BEYONDKEY SYSTEMS P LTD,INDORE vs. THE DY CIT 1(1), INDORE

Feeling aggrieved by appeal-order dated 01.07.2022 passed by learned Commissioner of Income-Tax (Appeal), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 23.12.2018 passed by learned DCIT/ACIT-1(1), Indore [“Ld. AO”] u/s 147 read with section 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2011-12, the assessee has filed this appeal on following effective grounds: Page 1 of 9

In this ground, the assessee claims that the CIT(A) has erred in confirming the AO’s action of re-opening assessment u/s 147 after expiry of 4 years from end of the relevant assessment-year.

Ld. AR straightaway carried us to the 1st proviso to section 147 which prescribes thus:

Then, the Ld. AR submitted that the assessment-year involved in present case is 2011-12 which was already subjected to scrutiny- assessment u/s 143(3) vide order dated 12.12.2013. Subsequently, the AO took action of re-opening u/s 147 through notice dated 21.03.2018 though the time period of four years had already expired on 31.03.2016. Ld. AR submitted that there is no failure on the part of assessee to file ITR u/s 139/142(1)/148. Further, during the course of original assessment, Ld. AO has already verified the claim of deduction u/s 10A by making requisite enquiry from assessee which is very much clear from the query-letter dated 17.10.2013 issued by AO (copy placed in Paper-Book Page No. 98 to 99), wherein the AO raised this query to assessee “2.9 In the return of income, you had claimed deduction of Rs. 58,84,223/- u/s 10B of the I.T. Act. In this context, you are requested to please furnish necessary details/evidences to Beyond key Systems P. Ltd. Assessment year 2011-12 justify your claim of deduction especially in view of the conditions laid down in the aforesaid section.” In response, the assessee filed reply dated 29.10.2013 (copy placed at Page No. 100 to 102 of the Paper-Book) making a clear submission that it is 100% EOU located in STPI and claiming deduction u/s 10A; the assessee also filed copies of documentary evidences being (i) registration certificate under STPI, and (ii) copy of CA certificate in Form No. 56F as prescribed in section 10A. Thus, all material facts relating to the deduction of Rs. 58,84,223/- were fully and truly disclosed by assessee to then AO and it is thereafter that then AO allowed deduction u/s 10A while passing assessment-order. Ld. AR submitted that since none of the failures as mentioned in the later part of 1st proviso to section 147 (reproduced earlier) was committed by assessee; the case of assessee is perfectly governed by the said 1st proviso according to which the AO cannot take action u/s 147 after expiry of four years. Ld. AR submitted that despite such legal bar, the AO has taken action u/s 147, which is clearly violative of the 1st proviso to section 147; therefore the whole proceeding done by AO is invalid and liable to be quashed.

Replying to above, Ld. DR appearing on behalf of revenue submitted that the assessee has raised identical ground before CIT(A) but the CIT(A) has dismissed the same. Ld. DR submitted that the present case has a unique fact, which cannot be overlooked. He drew our attention to Page No. 7 of the order of CIT(A) and pointed out that the assessee itself admitted its own reporting mistake in the ITR i.e. while filing original ITR, the assessee wrongly mentioned/claimed deduction in the Schedule of section 10B instead of section 10A. Thus, the ITR filed by assessee revealed that the assessee claimed deduction u/s 10B and not u/s 10A. Therefore, the Ld. CIT(A) has treated this as a case of “non-disclosure” and dismissed the identical ground raised by assessee in first-appeal by holding thus:

Ld. DR strongly contested that at the time of initiating action u/s 147, what is required is only a reasonable satisfaction on the part of AO that the income chargeable to tax has escapement; once such reasonable satisfaction is found to be existent, nothing more is required and the initiation of proceeding u/s 147 cannot be said to be illegal. In the present case, the assessee claimed deduction u/s 10B in the return of income and still did not file report in Form No. 54G as prescribed u/s 10B; therefore the AO had a reasonable satisfaction that the deduction u/s 10B was wrongly availed/granted. Ld. DR submitted that in the original assessment proceeding, the assessee has not clearly apprised the AO about its reporting mistake in the return of income; therefore also it is a case failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment.

We have considered the rival submissions of both sides and perused the orders of lower-authorities as also the relevant documents placed in the Paper-Book. After a careful consideration, we observe that firstly it is the assessee who made a reporting mistake in the return of income whereby the deduction was reported u/s 10B and not u/s 10A. Secondly, the documents placed before us do not demonstrate that the assessee has particularly apprised the AO about this reporting-mistake in original assessment- proceeding. Therefore, the Ld. DR has merit in his submission that it is a case of failure on the part of assessee to disclose fully and truly all material facts. We also agree with Ld. DR that at the time of initiating action u/s 147, what is required is a reasonable satisfaction on the part of AO that the income chargeable to tax has escapement; once such reasonable satisfaction

In this ground, the assessee claims that the CIT(A) has erred in confirming the action of AO of disallowing the deduction u/s 10A, despite assessee being eligible for the same.

Ld. AR carried us to the relevant paragraphs of the assessment-order as well as the order of Ld. CIT(A) where the deduction claimed by assessee has been disallowed. Since the order of CIT(A) is on the same line of reasoning as adopted by AO, we extract below the order of CIT(A):

Analysing above order of CIT(A), Ld. AR submitted that both of the lower authorities have disallowed the claim of assessee with a very hyper- technical reasoning i.e. the assessee has claimed deduction u/s 10B in the ITR. Ld. AR submitted that during the course of re-opened assessment-

Per contra, Ld. DR supported the orders of lower-authorities.

We have considered rival submissions of both sides. After a careful consideration, we find merit in the submission of Ld. AR that there is no doubt or ambiguity on the eligibility or allowability of deduction u/s 10A to the assessee, which was also allowed in the scrutiny-assessments of immediately preceding AY 2009-10 and 2010-11 as well as original scrutiny- assessment of current year also. We find that during the course of re-opened assessment, the AO has disallowed deduction only on the basis that it was claimed u/s 10B in the ITR and the Ld. CIT(A) has also supported the reasoning given by AO. But the assessee has repeatedly explained to the authorities that the mention in section 10B in ITR was by mistake and the assessee has in fact claimed u/s 10A. It is further on record that the assessee has filed a copy of registration-certificate under STPI and also a CA certificate in Form No. 56F certifying that the deduction u/s 10A has been correctly claimed. Thus, there is no question or dispute with respect to Beyond key Systems P. Ltd. Assessment year 2011-12 eligibility or allowability of deduction u/s 10A. In fact, even during the course of re-opened proceeding also, the lower-authorities have not found any fallacy in the claim of deduction u/s 10A. Therefore, the revenue- authorities ought to have maintained the status quo i.e. the deduction as granted in the original assessment-order must have been allowed in re- opened assessment, rather than taking advantage of assessee’s reporting mistake. At this stage, we are consciously aware of the Circular No. 14(XL-35) dated 11.4.1955 and letter No. F.81/27/65-IT(B) dated 18.5.1965 in which the CBDT, the apex income-tax authority, has guided the assessing officers to assist the tax-payers in a reasonable way and to provide the relief if due to the assessee. In that view of matter, we are inclined to hold that the lower- authorities are not justified in denying the deduction u/s 10A lawfully claimed by assessee which stand allowed by AO in original assessment- order. Consequently, we direct the AO to allow deduction. The assessee succeeds in this ground.

Resultantly, this appeal of assessee is partly allowed.