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Income Tax Appellate Tribunal, “ C ” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI RAJESH KUMAR, AM
आयकर अऩीऱीय अधधकरण “सी” न्यायऩीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “ C ” BENCH, MUMBAI
श्री अमभत शुक्रा, न्मायमक सदस्म एवुं श्री याजेश कुभाय, रेखा सदस्म के सभक्ष । BEFORE SHRI AMIT SHUKLA, JM AND SHRI RAJESH KUMAR, AM
आमकय अऩीर सं./I.T.A. No.1338/Mum/2012 (ननधाारण वषा / Assessment Year : 2005-06)
बनाम/ M/s Capgemini Consulting India Dy. Commissioner of Income Pvt.Ltd.(now known as Tax,10(2), Vs. R.No.432, 4th floor, Aayakar Bhavan, Capgemini Pvt Ltd) C/o Kalyaniwalla and Mistry, 3rd M K Road, floor, Armi and Navi Building, Mumbai-400020 148, M G Road, Fort, Mumbai-400001 (अऩीराथी /Appellant) (प्रत्मथी / Respondent)
आमकय अऩीर सं./I.T.A. No.2291/Mum/2012 (ननधाारण वषा / Assessment Year : 2005-06)
Dy. Commissioner of Income बनाम/ M/s Capgemini Consulting India Tax,10(2), Pvt.Ltd.(now known as Capgemini Vs. R.No.432, 4th floor, Aayakar Pvt Ltd) Bhavan, SEP 2B-3, Godrej Soaps M K Road, Compound, Gate No.2, Mumbai-400020 Pirojshanagar, Eastern express Highway, Vikhroli (E), Mumbai-400079 स्थायी ऱेखा सुं./ PAN : AAACE2443A (अऩीराथी /Appellant) (प्रत्मथी / Respondent) ..
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Cross-objection No.82/Mum/2013 arising out of I.T.A. No.2291/Mum/2012 (ननधाारण वषा / Assessment Year : 2005-06) M/s Capgemini Consulting India बनाम/ Dy. Commissioner of Income Pvt.Ltd.(now known as Tax,10(2), Vs. R.No.432, 4th floor, Aayakar Bhavan, Capgemini Pvt Ltd) M K Road, Mumbai-400020 स्थायी ऱेखा सुं./ PAN : AAACE2443A Cross objection/ प्रत्याऺेऩ .. (प्रत्मथी / Respondent)
अऩीराथी की ओय से/Assessee by : Shri M M Golvala and Shri Hormuzd Jamshedji प्रत्मथी की ओय से/ Revenue by : Shri Love Kumar
सुनवाई की तायीख / Date of Hearing : 04.10.2016 घोषणा की तायीख /Date of Pronouncement :27.10.2016 आदेश / O R D E R PER RAJESH KUMAR, AM : These cross appeals filed by the respective parties against the order dated 18.1.2012 passed by the ld. CIT(A)-21, Mumbai for the assessment year 2005-06. The assessee also filed cross-objection against the ITA No.2291/Mum/2012 filed by the revenue. Since these appeals and cross- objection pertain to the same assessee, these were clubbed and heard together and are being decided by this common order for the sake of convenience.
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I.T.A. No.1338/Mum/2012 ( AY: 2005-06)(by assessee) 2. Grounds of appeal taken by the assessee are as under: “”This appeal is against the Order uls.l43(3) r.w.s. 147 of the Income-tax Act" 1961, dated 18.01.2012 passed by the Commissioner of Income-tax (Appeals)-21, Mumbai and relates to AY 2005-2006. 1) The learned Commissioner of Income-tax (Appeals) erred in holding that the Assessing Officer correctly assumed jurisdiction u/s.147 when the conditions precedent were not satisfied. 2) The learned Commissioner of Income-tax (Appeals) failed to consider that the Assessing Officer did not have "reason to believe" that income chargeable to tax had escaped Assessment. 3) The learned Commissioner of Income-tax (Appeals) failed to consider that the reasons recorded for reopening were erroneous and misconceived. 4) The learned Commissioner of Income-tax (Appeals) failed to consider that the reopening had taken place on a pure change of opinion. 5) The learned Commissioner of Income-tax (Appeals) failed to consider that there was no tangible material before the Assessing Officer to demonstrate that income had escaped assessment. 6) The learned Commissioner of Income-tax (Appeals) failed to consider that the reassessment proceedings were barred under the second proviso to section 147. 7) The ld. CIT(A) erred in holding that interest income Rs.20,89,000/- did not constitute profits and gains of the undertaking for the purposes of computing deduction u/10A”.
