M/S NEW DELHI TELEVISION LTD.,,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH ‘E’ NEW DELHI BEFORE : SHRI I.C. SUDHIR, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA Nos. 1023/Del./2013 Asstt. Year : 2003-04 New Delhi Television Ltd., vs. A.C.I.T., Circle 13(1), 207, Okhla Industrial Estate, New Delhi. Phase-III, New Delhi. [PAN : AAACN0865 D] ITA Nos. 5126/Del./2011 Asstt. Year : 2003-04 New Delhi Television Ltd., vs. Commissioner of 207, Okhla Industrial Estate, Income-tax-V, New Delhi. Phase-III, New Delhi. (Appellant) (Respondent) Appellant by : Shri Tarandeep Singh, C.A. Respondent by : Shri R.L. Meena, CIT/DR Date of hearing : 18.08.2015 Date of pronouncement : 30.09.2015 ORDER Per L.P. Sahu, Accountant Member:

Appeal No. 1023/Del/2013 by the assessee is directed against the order dated 10.01.2013 of learned CIT(A)-XVI, Delhi for the assessment year 2003-04 in the matter of reassessment u/s. 147 of the Income-tax Act, 1961, whereas the appeal No. 5126/Del./2011 is preferred by the assessee against the order dated 11.10.2011 of learned CIT-V, New Delhi passed u/s. 263 of the Income-tax Act,

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1961, revising the reassessment order dated 24.12.2010. Since both these appeals were heard together, both the appeals are decided by this consolidated order.

2.1 Subsequently, the Assessing Officer reopened the assessment of assessee u/s. 147 by issuing notice u/s. 148 of the Act after recording following reasons : Return of income in this case for A.Y. 2003-04 was filed on 02.12.2003 declaring income of Rs.14,41,49,689/- after claiming deduction u/s 80HHF of the I.T. Act. Original Assessment u/s 143(3) of the Act was made on 28.02.2006 at a total income of Rs.14,49,02,740/-. On perusal of assessment records for the year under consideration, it has been revealed that assessee has claimed to have made export / transfer of software programmes comprising 24 hours news channel to STAR TV, Hong Kong. It also claimed to have exported software programmes for other broadcasters like BBC etc. The assesseeclaimed deduction u/s 80HHF to the tune of Rs.12.01 crores. In the Profit & Loss Account of the assessment year 2003-04, the total incomes (sales have been shown as under : Income :

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Service income - Export 97,47,73,359/- 86,79,59,924/- - Domestic 5,55,08,692/- 7,74,76,227/- 1,03,02,82,051/- 94,54,36,151/- - Other Income II 2,44,93,043 3,76,55,503/- 1,05,47,75,094/- 98,30,91,654/- However, in the Audit Report in Form No.10 CCAI, the total turnover and export turnover of the business has been declared at Rs.1,04,22,46,692/-. Rs.1,19,64,641/-. It has been noticed that this amount is on account of Fluctuation in Foreign Exchange Gains which has been shown under the head ‘Other Income’. The turnovers declared from any gain or loss on account of fluctuation in foreign exchange cannot vary the figure of sales recorded in the Sales Account on the basis of Exchange Rates prevalent on the relevant dates of transactions. This fact of case is totally against the accounting principles and has been actuated by the desire to claim undeserved and illegitimate deduction under section 80HHF on foreign exchange gains which is not eligible for deduction. It is also a matter of accounting principles that while sales are recorded in the trading and manufacturing accounts, any gain or loss on account of fluctuation in foreign exchange is depicted under some appropriate head in the Profit & Loss Account. This income of Rs.1,19,64,641/- on account of gains in foreign exchange fluctuations is of the nature of any other receipt mentioned in clause (d) of Explanation, (baa) in section 80HHF. As per the provisions of the Act, 90% of the said amount was liable to be excluded for the purposes of computation of deduction. The assessee has deliberately included this amount in total turnover and export turnover as a result of which the assessee was wrongly allowed excess deduction under section 80HHF. Moreover, in para (6) of Schedule 15 of audited accounts, it has been clearly mentioned that the company is in the business of producing television software. It nowhere states that it is in the business of export of television software. Nowhere in the return of income has it been clearly mentioned that the deduction under section 80HHF has been claimed excess that the adjusted profits of Rs.26,37,75,032/- on which deduction under section 80HHF has been claimed include the amount on account of gains on Foreign Exchange Fluctuation. Thus, the assessee has failed to disclose this material fact that gains of Rs.1,19,64,641/- have also been included for

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claiming deduction under section 80HHF. Though it has been mentioned that Foreign Exchange Fluctuation gains on remittance are included in the export turnover, but has not been mentioned about the amount on which Foreign Exchange Fluctuation has been gained by eligible profit for the purposes of computation of deduction under section 80HHF worked out by the assessee. Thus, it is clear cut cases where inflated deduction has been claimed by suppressing material facts and income escaping assessment is of the order of over Rs.60 lakhs on this account only. The assessee failed to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year relating to export income and failed to disclose all material evidences to show that eligible items i.e., film software, television software, music software, television news software including telecast rights were exported by the assessee company outside the country. The assessee has failed to disclose fully and truly that eligible items were actually exported outside the country. Further it was also not explained whether the worldwide copy rights of items were to continue with the assessee company after the export or not. All these facts were crucial for determining the eligibility of deduction u/s 80HHF of the Act, which were not examined by the AO while making assessment u/s 143(3) of the Act. The assessee has failed to disclose fully and truly the issue of actual export of eligible item and eligibility of deduction u/s 80HHF in case of export of limited rights.

