section 143(3). Before concluding we may also take notice of the fact that the second order of reassessment dated 26 March 2002 has been set aside by the Tribunal on 27 August 2010. An appeal against the order of the Tribunal is pending before this Court for admission. However, we have considered this appeal independently and have come to the conclusion that the invocation of the jurisdiction under Section 263 was barred by limitation. Accordingly we answer the question of law in the affirmative.
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From the above, we note that the Hon'ble jurisdictional High Court has opined that
section 263 cannot be exercised in respect of issues which did not form a subject matter
of reassessment proceeding u/s. 143(3) r/w s. 147. Further, the Hon’ble High Court has
observed that there is nothing on record of the present case to indicate that there was any
other income which had come to the notice of the A.O. as having escaped assessment in
the course of proceeding u/s. 147 and when he passed the order of the assessment. The
assessee in the present case has accepted the proposition and its case is that since the
above items of expenditure were not mentioned in the notice of reassessment, there was
no occasion for the A.O. to consider the same. In this regard, we may gainfully refer to
the reasons recorded for reopening as provided to the assessee submitted in paper book
page nos. 97 to 106. The said reasons inter alia referred to the observation made in the
special audit report. In this regard following items are dealt with under relevant heading: 1. Admission Fees and Application Processing Fees. 2. Refundable Deposits 3. Software License Fees – ODIN 4. Fixed Assets – Computer Hardware 5. Deputation charges of Rs.4,56,32,648/- paid to MCX 6. Office Rent of Rs.3,26,16,740/- paid to MCX 7. Reimbursements and other petty expenses of Rs.39,80,782/- paid to MCX 8. Clearing & Settlement charges of Rs.8,73,38,646/- paid toMCX-SX CCL: 9. Deputation charges of Rs.5,66,460/- paid to Financial Technology Knowledge Management Company (FTKMC) 10. Deputation charges of Rs.9,25,844/- paid to Atom Technologies Ltd. (ATOM) 11. Payment Engine & Mobile Application – ATOM 12. VSAT Connectivity charges and Internet charges 13. Depreciation claimed on vehicle allotted to Mr. Tapas Das, who was not employee of the assessee 14. Software purchased from Reuters India Pvt. Ltd. 15. Advertisement expenses paid to Roshan Publicity. 16. Business and sales promotion expenses
16 ITA No. 4081/Mum/2018
Sponsorship expenses 18. Advertisement expenses paid to Takshashila 19. Legal and Professional fees
Apart from that at para 5 of the reason recorded following are mentioned:
“Apart from the above, the special auditor has also pointed out various other discrepancies as mentioned in the special audit report and, therefore, the special audit report dated 23.09.2014 is made part of the reasons recorded.”
From the above, it is evident that apart from the specific items from the special
audit report mentioned in the reasons recorded for reopening, in these reasons itself the
entire special audit report and the various discrepancies therein have been made part of
the reasons recorded. In this view of the matter, the assessee’s claim that the items
mentioned above in relationship of impugned claim of expenditures were not subject
matter of reassessment, is not tenable. As evident from the assessee’s response given to
the ld. CIT itself, it has been mentioned that following items have been dealt with at
following pages of the special audit report:
Expense Head Pg. No of Special Audit Report Software support charges Page 23 Shared service cost Page 26 Legal and professional Page 59 to 64 charges Software license fees Page 25 to 26 SAP license fees Page 24 to 25
From the above, it is evident that these items were duly mentioned in the special
audit report and were made part of the reasons recorded as all items dealt in the special
audit report were mentioned to be part of reasons recorded. Hence, the assessee’s plea
17 ITA No. 4081/Mum/2018
that these items were not subject matter of reassessment is not at all sustainable and is
totally against the facts arising out of the appeal. This aspect has also escaped the
attention of the ld. CIT who has justified the power to invoke section 263 otherwise on
the plank that Explanation 3 of section 147 which in his opinion empowers him to do,
despite the issue not being subject matter of reassessment. However, this Explanation 3
alone cannot empower the ld. CIT to exercise the jurisdiction over items which are not
subject matter of the reassessment as held by the exposition of the Hon'ble jurisdictional
High Court in the case of ICICI Bank Ltd. (supra). However, as evident from the above
details, the entire premise that these items were not made subject matter of reassessment
fails inasmuch as these items were duly mentioned in the special audit report and all the
items dealt in the special audit report were made part of the reasons recorded and the
assessee is very much aware about the page numbers of the special audit report where
these items are dealt with. Hence, the entire plea of the assessee that the order passed u/s.