The sole issue raised in the grounds of appeal no.1 to 6 is with respect to the jurisdictional issue challenging the upholding of the reopening of assessment by ld.CIT(A) as made by the AO under sections
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147 read with section 148 of the Act and the issue raised in ground no.7 is on merit qua upholding that the interest income of Rs.20,89,000/- did not constitute the part of profit of the undertaking for the purpose of computing deduction u/s 10A of the Act.
Brief facts of the case are that the assessee filed return of income on 31.3.2005 declaring a total income at Rs.32,59,83,402/-. Thereafter, the case was selected for scrutiny and assessment was framed under section 143(3) of the Income Tax Act, 1961 (the Act) on 8.12.2008 assessing the total income at Rs.52,62,41,478/-. Subsequently, the assessment was reopened u/s 147 and notice u/s 148 was issued on 31.3.2010. The assessment already completed vide order dated 8.12.2008 was reopened by recording the following reasons: “The assessment u/s 143(3) was completed on 08.12.2008 assessing total income at Rs. 52,62,41,480/- against the returned income of Rs. 32,59,83,402/-. It is seen that the assessee company has claimed deduction u/s. 1OA of the Act which includes P .Fees of Rs.55,84,47,000/- OPE's of Rs.12,62,44,000/- as shown in the P&L a/c. As regards OPE's income the assessee vide its letter dated 24.10.2008 stated that these are out of pocket expenses recovered from customer, the assessee does not keep ... track of the exact nature of such expenses". Apparently, it appears that the expenses recovered by the assessee had been included in the export turnover at the of computing of deduction u/s. 1OA. Further, from the details furnished it was observed that vide letter dated 30.11.2008 assessee had stated that the OPE's income is arrived on the pro-rata basis and it is of Rs.11,13,74,064/- instead of Rs. 12,62,44,000/- shown in the P&L a/ c. As such the difference in the OPE's income of Rs.1,48,69,936/- should have been reduced from the profit of undertaking. Hence, the assessee was eligible for deduction u/s 1OA
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of Rs.9,30,95,305/- whereas the deduction u/s. 1OA allowed to the assessee is of Rs.11,18,44,590/- resulting in under levy of income of Rs.1,87,49,285/- and short levy of tax of Rs. 68,60,832/- It is also seen that interest was received on the Fixed Deposits of Rs.20,89,000 of Unit-II on which deduction u/s. 10A has been allowed. Various decisions from case laws were quoted wherein it is laid down that interest on fixed deposits received by an assessee having business income is to be assessed under the head “Income from other sources' and not as 'Business income'. Thus, interest receipt of Rs. 20,89,000/- is to be excluded from the profit of undertaking at the time of computing deduction u/s 10A. From the perusal of the TDS certificates filed alongwith the return of income it is seen that the assessee company has claimed TDS from IDBI Capital Market Services, without submitted the TDS certificate and credit was granted. The same is to be looked in to. In view of the above facts and under the circumstances, I have reason to believe that income which was chargeable to tax has escaped assessment. Proceedings, u/s 147 is being initiated. Issue notice u/s 148 of the IT Act, 1961”
Out of the above three reasons recorded for reopening the assessment, the additions made on account of first and third Reasons as referred to above were deleted by the ld.CIT(A) vide order dated 18.1.2012, by holding that re-opening was bad in law and assumption of jurisdiction by re-opening was not valid, whereas the addition made by the AO on the 2nd reason relating to interest received on fixed deposits amounting to Rs.20,89,000/- on which deduction has been allowed u/s 10A of the Act by treating the said interest as part of the profit while calculating the eligibility amount u/s 10A of the Act. The ld. CIT(A)
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upheld the reopening of assessment on this ground that interest on fixed deposits receipts has to be excluded while working out the profit of the undertaking for the purpose of calculating deduction u/s 10A of the Act.
Now, the issue before us is whether the reopening of the assessment was valid on the basis of second reason recorded that interest received on fixed deposits receipts of Rs.20,89,000/- is not part of profits eligible u/s 10A of the Act.
The ld. AR of the assessee vehemently submitted that the deduction u/s 10A of the Act including interest on FDR’s Rs.20,89,000/- has comprehensively been examined by the AO at the time of framing of the original assessment. The ld. AR drew our attention to the statement of the total income filed at page 4 of the paper book in which the deduction u/s 10A for Unit at Gate 1A, Godrej Industries Complex, Vikroli, Mumbai- 400079 was claimed at Rs.11,57,73,763/- which was restricted to Rs Rs.11,18,44,590/- by the AO after examining all the aspects with respect to calculation of profits from the said Unit. In the light of provisions of section 10A of the Act. It is pertinent to mention that the assessee was also having other two units which were eligible for deduction u/s 10A of the Act, however, due to losses incurred in the said Units no exemption was claimed.
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The ld. CIT(A) decided the issue of reopening in favour of the assessee on the First and Third reasons recorded whereas upholding the reopening of assessment u/s 147 r.w.s 148 of the Act on the second reason. Now, the assessee has challenged the jurisdictional issue of reopening of the assessment u/s 147 read with section 148 of the Act before us.
The ld. AR vehemently argued that there was no fresh and tangible material before the AO to reopen the assessment. The ld. Counsel for the assessee submitted that the ld.CIT(A) was not justified in upholding that interest received on FDR of Rs.20,89,000/- was not to be included in the profit for the purpose of claiming exemption u/s 10A of the Act, resulting into escarpment of income to the extent of Rs.20,89,000/-and accordingly assumed jurisdiction u/s 147 of the Act. The ld. AR argued that the issue of interest on FDR was very much before the AO at the time of original assessment proceedings which was specifically raised by the AO and the assessee accordingly submitted complete particulars and working of net profit for the purpose of claiming deduction u/s 10A of the Act including details of interest on FDR being treated as part of profit for the purpose of claim of deduction u/s 10A of the Act. The ld. AR drew our attention to the questionnaire dated 19.8.2008 as filed in paper book at pages 30 to 32 issued by the ACIT-Range -10, Mumbai and at para 14,15 and 16 vide
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order dated 19.10.2008, the issue of deduction u/s 10A was specifically asked calling upon the assessee to furnish the copies of profit and loss account, balance-sheet of the three Units. The ld.Counsel argued that the said query of the AO was replied by the assessee vide letter dated 24.10.2008, wherein vide para 6, the assessee furnished Unit-wise working of profit or loss as filed at page 37 of the paper book furnishing Unit-wise calculation of net working of profit or loss in respect of all the three Units which were eligible for deduction u/s 10A of the Act including Mum-II Unit on which the assessee has claimed deduction to the tune of Rs. Rs.11,57,73,763/-. The ld. Counsel specifically pointed out that the amount of interest of Rs.20,89,000/- on fixed deposits was clearly shown on the income side of the said statement and thus, argued that the materials on the basis of which the assessment was reopened was already before the AO and stands duly considered while framing the regular assessment u/s 143(3) of the Act. Therefore, reopening of the assessment on the ground that there was escapement of income due to claiming of interest on FDR as part of the profit for the purpose of claiming deduction u/s 10A of the Act was nothing but patent case of change of opinion. It was also submitted that the interest on FDR was earned from the temporary deployment of funds before these were put to use in the business of the assessee and therefore for all practical purposes, the interest on FDR was part of the profit earned from the said UNIT. In
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defence, the ld.AR heavily relied on a number of decisions namely Kelvinator of India Ltd. (320 ITR 561(SC), CIT V/s ICICI Bank Ltd reported in (349 ITR 482) (Bom), Cliantha Research Ltd V/s DCIT (SCA No.1547 of 2013)(Guj), Metal Alloys Corporation v.ACIT [2013] 350 ITR 245 (Gujarat) and the decision of Hon’ble Gujarat High Court in the case of CIT V/s Sun Pharmaceutical Industries Ltd in Income Tax Appeal No.128 of 2016 order dated 1.4.2016.
On the other hand, the ld DR heavily relied on the orders of the authorities below and submitted that the interest on FDR could not be part of the profit of Unit eligible for deduction u/s 10A of the Act and therefore, the assessee has treated the same as part of the profit for the purpose of claiming the higher deduction u/s 10A thereby concealing the income to that extent. Therefore the, AO has rightly reopened the assessment of the assessee on the ground that Rs.20,89,000/- being interest on FDR has escaped assessment. The ld. DR argued that there was no need for the fresh material for reopening the assessment and the same could be reopened on the basis of material which was available before the AO at the time of framing of the original assessment but was not considered.
We have heard the rival submissions and perused the material on record including the impugned orders of the authorities below and various
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case laws relied upon by the rival parties. We find that there were three reasons recorded by the AO for reopening of the assessment already finalized and framed under sect. 143(3) of the Act vide order dated 8.12.2008. The reasons No.1 and 3 were held by the ld. CIT(A) to be wrong and invalid for assuming jurisdiction u/s 147 of the Act, whereas the reason no.2 i.e. escapement of income by way of interest on FDR amounting to Rs.20,89,000/- was held to be valid reason for re-opening of the assessment by the AO. Therefore, issue before us is whether the assumption of jurisdiction on the basis of escapement of income by way of interest on FDR constituted a valid ground for reopening the completed assessment when it was claimed u/s 10A of the Act by treating the same as part of profit. During the course of hearing, the ld.AR drew our attention to the statement of income for the assessment year 2005-06 filed at page No.1 of the paper book in which the assessee has claimed deduction under section 10A of the Act in respect of Unit at Gate 1A, Godrej Industries Complex, Vikroli, Mumbai-400079 to the tune of Rs.11,57,73,763/-. During the course of assessment proceedings, the AO issued questionnaire dated 19.8.2008 wherein the AO specifically asked the assessee to produce details of deduction u/s 10A of the Act and supporting profit and loss account and balance sheet for each unit separately which was replied by the assessee vide letter dated 24.10.2008 and unit-wise working of claim u/s 10A was furnished vide para 6 and 7.
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Vide para 6, the assessee furnished unit-wise profit or loss for three eligible units u/s 10A of the Act. A perusal of page 37 of the paper book in respect of Mum-II unit qua which the deduction has been claimed u/s 10A reveals that interest on FDR has been shown in the income side of the said statement and the exemption u/s 10A of the Act has been calculated at Rs.11,57,73,763/-. The AO after examining all the details submitted by the assessee during the assessment proceedings from time to time reduced the deduction u/s 10A of the Act to Rs.8,50,06,151/- as against Rs.11,57,73,763/- claimed by the assessee in the return of income. From the above facts it is adequately clear that the issue of interest on FDR forming part of the net profit and calculation for the purpose of section 10A of the Act was very much before the AO which was furnished vide written submission dated 24.10.2008 in reply to the questionnaire dated 19.8.2008 which is placed at page 37 of the paper book and the AO after considering all these information and documents filed before him during the assessment proceedings reduced the amount of deduction u/s 10A to Rs.8,50,06,151/- as against Rs.11,57,73,763/- claimed by the assessee. In our opinion, reopening of the assessment on the basis of interest on FDR stating that the same to have escaped the assessment u/s 147 r.w.s 148 of the Act is not correct as the material was already before the AO at the time of framing the original assessment and therefore, we are in agreement with the argument of the ld. AR that the reopening of
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assessment on the basis of material which was already before the AO is nothing but a mere change of opinion which is not permissible under the Income Tax Act. The sole purpose behind the said enactment was to discourage any attempt of re-opening at the whims and fancies of the AO specially when the assessment was finalized and framed by the AO after considering all the material. Merely for the reasons that the successor AO does not agree with the conclusion drawn by the predecessor AO the assessment can be allowed to be disturbed. The case of the assessee is also supported by the number of decisions relied and referred to by the ld AR during the course of hearing before us. In the case of CIT V/s Kelvinator of India Ltd, the Hon’ble Supreme Court held that “The Assessing Officer has no power to review the assessment whereas the AO has the power to reassess/ The Hon’ble Supreme Court has held that assessment has to be made on fulfillment of certain conditions on the satisfaction of certain conditions and if the concept of 'change of opinion' is removed as contended, then in the garb of reopening the assessment, the review would take place. The concept of 'change of opinion' as an in- built test to check abuse of power by the Assessing Officer. Hence, post 1- 4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment.”. In the case of Cliantha Research Ltd V/s DCIT (SCA No.1547 of 2013)(Guj), the Hon’ble Gujarat High Court held
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“that re-assessment proceedings, merely failure on the part of Assessing Officer to raise such a query or question would not authorize him to reopen the assessment even within period of 4 years from end of relevant assessment year and any such attempt on his part would be based on mere change of opinion. To reiterate when the claim was processed at length and after calling for detailed explanation from the assessee, merely because a certain element or angle was not in mind of Assessing Officer while accepting such a claim, can not be a ground for issuing notice under section 148 for reassessment” . In the case of Metal Alloys Corporation v.Assistant Commissioner of Income-tax* [2013] 350 ITR 245 (Gujarat), the Hon’ble Gujarat High Court held that “ During course of assessment proceedings, Assessing Officer raised certain queries which were replied by assessee and thereafter Assessing Officer allowed deduction. The reasons given for reopening assessment u/s 148 was nothing, but a change of opinion. It was not a case of escape assessment as nothing was concealed by the assessee nor he has failed to furnish the material relevant to the assessment year before the Assessing Officer. Therefore, notice issued under section 148 of the Act was liable to be quashed”.
Considering the facts as discussed above, we are of the considered view that the issue of interest on FDR of Rs.20,89,000/- was examined by the AO at the time of framing the original assessment and reopening the same on that basis is just a mere change of opinion . The facts of the case
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of the assessee are squarely covered by the ratios laid down in the above mentioned decisions. Therefore, respectfully following the same we quash the assessment proceedings, u/s 148 of the Act. The AO is directly accordingly.
The issue raised in ground no.7 is on merit. Since we have already quashed the reopening of the assessment on the legal and technical issue, the ground is rendered academic and accordingly dismissed as being infructuous.
I.T.A. No.2291/Mum/2012 (By revenue) 13. Grounds of appeal taken by the revenue are as under : “l. "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing that income out of pocket expenses should be reduced from the export turnover of the 10A unit which is contrary to the provision of the Act and the legislative intent." 2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.” 14. The issue raised by the revenue in this appeal is regarding deduction u/s 10A of the Act. Since we have already quashed the reopening proceedings, u/s 147 r.w.s 148 of the Act in assessee’s appeal bearing ITA No.1336/Mum/2012. Therefore, this ground is rendered infructuous and accordingly dismissed as infructuous.
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Cross-objection No.82/Mum/2013 15. Single and solitary ground taken by the assessee in the cross- objection is as under : “ Without prejudice to the contention that the Department's appeal is required to be dismissed, the Respondent submits that in case it is held that the OPE income of Rs.12,62,44,000/- should be reduced from the export turnover of the eligible unit, then OPE income needs to be reduced from the total turnover of the eligible unit as well” 16. Since, we have dismissed the appeal of the revenue for the reasons stated in ITA No.1338/Mum/2012, the cross-objection filed by the assessee in revenue’s appeal becomes infructuous and hence dismissed as infructuous. 17. Appeal of the assessee is allowed, the appeal of the revenue stands dismissed and the cross-objection filed by the assessee also dismissed.
Order pronounced in the open court on 27th October, 2016 आदेश की घोषणा खुरे न्मामारम भें ददनांकः 27th October, 2016 को की गई ।
Sd sd (AMIT SHUKLA) ( RAJESH KUMAR ) न्मायमक सदस्म / JUDICIAL MEMBER रेखा सदस्म / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 27/10/2016 व.यन.स./ SRL , Sr. PS आदेश की प्रनिलऱपऩ अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- 3. 4. आमकय आमुक्त / CIT
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ववबागीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, 5. ITAT, Mumbai गार्ड पाईर / Guard file. 6. आदेशान सार/ BY ORDER, True copy उऩ/सहायक ऩुंजीकार (Dy./Asstt. Registrar) आयकर अऩीऱीय अधधकरण, भुंफई / ITAT, Mumbai