On the basis of examination of the facts and circumstances for A.Y. 2002-03 as above, I have reason to believe that the income has escaped assessment on account of failure on the part of the assessee to disclose all material facts fully and truly for claiming deduction u/s 80HHF of the I.T. Act, on the export claimed to have been made to Star T.V. Hong Kong and other exports made apart from other issues recorded in the preceding paragraphs.”

2.2 The assessee objected to the validity of initiation of proceedings u/s 147 of the Act vide written objections dated 12th November 2010 which were disposed of by the Ld. AO vide order dated 03.12.2010. Thereafter, vide reassessment order dated 24th December, 2010 the AO reassessed the total income of the assessee at Rs.14,94,40,960/- after restricting the claim for deduction u/s 80HHF to Rs.11,48,38,379/- as against claim of Rs.12,01,29,653/- made by the appellant in

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its return of income. The AO was of the opinion that the sales are credited to the profit and loss account as per the invoice amounts and the foreign exchange fluctuation gain is not a part of the sales. He observed that as per Explanation (f) to sub-section (6) of section 80HHF, profit of the business is worked out after reducing 90% of any receipt by way of brokerage, commission, interest, rent, charges or any other receipts of the similar nature included in the profits and the foreign exchange fluctuation gain comes under “any other receipts of the similar nature” mentioned in the section itself. Hence, foreign exchange fluctuation gain will not form part of the export turnover and total turnover. He, thus, found that the assessee had wrongly computed the adjusted profit because the foreign exchange fluctuation gain was not included in other income and also the adjusted profit were wrongly calculated by not excluding 90% of foreign exchange fluctuation gains. The Assessing Officer, therefore, held that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. Therefore, the AO formed the reason to believe that the income liable to tax has escaped assessment because of the excess deduction claimed by assessee and allowed by AO u/s. 80HHF in the original assessment proceedings u/s. 143(3). The crux of AO’s findings is that foreign exchange fluctuation gains of Rs.1,19,64,641/- were not eligible for deduction u/s 80HHF of the Act. While re- computing the said deduction in reassessment order dated 24th December, 2010 the AO, therefore, reduced the figures of Export Turnover and Total Turnover as disclosed by the Appellant in Form No.10CCAI by the amount of foreign exchange fluctuation gain of Rs.1,19,64,641/-. In addition to this the Ld. AO further reduced 90% of income derived from foreign exchange fluctuation gain from the figure of “profits of business” eligible for claiming benefit of deduction u/s 80HHF. Thus, the AO worked out excess claim of deduction u/s. 80HHF amounting to Rs.52,91,274/- (Rs.12,01,29,653 – 11,48,38,379) and added the same back to the

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total income of the assessee vide reassessment order dated 24.12.2010 passed u/s. 147/143(3) of the Act.

2.3 The assessee challenged the reassessment order in appeal before the learned CIT(A) both on validity of reassessment proceedings and on merits of the addition made on account of excess claim of deduction u/s. 80HHF of the Act. The learned CIT(A) after considering the submissions of both the parties and various decisions in the cases of A.G. Holdings (P) Ltd. vs. ITO in W.P.(C)8031/2011, Ess Kay Engineering Co. (P) Ltd. vs. CIT(SC) 247 ITR 818, Revathy C.P. Equipments Ltd. vs. DCIT & Ors. (Mad) 241 ITR 856 and EMA India Ltd. vs. ACIT(All) 30DTR 82, dismissed the assessee’s pleas raised on validity of re-assessment proceedings as per observations made in para 5.2 and 5.3 of the impugned order. The learned CIT(A) further considering the rival submissions and the facts of the case, also dismissed the grounds raised by the assessee on merits of the addition observing as under : “6.2. Therefore, the issue to be decided in this appeal is whether foreign exchange fluctuation gain forms part of the profit derived from the business of export/transfer specified in sec 80HHF. The sec 80HHF clearly provides that the deduction shall be allowed to the extent of profits referred to in sub-sec 1A derived by the assessee from the business of export or transfer of film software, television software, music software etc. Therefore, profits have to be derived from the eligible business of export of software. 6.3. In view of above provisions due regard must be had to the intendment of Parliament as evidenced by the language used in sub- section (1) of section 80HHF. The statute contemplates a deduction where an assessee, being an Indian Company or a person resident in India, is engaged in the business of export out of India of any software to which the section applies. In such a case, the assessee is allowed, in computing the total income, a deduction to the extent of profits derived by the assessee from the export of eligible items. The deduction, in other words, relates to

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the ‘profits that are derived by the assessee from export. Now it is a well settled principle of law that the expression ‘derived from’ is of narrower connotation than the expression attributable to’. The expression ‘derived’ postulates the existence of a direct and proximate nexus with the export activity. The expression ‘derived from’ was explained in the judgment of Hon’ble Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 129 Taxman 539 in the context of the use of that expression in section 80HH. In that case the assessee had placed a deposit with an electricity board for obtaining the supply of electricity and the submission of the assessee was that the undertaking itself could not run in the absence of electricity. Consequently, it was urged that the interest received on the deposits placed with the electricity board must be regarded as being derived from the industrial undertaking. The Supreme Court rejected this submission, holding that the expression derived from “must be understood as something which has direct or immediate nexus”. The Court held that though electricity may be required for the industrial undertaking, the deposit required for such supply “ is a step removed from the business” and the derivation of profits on the deposit made “cannot be said to flow directly from the industrial undertaking itself”. The same principle has been reiterated by Hon’ble Supreme Court in CIT v. K. Ravindranathan Nair [2007] 295 ITR 228 specifically in the context of the provisions of section 80HHC. 6.4. The transaction of export in the case of the appellant is complete in all respects upon the repatriation of the proceeds. It lies within the discretion of the appellant as to whether the export proceeds should be received in a rupee equivalent in the entirety or whether a portion should be maintained in convertible foreign exchange in the appellant’s foreign currency bank account. The exchange fluctuation that arises is after the export transaction is complete and the sales are credited in the P&L account as per the invoice amount. Upon the completion of the export transaction, what the seller does with the proceeds, upon repatriation, is a matter of his option. The exchange fluctuation arises after the completion of the export activity and does not bear a proximate and direct nexus with the export transaction so as to fail within the expression “derived” by the assessee in sub-section (1) of section 80HHF. The exchange fluctuation arose subsequent to the transaction of export. In other words, the exchange fluctuation was not on account of a delayed realization of export proceeds. The gain in exchange fluctuation which has arisen after the deposit of the receipts in the appellant’s foreign currency account cannot be regarded as being part of the profits derived by the assessee

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from the export of software of eligible items. Reliance in this regard is placed on the decision of Hon’ble Bombay High Court in the case of CIT vs. Shah Originals [2010] 191 Taxman 81 (Bom) and Hon’ble ITAT Chennai in the case of DCIT v. Astron Document Management (P) Ltd. [2011] 16 taxmann.com 33 (Chennai) where it is held that the exchange fluctuation in EEFC account arising after completion of export activity, did not bear a proximate and direct nexus with the export transaction so as to fall within the expression “derived” by the assessee. The above decisions are squarely applicable in the case of the appellant.”

2.4 The learned CIT(A) also considered various decisions relied upon by the assessee on the issue and observed that the decisions relied on by the assessee are not applicable in the instant case and as such held that the foreign exchange fluctuation gain cannot be regarded as profits derived by the assessee from the export of eligible software items. The learned CIT(A), therefore, confirmed the reassessment order vide impugned order dated 10.01.2013. The assessee has assailed this order by way of appeal No. 1023/Del/2014 before us, inter alia, on the following grounds : 1. That on facts and in laws, the orders passed by both the Assessing Officer (hereinafter referred to as the “AO”) and the Commissioner of Income Tax (Appeals) {hereinafter referred to as “the CIT(A)} are bad in law and void ab-initio. 2. That on facts and in laws, the CIT(A) erred in upholding the assumption of jurisdiction u/s 147 of the Act by the AO. 2.1. That on facts and in laws, the CIT(A) erred in not appreciating that the prerequisites of assumption of valid jurisdiction in terms of proviso to section 147 are not met rendering the reassessment orders passed thereto as bad in law. 2.2 That on facts and in laws, the CIT(A) erred in not appreciating that the impugned reassessment proceedings were initiated by the AO as a result of a mere change of opinion on similar set of facts.

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iv). The assessee has not filed FIRC’s to the extent of Rs.10.73 crores ($30,00,000) out of total export claimed to have been made to M/s. Star TV in A.Y. 2003-04. v). The credit of advance money of Rs.10.73 crores received in year 1997 and 1999 in respect to earlier agreements between M/s. NDTV and M/s. NTVI have been claimed as export turnover of the year. vi). M/s. NTVI is subsidiary of M/s. Star TV and original agreement (on stamp paper) was between M/s. NDTV and M/s. NTVI. Subsequent agreements are only internal arrangements between M/s. NTVI and M/s. Star TV. Therefore, sale made in consequence of agreement between M/s. NTVI and M/s. NDTV dt. 21.02.1997 cannot be termed as export turnover.

3.1 The learned Commissioner observed that the Assessing Officer failed to examine these issues which were very crucial for determination of the eligibility of deduction u/s. 80HHF of the Act. The learned Commissioner after going through clause 17 of the agreement dated 21.02.1997, further opined that since NTVI Pvt. Ltd. which is an Indian Company, was solely responsible for uplinking, transmission and distribution of the 24 hours news channel programme and that US $ 8.5 million has been received from NTVI Pvt. Ltd., the supply of programmes to NTVI Pvt. Ltd. or any other entity on their instructions by the assessee cannot be treated as export for the purposes of section 80HHF. He further stated that there is difference of Rs.10,73,74,270/- between the declared export receipts from STAR TV and the amount received as per Bank certificates and therefore, if the excess export turnover receipts from STAR are excluded then the deduction u/s. 80HHF would work out to Rs.10,21,88,579/- instead of Rs.11,48,38,379/- as assessed by AO u/s. 147 of the Act. He, therefore, observed that excess claim of Rs.1,26,49,799/- was allowed by the AO in the reassessment order only on this count. The ld. Commissioner after relying on various decisions finally held that the Assessing Officer has also erroneously allowed deduction u/s. 80HHF of

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Rs.10,21,88,579/- to the assessee. The matter was, therefore, set aside to the file of the AO vide impugned order dated 11.10.2011, for examination and verification afresh, holding the reassessment order as erroneous and prejudicial to the interest of Revenue. Being aggrieved, the assessee has come up in appeal No.5126/Del./2011, inter alia, on the following grounds: “1. That on facts and in law the Commissioner of Income Tax, New Delhi (hereinafter referred to as the “CIT”) erred in holding that the order passed by the Assessing Officer (hereinafter referred to as the “AO”) u/s. 147/143(3) of the Act was erroneous and prejudicial to the interest of Revenue. 2. That the CIT erred in observing that: a. The Assessing Officer had failed to examine whether actual export of television software/video eligible for claim of deduction u/s. 80HHF had taken place. The sales made pursuant to agreements dated 21st February b. 1997, 21st February 1998 and 24th November 1999 cannot be termed as export. c. The assessee had inflated its export turnover receipts by Rs.10,73,74,279/-, and d. No enquiry was made by the AO on the above issues. 3. That on facts and in law the CIT erred in directing de novo examination without finding any error in the view adopted by the AO. 4. That on fact and in law the order passed by CIT u/s. 263 of the Act is bad in law and void ab-initio. 5. That on facts and in law the order u/s. 263 of the Act is bad in law in as much as the order sought to be revised itself is bad in law and sans jurisdiction.”

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The Assessing Officer rejected this contention and disallowed the claim on the primary ground that it was “News Software” and not “computer software” as defined in that section. The CIT(A) in his order dated February 28, 2003 has upheld the Assessing Officer’s contention. The amount demanded (including interest) as per the aforesaid order is Rs.95,613,626/-, of which the company has paid Rs.44,060,158/- under protest.

The Company has filed an appeal against the aforesaid order of CIT (Appeals) with the Income Tax Appellate Tribunal. In the event that the company is unsuccessful in its defense, it would be required to pay additional tax including interest amounting to Rs.51,553,468/- till the date of aforesaid order.”

5.1 It was further submitted by the Ld. AR that complete disclosures were made pursuant to specific queries raised by the Ld. AO during the course of original assessment proceedings u/s 143(3) of the Act. In this regard, our attention was invited towards submissions dated 22ndFebruary, 2006 and submissions dated 20th January, 2005 filed before the AO during the course of original assessment proceedings. Objecting to the assumption of jurisdiction u/s 147 of the Act, it was submitted by the Ld. AR that as regards foreign exchange fluctuation gain no new fact has come to the knowledge of AO so as to justify assumption of jurisdiction u/s. 147 after four years of the relevant assessment year. It was argued that based upon the existing material in the return of income itself which was in knowledge of the AO during the course of proceedings u/s 143(3) of the Act, the subsequent AO has merely tried to conduct a fishing expedition. In this regard, Ld. AR relied upon decisions of Delhi High Court in the case of Northern Strips Ltd. reported in 331 ITR 224 (Del) and Satnam Overseas reported in 329 ITR 237 (Del). As regards factum of export being made, the Ld. AR submitted that the notice u/s 148 was issued by the AO on 31stMarch, 2010 and as on that date ITAT in appellant’s own case for A.Ys. 1999-2000 and 2002-03 vide orders dated 26th July, 2004 and 31st

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March, 2008 respectively (copies placed in paper book) had accepted the stand of the appellant that eligible items were being exported out of India thereby satisfying the conditions stipulated in section 80HHF of the Act. As regards reasons to believe that foreign exchange fluctuation gains are not eligible for claiming deduction u/s 80HHF of the Act, it was submitted by the Ld. AR that this issue is no more res integra. In this regard, our intention was invited to following judicial pronouncements: (i). Smt. Sujata Grover reported in 74 TTJ 347 (Del) (ii). Priyanka Gems reported in 367 ITR 575 (Guj) (iii). Alps Chemicals Ltd. reported in 367 ITR 594 (Guj) (iv). Novels Software Development reported in 355 ITR 339 (Kar) (v). Pantasoft Technologies Ltd. reported in 347 ITR 578 (Mad)

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148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year”

7.1 In the instant case, in the return of income itself the assessee had furnished sufficient material adequately disclosing the fact that it had claimed deduction u/s 80HHF on foreign exchange fluctuation gain of Rs.1,19,64,641/-. It is also matter of fact that during the course of original assessment proceedings the then AO himself recomputed the deduction u/s 80HHF to Rs.12,06,49,803/- as against the claim of Rs.12,01,29,653/- made by the Appellant in his return of income. This increase in deduction was allowed by the then AO owing to certain addition / disallowances made to the business income in his order under section 143(3). It is thus hard to comprehend that the AO framing the original assessment did not apply his mind to the computation of income and Form 10CCAI furnished along with the return of income. It is an established principle of law that if conscious application of mind is made to the relevant facts and material available while making the assessment and again a different or divergent view is taken, it would amount to nothing but change of opinion. In the instant case, the subsequent AO appears to have initiated reassessment proceedings on account of mere change of opinion. Moreover, we concur with the submissions of the Ld. AR that no new facts have come to the knowledge of the AO justifying assumption of jurisdiction after four years. Hon’ble Delhi High Court in the case of Satnam Overseas (supra) has clearly laid down in this regard as under :- “We feel that the Writ Petitions have to succeed because the contentions as raised on behalf of the counsel for the petitioner are well founded. The only reason which has been given seeking reopening of the assessment for the years 1997-98 and 1998-99 is that suppression of sales have taken place on account of the fact that when average price of the closing stock is multiplied with the quantity of the sales in the year then the value of the sales would be at a higher figure than that as declared by the assessee. Clearly, there is no new material which is alleged to have come to the

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notice of the Assessing Officer which has caused him to seek reopening of the assessment. Admittedly, the reasons given for seeking reopening of the assessment contains the expression 'perusal of the case record reveals' clearly showing that it is on the basis of the same assessment record as was filed by the assessee, during the relevant assessment years and also scrutinized by the Assessing Officer before passing the orders under section 143(3) is the basis for seeking reopening of the assessment. Further the new logic, rationale and opinion, which has been formed by the Assessing Officer for seeking reopening of the assessment is nothing but a change of opinion and a new approach to the existing facts and material which the Assessing Officer could well have done during the regular assessment proceedings of the relevant assessment years. Not only this, the rationale/logic/reasons given that sale price of stocks during the entire assessment year would remain constant is something which indeed confounds us. It cannot stand to reason that the price of sale of paddy/rice/pulses remained constant throughout the year so that on the basis of an average price of the closing stock the sale price for the entire year comprising of 12 months, 48 weeks and 365 days can be ascertained in that the same would have remained fixed throughout this period. Even assuming that this logic is correct, it was surely an exercise which the Assessing Officer could have done on the basis of materials which he is now presently seeking to do because the same very materials were available to him in the relevant assessment years and merely because the Assessing Officer feels that he has failed to do what he ought to have done cannot be a valid ground for seeking initiation of reassessment under section 147/148 of the Act.”

7.2 Moreover, a bare reading of first proviso to section 147, shows that the law merely casts a duty on the assessee to disclose fully and truly all material facts necessary for his assessment. The duty of the assessee does not extend beyond the disclosure of all material facts necessary for his assessment. It is thereafter the duty of AO to properly apply the law thereto. Even if one presumes for a moment that in proceedings u/s 143(3) of the Act, the then AO did not properly appreciate the law that income from foreign exchange fluctuation is not derived from the activities of export then assumption of jurisdiction u/s 147 is unsustainable in the instant case in view of the decision of Hon’ble Delhi High Court in the case of

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Purolator India Ltd. reported in 343 ITR 155 (Del) wherein it has been held as under:- “10. In the present case, there is no indication that the assessee had failed or omitted to disclose the material or primary facts. These were available on record. The assessing officer, it is stated, had failed to draw correct legal inferences at the time of original assessment from the said primary facts. This is not an error or omission on the part of the respondent- assessee. It is not alleged that the assessee had suppressed, misrepresented or falsified the record/facts. It is not alleged that there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts. …. ….. 11. Recently in Atma Ram Properties (P.) Ltd. v. Dy. CIT [2011] 203 Taxman 408 (Delhi) and it has been observed as under : "15. The reasons recorded above do state that the appellant assessee had failed to fully and truly disclose the facts but do not indicate why and how the assessee had failed to make full and true disclosure of the material facts. Mere repetition or quoting the language of the proviso is not sufficient. The basis of the averment/statement should be either stated or should be apparent/lucid/explained from the record.

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company has received the foreign exchange through normal banking channels in the prescribed manner within the prescribed time limits in all instances. We are enclosing herewith the following for your kind perusal:- I. Detail of party wise export invoices II. Copies of export invoices III. Copy of bank certificate of export and realization (Export to STAR, & sample for BBC – IBR Programme) IV. Foreign inward remittance certificate issue by the bank The assessee fulfils all the conditions, for the claim under section 80HHF which has already been allowed to the assessee company in the assessment for immediately preceding Assessment Years 2000-01, 2001-02 and 2002- 03 on the same facts. (Anenxure-I).”

Further, vide submissions dated 20th January, 2005 it was submitted by the assessee as under :- 1. A “Note” on business activities of the assessee company undertaken during the year along with a brief history of the case are enclosed. The activities of the company are exactly the same as were in last year (s). The details of premises connected with business are also given in the said note (Annexure-I) ….. ….. 2. A note on status of the agreement & Exports / transmission by the assessee to STAR TV, Hong Kong is enclosed.”

8.1 Once these facts were presented and considered by the AO in the proceedings u/s 143(3) of the Act, then the impugned reassessment proceedings u/s. 147 would clearly fit into the class of a change of opinion, which is not permissible under law. Moreover, we find that ITAT in assessee’s own case for A.Y. 2002-03 vide order dated 31st March, 2008 in ITA No.2481/Del/2007 held as under : “6. Rival submissions have been considered and, material placed on record has been perused. The primary issue which requires to be resolved at the threshold in this appeal revolves around the validity of the assumption of jurisdiction by the Commissioner of Income tax on invoking

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the powers laid down under section 263 of the Act. Before delving on the issue involved, it would be relevant to state the factual matrix, in brief. The appellant is a company engaged, inter-alia, in the production of news software for television programmes. The appellant company had entered with the agreement dated 21st of February 1997 with M/s News Television (India) Pvt. Ltd. (hereinafter referred to as "NTVI"), Indian arm of STAR TV of Hong Kong. According to the agreement, NDTV i.e. the appellant company was responsible for the production of the entire software (Programming for a 24 hrs. Indian News Channel, which will be supplied to NTVI who would broadcast it through STAR TV or any other company. In fact clause (iv) of the aforesaid agreement provides as under: "NDTV shall export to STAR TV programme/footage tapes relating to the Channel; for the purposes of broadcasting overseas STAR TV shall have the right to broadcast overseas only on any channel owned by it or its associated companies, any complete story or programme on the 24 Hours Indian News Channel contemplated under this Agreement. This will be a limited non-exclusive for such right shall be USD 3 Million payable to NDTVB, which shall be paid irrespective of actual broadcasts or usage by STAR TV. The total consideration for the five year aggregating to USD 15 Million will be paid..............." 7. Thereafter, another agreement was signed on 21st of March' 1998 between the appellant company, STAR TV of Hong Kong and NTVI in innovation of the earlier agreement. As per the second agreement the rights under the first agreement were assigned by NTVI to STAR TV. Hong Kong and, as such after this agreement, NTVI had no role to play in fulfilling, executing and enforcing terms and conditions of the contract. In other words, appellant was to export the television news software to STAR TV, Hong Kong through satellite directly from its facilities at New Delhi. The satellite space and uplinking facilities to uplink the signals had been contracted directly by the appellant from VSNL and, such uplink were on a point to point basis, i.e. Delhi to Hong Kong. Accordingly, as a result of the aforesaid agreement with M/s STAR TV of Hong Kong, the appellant company had received consideration for production of News Software for the first time in assessment year 1999-2000. During that year the appellant claimed deduction of Rs. 15,76,17,840/- u/s 80HHE of the Act. However the Assessing Officer denied the aforesaid claim of deduction which was upheld by CIT(A) by holding as under:

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"In view of the above facts & circumstances and legal position. I hold that though the appellant company is exporting television news software directly to the STAR TV at Hong Kong and getting the amounts in convertible foreign exchange, nevertheless, it is not covered within the meaning of section 80HHE because neither it is computer programme nor the customized electronic data. Therefore, benefit of section 80HHE cannot be given to the appellant company during this year. The AO was therefore, justified in disallowing the appellant the benefit of deduction u/s 80HHE. The action of the AO hereby confirmed." 8. On appeal. Tribunal accepted the claim of the appellant that, the production of television news software can be described as computer software within the meaning of explanation (b) to section 80HHE of the Act. Infact in para 2 of the order of the ITAT, it has been observed that Assessing Officer in the order of assessment has held that, television software has been covered u/s 80HHF of the Act with effect from assessment year 2000-01. Thus, it was undisputed in the first year itself that, appellant was engaged in the business of production and, export of television software, which was eligible for claim of deduction u/s 80HHF of the Act. Accordingly, Assessing Officer allowed the claim of deduction u/s 80HHF of the Act in respect of consideration received by the Appellant from production and export of television news software in A.Y. 2000-01 by observing in the order of assessment as under: "Deduction claimed u/s 80HHE during the assessment year 1999- 2000 was not allowed as it was held that assessee was not engaged in the production and export of computer software. It was held that the assessee was engaged in the production of Television News Software. During the course of assessment proceedings for the assessment year 2000-01 it was submitted that w.e.f. 01.04.2000. Section 80HHE has been brought on the statute which specifically includes 'Television Software' and Television News Software as eligible business activities. It was therefore, pleaded that in case there was any doubt on the eligibility for deduction u/s 80HHE, the deduction could be allowed u/s 80HHF. It was also mentioned in the TAX AUDIT REPORT filed with the return of income. The deduction claimed after considering all relevant facts is allowed."

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23 ITA No.5126/Del./11 & 1023/Del./2013

the same. It is sufficient for the assessee to demonstrate that the television software “rights” are transferred and that the receipts in convertible foreign exchange are in respect of such transfer. The rights are transferred by means of a lawful agreement which was available for verification of the Assessing Officer. The CIT(A)’s observation that “the means of transfer have to be legitimate means and it was essential for the appellant to adduce evidence to the effect that the cassettes were cleared through the official channels” is also thus devoid of any legally sustainable basis. The CIT(A) has completely ignored the crucial distinction between ‘transfer of television software rights’ and ‘transfer of television software’. 13. The Commissioner has thereafter only stated that, the aforesaid decision has not been accepted by Revenue. In our opinion, such an approach is not a valid approach for assumption of jurisdiction u/s 263 of the Act. In any case, the finding does not show that the view adopted by the AO was not a possible view………….”

Since the above order of ITAT was passed on 31stMarch, 2008, the AO 8.2 while recording of reasons on 31st March, 2010 could not have reasons to believe doubting factum of export. Law relating to change of opinion being not permissible for invoking proceedings u/s 147 of the Act is now well settled. Support in this regard can be derived from the decisions of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India reported in 320 ITR 561(SC) and the judgment of Delhi High Court in the case of Usha International Ltd. reported in 348 ITR 485(Del)(FB). Moreover after initiating reassessment proceedings doubting factum of export the AO thereafter in the reassessment order has accepted the submission of assessee on this issue in para 3.4 and restricted his findings only on the issue of foreign exchange fluctuation gain. 9. In view of the aforesaid discussion, we are of the considered opinion that the initiation of proceedings u/s 147 is bad in law and deserves to be quashed. The consequential addition made by AO, thus, has to be deleted on this count only. Accordingly, grounds Nos.1 to 2.2 are decided in favour of the appellant.

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25 ITA No.5126/Del./11 & 1023/Del./2013

the precise exchange rate at the time when the amount is remitted. This fluctuation and possibility of increase or decrease, in our opinion, can have no bearing on the source of such receipt. Primarily and essentially, the receipt would be on account of the export made. If this is so, any fluctuation thereof also must be said to have arisen out of the export business. Mere period of time and the vagaries of rate fluctuation in international currencies cannot divest the income from the character of the income from assessee's export business. In that view of the matter, the Revenue's contention that such income cannot be said to have been derived from the export business must fail. If this is the position when the remittance is made during the same year of the export, we fail to see what material change can it bring about if within the time permitted under sub-section (2) of section 80HHC, the remittance is made but in the process accounting year has changed. To our mind mere change in the accounting year can have no real impact on the nature of the receipt. The conclusion of the Assessing Officer that since the year during which such sale proceeds were received by the assessee export was not made, would not in any manner change the situation. The assessee being engaged in the business of export and having made the export, mere fact of the remittance being made after 31st of March of the year when export was made, would not change the situation insofar as, relation of such income to the assessee's export business is concerned. Clause (baa) to the Explanation to section 80HHC provides for exclusion of certain incomes for computation of export profit under section 80HHC. Sub- clause (1) of clause (baa) thereof pertains to 90% of the sum referred to in clauses (iiia), (iiib),(iiic),(iiid) and (iiie) of section 28 or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits. The term "foreign exchange difference" is not specified in any of the categories specifically mentioned in the said clause. The Revenue, however, contended that the same must be included by necessary implication as part of other receipts. Legislature, however, has used the term "any other receipt of similar nature". This expression "similar nature" would have considerable bearing on the ultimate conclusion that we arrive in this respect. What is to be excluded under the said sub-clause (1) of clause (baa) is any other receipt of a nature similar to the brokerage, commission, interest, rent or charges. The receipt by way of foreign exchange fluctuation not being similar to any of these receipts mentioned above, application of clause (baa) must be excluded. Sub-rule (1) of rule 115 only provides for adopting the rate of exchange for calculation of value of rupee of any income accruing or arising in case of an assessee and provides that the same shall be telegraphic transfer of buying rate of such currency on the specified date. The term "specified date" has

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been defined in Explanation-2 to the said sub-rule (1). Rule 115 of the Income-tax Rules, 1962 thus has application for a specific purpose and has no bearing while judging whether foreign exchange rate fluctuation gain can form part of the deduction under section 80HHC of the Act……..”

10.1 Further we find that ITAT Delhi Bench in the case of Sujata Grover (supra) has also considered this issue holding as under :- “By applying the said rule to the present situation it is seen that the expression "any other receipt of a similar nature" as used in Explanation (baa) is accompanied by the receipts of brokerage, commission, interest and rent, etc. Therefore, this expression should mean only such item which are of the nature of brokerage, commission, etc. and do not directly add to the export turnover. The foreign exchange fluctuation income, the subject of contention before us is related to the exports effected in earli-er years. There is no dispute and naturally cannot be, insofar as the amount representing foreign exchange rate fluctuations income in relation to exports effected during the current year is con-cerned because that cannot be considered for exclusion to the extent of 90 per cent for computing 'Profits of the business' and the CIT has himself left out the same. We fail to understand as to how the exchange rate fluctuation income relating to exports effected in the earlier years can be differentiated from the exchange rate difference in relation to exports effected in the current year. Basically exchange rate fluctuation difference is nothing but part of sales. When the goods are exported to a country outside India, the invoice has to be raised in terms of the foreign currency prevalent in that country and at the time of making exports. The exporter converts that currency into Indian rupees at the exchange rate prevalent at that time and according-ly takes cognizance of that amount as its export figure in its books of account. However, when the invoice is actually realised from foreign country and the amount is remitted to India, the exchange rate prevalent on that date may be equal to or more or less than the one recorded in the books of account at the time of making the sales. If the exchange rate is more it results into income from the exchange rate fluctuation and in the reverse case it becomes loss on that account. Under all circumstances the basic character of the receipt of foreign currency remains the same i.e., it remains attributable to the export effected by the assessee. Whether there is a profit of a loss, it ultimately goes to increase or reduce the figure of export turnover recorded initially by the assessee in its books of account. It, there-fore, shows that the income from the

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foreign currency fluctuation is nothing but part of export turnover and is a sort of addition-al sales price. Now when we read the Explanation (baa) below section 80HHC(4B) it is noted that 90 per cent of the sums re-ferred to are of the nature of brokerage and commission, etc. In other words, these sums are in no way part of export turnover and hence do not contribute to the making of exports. These items are independent receipts and are in the nature of income and not turnover or its part. So to place income from exchange rate fluctuation in relation to exports of earlier years in this category by classifying it under the expression "any other re-ceipts of a similar nature" is not in accordance with rule of ejusdem generis a discussed above.”