263 of the Act on the above items is time barred fails as these were subject matter of
reassessment order passed on 30.03.2016. The notice for revision was issued on
28.06.2016 and, hence, the same is well within the period of limitation, qua these issues.
Now we come to the legal and professional charges. Here it is not the case of the
assessee that these items were not mentioned in the reasons recorded for reopening. The
assessee’s case is that this matter was duly dealt with by the A.O. and the A.O. had
disallowed a sum of Rs.1,40,000/- out of the total expenditure claimed in this regard
18 ITA No. 4081/Mum/2018
amounting to Rs.7,53,56,610/-. This was for a want of documentation. The A.O’s order in
this regard reads as under:
11.15 Legal mid Professional fees: The special audit has pointed out that amount of Rs. 140,000/- paid to one Ms. Rohini Kadam on 13.05.2009 vide voucher no MCX-SX-JV-0112 has not been produced before the special auditor. Vide letter dated 18.03.2016 the assessee admitted that the vouchers is misplaced, but also stated that the sum was paid to the person for language translation and typesetting from MCXSX website matter in Punjabli & Assamese, The contention of the assessee is not acceptable. The sum of Rs. 140,000/-is disallowed and added back to the income of the assessee.
Now once the item has been dealt with by the A.O. and the A.O. has made a
disallowance of Rs.1,40,000/- for want of documentation, the ld. CIT is exercising his
jurisdiction u/s. 263 by observing that the A.O. needed to make further enquiry. We find
that this view of the ld. CIT is not at all sustainable. The facts of the case as per A.O. is
that there was want of documentation reported by the special auditor on this expenditure
and the A.O. has made a disallowance of Rs.1,40,000/-. Hence, this can certainly be said
to be a view of the A.O. If the ld. CIT was not in agreement with this view, as in his
opinion, some other amount was required to be disallowed, he should have spelt out the
same. It is also not the case of the ld. CIT that there was something more in the special
audit report on this issue which has not been examined by the A.O. The ld. CIT has not
spelt out any such figure rather he has asked the A.O. to make further enquiry. In our
considered opinion, this direction by the ld. CIT is not at all sustainable on the anvil of
the decision of the Hon'ble jurisdictional High Court in the case of Gabriel India Ltd
.(1993) 203 ITR 108 (Bom) mentioned by the ld. Counsel of the assessee before the ld.
CIT himself. It is also settled law that if there are two views possible and if the A.O. has
19 ITA No. 4081/Mum/2018
adopted one view with which the ld. CIT does not agree, the same will not give rise to the
jurisdiction by the ld. CIT. This proposition is supported by the Hon’ble Apex Court
decision in the case of CIT vs. Max India Ltd. [2017] 79 taxmann.com 185 (SC). The
decision from the Hon’ble Apex Court in the case of Deniel Merchants P. Ltd. & Anr
(supra) and other case law referred by the ld. DR were with respect to case where no
proper enquiry was made by the A.O. These case laws are not applicable on the facts of
the present case where upon finding of lack of documentation reported in the special
audit report, the A.O. has made a disallowance of Rs.1,40,000/-. This is a view which
cannot be said to be not possible.
Hence, in the background of the aforesaid discussion and precedent, we uphold the
order passed by the ld. CIT(A) u/s. 263 of the Act qua the following, against which the
only plea of the assessee is that the order u/s. 263 is time barred with respect to them:
1) Software support charges. 2) Share service cost and 3) SAP license fees
The direction for further examination of legal and professional charges is hereby
quashed in light of the above discussion and precedent.
In the result, this appeal by the assessee stands partly allowed. Order pronounced in the open court on 22.10.2018
Sd/- Sd/-
(Ram Lal Negi) (Shamim Yahya) Judicial Member Accountant Member Mumbai; Dated : 22.10.2018 Roshani, Sr. PS
20 ITA No. 4081/Mum/2018
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai