BLUE STAR INFOTECH LTD,MUMBAI vs DCIT CIR 6(1), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER:

This appeal by assessee under section 253 of the Income-Tax Act (“The Act”)

is directed against the order ld. CIT(A)-12, Mumbai dated 14.08.2015 for Assessment Year (AY) 2005-06, which arises from the order of assessment passed under section 143(3) r.w.s. 147 dated 25.03.2013. Though, the assessee has raised as many as nine grounds of appeal

, however, as per our considered opinion the assessee has raised the following grounds of appeal are the substantial grounds of appeals:

1. The assessment order under section 143(3) r.w.s. 147 is bad-in-law and on facts.

2. The ld. CIT(A) erred in concluding the reassessment order under section 143(3) r.w.s. 147 is valid under the law.

3. The ld. CIT(A) erred in law and denying the set-off of losses of 10A unit against the income of non-10A unit. - M/s Blue Star Infotech Ltd.

4. The ld. CIT(A) erred in upholding the reopening and not allowing the set-off of losses in view of binding decision of jurisdictional High Court.

2. Brief facts of the case are that the assessee is a company engaged in the business of software development, filed its return of income declaring loss of Rs. 1,96,67,460/- on 31.10.2005. The assessment was completed on 26.12.2008. The AO while passing the assessment order disallowed exemption under section 10A in respect of SDF-V unit of Rs. 2,98,90,596/- and also added interest income on account of delay in receipt of payment from its Associate Enterprises (AE) in UK & USA. Subsequently, the assessment order was revised by AO on 25.03.2013 under section 147. Notice under section 148 was issued for re-opening of the assessment under section 147 of the Act on 14.03.2012. In response to the notice under section 148, the assessee vide its reply dated 04.04.2012 contended that the original return filed be treated as return of. The assessee demanded the reasons of re- opening. The following reasons of re-opening was supplied to the assessee:

“Subsequently, following facts were founds from the records; (i) Assessee had claimed deduction under section 10A in respect of 4 units. In one of the unit viz HNG was under loss. Since, income is exempt under section 10A, this loss should not have been included in the income for computation of income for tax. Thus this loss from exempted unit was adjusted against the taxable income. This omission has resulted in under assessment of income of Rs. 40,29,444/-”.

The assessee filed its objection against the reopening and contended therein that proceeding under section 148 can only be made if, it could be proved that there is failure on the part of assessee in disclosing fully and truly all material facts necessary for assessment. The objection of assessee was rejected by AO. 2 M/s Blue Star Infotech Ltd. The AO proceeded to make the re-assessment proceeding. The re-assessment under section 143(3) r.w.s. 147 was completed on 25.03.2013. In the reassessment proceeding, the AO disallowed the set of loss of Rs. 40,29,444/- from the HNG unit against the eligible unit under section 10A.

Aggrieved by the order of re-assessment the assessee challenged the re- opening of the assessment as well as addition of Rs. 40,29,444/- added by way of denying the set-off of loses from eligible unit under section 10A before first appellate authority/ Ld CIT(A). The ld. CIT(A) confirmed the re- opening and the denial of set-off of losses from eligible unit. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.

We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee argued that assessment for relevant AY was completed on 26.12.2008 under section 143(3). The AO issued notice under section 148 on 14.03.2012. The AO issued a vague notice. In the notice, the AO has not disclosed as to what income has escaped assessment within the meaning of section 147 of the Act. It was argued that assessee was supplied reasons for re-opening vide letter dated 28.09.2012.

The reasons of re-opening are also vague. The reasons of re-opening itself disclosed that “subsequently, following facts were found from the record”.

From the contents of reasons for re-opening, it is clear that there was no escapement of assessment by the reasons to failure on the part of assessee. 3 M/s Blue Star Infotech Ltd. The assessee has furnished all the details along with computation of income and Tax Audit Report. The assessee furnished all claim/deduction in respect of all eligible and non-eligible units and the loss. There was no failure on the part of assessee to disclose fully and truly all material for this assessment of income of the assessee. It was argued that the re-opening was based on the mare change of opinion, which is itself bad-in-law and is liable to declare as such. In support of his submission, the ld. AR of the assessee relied upon the decision of (i) Siemens Information System Ltd. vs. ACIT [2018] 172 Taxman 315 (Bombay HC) (ii) Siemens Information System Ltd. vs. ACIT [2008] 168 Taxman 209 (HC Bom.) (iii) CIT vs. Black & Veatch Consulting P. Ltd. (20 taxmann.com 141 (HC Bom.) (iv) CIT vs. Kelvinator of India Ltd. (123 Taxman 433 (HC Del.) & (v) CIT vs. Kelvinator of India Ltd. (1`87 Taxman 312 (SC). On merit, it was argued that the assessee was entitled for set-off of losses against the eligible unit under section 10A and in support of his submission, the ld. AR of the assessee relied upon the decision of Hindustan Unilever Ltd. vs. DCIT [2010] 191 Taxman 119 (HC Bom.), CIT vs. Galaxy Surfactants Ltd. [2012] 19 taxmann.com 141 (HC Bom., CIT vs. Black & Veatch Consulting P. Ltd. On the other hand, the ld. DR for the Revenue relied upon the decision of ld. CIT(A).

We have considered the rival submission of the parties and perused the material available on record. Ground No. 1 & 2 of the appeal relates to validity of re-assessment proceeding. The assessment under section 143(3) was completed on 26.12.2008. Notice under section 148 was issued on 4 ITA No. 5380/M/2015- M/s Blue Star Infotech Ltd. 14.03.2012. Since notice under section 148 was issued after four years from the end of relevant AY. Hence, in our view, the first proviso of section 147 is applicable on the facts of the present case. The perusal of notice under section 148 and the reasons of re-opening nowhere states that the income chargeable to tax has escaped for the relevant Assessment Year on failure on the part of assessee to disclose fully and truly all material facts necessary for assessment.

The Hon’ble Apex Court in case of CIT vs. Kelvinator of India Ltd. (supra) held that after 01.04.1989, the AO has power to re-open, provided there is tangible material came to conclusion that there is escapement of income from assessment. The reasons must have linked with the formation of belief. As we have noted that no tangible material which might have came to the notice of AO has been mentioned either in the notice or in the reasons of re-opening.

There is no whisper in the reasons of re-opening that there is any failure on the part of assessee to disclose fully and truly about the any material. We have noted that assessment under section 143(3) was completed on 26.12.2008. The AO made certain disallowance after considering the claim of eligibility under section 10A in respect of four units and allowed set off of loss from non eligible unit. The AO also disallowed/added interest on account of delayed payment from its AE. Thus, a detailed assessment order was passed with due application of mind by the AO. Thus, in our view, the re- opening was mere a change of opinion and thus, the re-opening in the present facts and circumstances of the case is not valid. - M/s Blue Star Infotech Ltd.

We have noted that even on merit, the assessee is entitled to set-off of losses from non eligible unit, against the profit from the eligible unit under section 10A as has been held in various decisions of jurisdictional High Court viz; in Hindustan Unilever Ltd. vs. DCIT (supra), CIT vs. Galaxy Surfactants Ltd. (supra), CIT vs. Black & Veatch Consulting P. Ltd. (supra) & CIT vs. Techno Tarp and Polymers Pvt. Ltd. [ITA No. 2134 of 2013 (HC Bom.)]. Thus, in view of the above discussion, we hold that re-opening under section 147 was invalid as it was mere change of opinion and even on merit the assessee was entitled for set-off of losses from the non-eligible unit with unit under section 10A of the Act. Thus, the assessee is succeeded on merit as well.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 12th day of January 2018.

BLUE STAR INFOTECH LTD,MUMBAI vs. DCIT CIR 6(1), MUMBAI