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therefore merits to be disposed of on this aspect itself. However, since elaborate arguments have been advanced before us we are inclined to render our opinion on merits of the appeal as well. 14. Action under 263 of the Act has been initiated by the Ld. CIT in the instant case vide show cause notices dated 21stJuly, 2011 and 10th August, 2011. Before us written propositions were filed by the Ld AR. Relying upon the same it was pleaded by Ld AR that assumption of jurisdiction u/s 263 of the Act is bad in law. Per contra, Ld. CIT/DR supported assumption of jurisdiction u/s 263 and relied upon the order passed by Ld CIT. We find that on an identical issue action u/s 263 was initiated by the Ld. CIT in appellant’s own case for A.Y. 2002-03 which was subject matter of dispute before this Court in ITA No. 2481/Del/2007. The ITAT vide order dated 31st March 2008 (supra) quashed the order of Ld CIT holding that assumption of jurisdiction was bad in law. This order has now subsequently been approved by the Hon’ble Delhi High Court in judgment reported in 360 ITR 44(Del). The factual position as was prevalent in AY 2002-03, stands pari materia in the year under consideration also and an exhaustive enquiry into the claim for deduction u/s 80HHF was made by the AO during the course of original assessment proceedings u/s 143(3) and also during the course of proceedings u/s 143(3)/147 of the Act. This is clearly evident from submissions dated 20th January 2005 and 22nd February 2006 filed before AO during the course of proceedings under section 143(3) of the Act and from submissions dated 12th November 2010 filed before AO during the course of proceedings u/s 147/143(3) of the Act. The ratio propounded by Hon’ble Delhi High Court will thus apply with equal force to the year under consideration.

14.1 From a perusal of the impugned order passed by CIT under section 263 of the Act we find that all the allegations / objections raised by the Ld CIT, barring

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one, are similar to those levied by him in case of appellant for AY 2002-03. In the impugned order in para 9, the Ld. CIT has alleged that assessee has inflated export turnover by Rs 10.73 crores equivalent to USD 30,00,000. Ld CIT has also held that assessee has not furnished FIRC’s to this extend. In our considered opinion assumption of jurisdiction u/s 263 cannot be sustained for the simple reason that no show cause notice was issued by Ld. CIT on this issue. We find that the show cause notices dated 21stJuly, 2011 and 10th August, 2011 issued by the Ld. CIT in the instant case do not put the assessee to show cause on this issue. In this regard we note that Hon’ble Delhi High Court in the case of Contimeter Electrical Pvt. Ltd. reported in 317 ITR 249(Del) has held as under: “10. The Tribunal considered the rival contentions and referred to the Supreme Court’s decision in the case of Commissioner of Customs v. Toyo Engg. India Ltd. [2006] 7 SCC 592 wherein the Supreme Court noted that the department cannot travel beyond the show-cause notice. The Tribunal was of the view that the ground that the assessee had not fulfilled the conditions laid down under section 80-IA did not form part of the show-cause notice. The Tribunal accepted the argument of the assessee that the Commissioner of Income-tax did not even call for any explanation on this issue and, therefore, the assessee did not have any opportunity to meet this ground. The Tribunal was of the view that it would be against the principles of natural justice that a person who has not been confronted with any ground be saddled with the liability thereof. Consequently the Tribunal held that as the said issue did not form part of the show-cause notice and the assessee was not even confronted with it, even before the CIT, it cannot form the basis for revision of the assessment order under section 263”

Moreover we also find that in years 1997 and 1999 appellant had received advances from Star TV Hong Kong to the tune of USD 85,00,000. During the course of original assessment proceedings u/s 143(3) vide submissions dated 22nd February 2006, assessee had filed details as to how this advance was offered to tax going forward. Relevant details are also filed before us, which are placed at page

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78 of the paper book. From a perusal of this it is seen that advance to the extent of USD 30,00,000 was offered to tax this year. Since adequate enquiries were conducted by the AO in original assessment proceedings hence even on merits also we find that the order of assessment u/s 147/143(3) cannot be termed as erroneous or prejudicial to the interest of revenue. In view of this discussion and respectfully following the decision of co-ordinate Bench and the decision of jurisdictional High Court in the case of assessee itself, we are of the considered view that the impugned order of ld. CIT does not stand on sound footings. Accordingly, this appeal of the assessee also deserves to be allowed. 15. In the result, both the appeals of the assessee are allowed. Order pronounced in the open court on 30.09.2015. Sd/- Sd/- (I.C. SUDHIR) (L.P. SAHU) Judicial Member Accountant Member Dated : 30.09.2015 *aks/- Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant. Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi