Genesys International Corp. Ltd. Vs ACIT (Bombay High Court)
The petition concerned assessment year 2015-16. The petitioner challenged a notice dated 30.03.2021 issued under Section 148 of the Income-tax Act, the order dated 08.02.2022 rejecting its objections to reopening, and the draft assessment order dated 14.03.2022.
The petitioner had filed its return of income on 30.11.2015. Following a notice under Section 142(1) dated 10.07.2017 and consideration of the petitioner’s reply, the Assessing Officer completed the original assessment on 20.12.2017.
After expiry of four years from the end of the relevant assessment year, the Assessing Officer issued the impugned Section 148 notice dated 30.03.2021. Reasons for reopening were first supplied on 20.05.2021. The petitioner filed objections on 24.06.2021. The reasons were subsequently furnished again by letter dated 04.08.2021, with the only difference being omission of paragraph 5 from the earlier communication.
The reasons for reopening concerned the petitioner’s deduction under Section 10AA. The reasons stated that the petitioner had losses from its Seepz and Bangalore undertakings amounting to Rs.7,40,45,748/- and taxable profit from Genesys Worldeye Seepz of Rs.11,81,19,853/-, against which exemption under Section 10AA of Rs.5,86,12,505/- had been claimed. The Assessing Officer relied upon Circular No. 7/DV/2013 dated 16.07.2013 and stated that the losses of ineligible units should first have been set off against the profit of the eligible unit before computing the Section 10AA deduction. The reasons alleged that this resulted in excessive allowance of loss of Rs.1,45,38,400/- and stated that there had been a failure to disclose fully and truly all material facts.
The Bombay High Court noted that specific queries concerning the Section 10AA deduction had been raised during the original assessment proceedings and that the petitioner had responded. The petitioner had furnished computations relating to Section 10AA deductions for each unit. It had also explained by letter dated 30.11.2017 that losses in other units arose after projects were cancelled or postponed, and had furnished segment-wise profit and loss accounts for all units.
The Court further noted that, for assessment year 2011-12, the ITAT in the petitioner’s own case had held that there was no requirement to set off losses incurred in one unit against profits of another unit. The ITAT had followed the Supreme Court decision in Commissioner of Income-tax & Ors. Vs. Yokogawa India Limited, which held that deduction under Section 10A was to be considered before commencement of the exercise under Chapter VI for arriving at total income. The ITAT had also referred to the Bombay High Court decision in Commissioner of Income-tax vs. Black and Veatch Consulting Private Limited, which took the same view.
The High Court observed that complete disclosures had been made during the original assessment and that the original assessment order was passed after consideration of those disclosures. The Court also noted that the relevant ITAT and Supreme Court decisions were available when the impugned reopening notice was issued.
The Revenue admitted in its reply that the reassessment proceedings had been initiated due to an audit objection. The Court noted that this reason had not been supplied to the petitioner along with the notice seeking reopening.
The High Court held that the jurisdictional parameters for reopening the assessment beyond four years had not been satisfied. It found the case to be one of mere change of opinion and stated that reopening proceedings were not akin to review proceedings. The Court also found that there had been no failure by the petitioner to disclose fully and truly all material facts necessary for the assessment.
Accordingly, the Court allowed the petition and made the Rule absolute in terms of prayer clause (a). It quashed and set aside the Section 148 notice dated 30.03.2021, the order disposing of objections dated 08.02.2022, the draft assessment order dated 14.03.2022 and all consequential proceedings. There was no order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Heard learned counsel for the parties.
2. The rule is made returnable immediately at the request and with the consent of the learned counsel for the parties.
3. This petition concerns the assessment year 2015-16. The petitioner challenges a notice under 148 of the Income-tax Act (‘the Act’) dated 30 March 2021, an order dated 8 February 2022, disposing of the petitioner’s objection to reopening the assessment and draft assessment order dated 14 March 2022.
4. The petitioner filed its return of income on 30 November 2015. A notice was issued on 10 July 2017 under Section 142(1), and upon considering the petitioner’s reply, the Assessing Officer (AO) made the original assessment order on 20 December 2017.
5. After the expiry of 4 years from the end of the relevant assessment year, the AO issued the impugned notice dated 30 March 2021 under Section 148 seeking to reopen the assessment. By letter dated 20 May 2021, the reasons for such reopening were furnished to the petitioner.
6. The petitioner filed its objections to the reopening on 24 June 2021. The petitioner has pleaded that a different set of reasons was supplied to it by yet another letter dated 4 August 2021. This was followed by a notice under Section 142(1), which the petitioner replied to on 22 December 2021.
7. On 8 February 2022, the AO rejected the petitioner’s objection to the reopening and issued a draft assessment order on 14 March 2022.
8. As noted earlier, the reasons for reopening were first furnished to the petitioner by letter dated 20 May 2021. The contents of this letter are transcribed below for convenience of reference:-
“1. The assessee company filed its return of income for A.Y.2015-16 on 30.11.2015 declaring total loss, at (Rs.19,59,388) and book profit u/s 115JB at Rs.4,40,95,129/-. The assessment u/s 143(3) was completed on 20.12.2017 assessing total loss at (Rs. 19,59,390) and book profit at Rs.4,40,95,129/-.
2. On Scrutiny of computation of income revealed that the assessee had derived loss from undertaking at Seepz, Mumbai of Rs.3,44,68,539/- and from undertaking at Bangalore of Rs.3,95,77,209/-. The assessee had derived taxable profit from undertaking Genesys Worldeye Seepz of Rs.11,81,19,853/- from which the assessee had claimed exemption under section 10AA of Rs.5,86,12,505/-. However, as per circular no. 7/DV/2013 dated 16th July 2013, profit of a unit eligible for deduction u/s 10A/10AA has to be first set off against the loss suffered by an ineligible unit before computing the available deduction u/s 10A/10AA. But in the instant case the losses of Rs.7,40,45,748/- (34468539+39577209) was not set off before computing deduction u/s 10AA of the I.T. Act which resulted into under assessment.
3. In view of the discussion in the previous para, the loss to the extent of Rs.1,45,38,400/-has been allowed excessively. Hence, it is clear that there is failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment for the year in question within the meaning of First provision to section 147(1) of the Act.
4. In view of the above, I have reason to believe that loss to the tune of Rs.1,45,38,400/-has escaped assessment within the meaning of section 147 of the Act for the A.Y.2015-16. It is therefore proposed to issue notice u/s 148 of the Income-tax Act, 1961 for A.Y.2015-16 to reassess such income and also any other income chargeable to tax which has escaped assessment and which may come to notice subsequently in the course of proceedings under this section.
5. In this regard, as mandated by section 151 of the I. T. Act, 1961, the satisfaction of the Addl. Commissioner of Income Tax-1(3), Mumbai, regarding fitness of the case for issuing notice u/s148 of the I. T. Act, 1961 is hereby requested on the above mentioned reasons.”
9. After the petitioner filed objections on 24 June 2021, the reasons were refurnished to the petitioner by yet another letter dated 4 August 2021. The only difference between the two sets of reasons is that paragraph 5 of the letter dated 20 May 2021 is found missing in the letter dated 4 August 2021.
10. The main reason for reopening the assessment concerns the deductions under Section 10AA of the Act. The record shows that in the original assessment proceedings, specific queries were raised in this regard, and the petitioner responded to them. It was only upon consideration of such responses that the original assessment order dated 20 December 2017 was passed.
11. Along with the computation of total income, the petitioner had furnished computation relevant to deduction under Section 10AA for each of the unit. Besides, the petitioner, by letter dated 30 November 2017 had pointed out that there was no sufficient business in other units which resulted in loss in other units. The petitioner pointed out that they had multiple offices till FY 2012-13 and had sizable business in hand, hoping to continue with the same growth rate for 2013-14 and 2014-15. But due to reasons beyond their control, namely cancellation of the project, postponement of the project, etc., many projects estimated to come in 2013-14 and 2014-15 did not come. This resulted in a loss in other units. The petitioner was forced to close its two units at Pune and Hyderabad due to the cancellation and postponement of the project. Along with this communication, the segment-wise profit and loss account of all the units was attached.
12. Further, it is pertinent to note that the Income Tax Appellate Tribunal (ITAT) for the assessment year 2011-12, in the case of this very petitioner, had taken the view that there was no requirement to set off the losses incurred in one unit against the profits of the other unit. The ITAT had, in fact, followed the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-tax & Ors. Vs. Yokogawa India Limited.1 In Yokogawa India Limited (supra), the Hon’ble Supreme Court has held that the deduction under Section 10A of the Act, would be before the commencement of the exercise to be undertaken under Chapter VI of the Act, for arriving at total income of the assessee from the gross total income. The Court further held that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI of the Act.
13. The Tribunal also referred to this Court’s decision in the case of Commissioner of Income-tax vs. Black and Veatch Consulting Private Limited, which took the same view.
14. In this case, complete disclosures were made, and it is only upon consideration of complete disclosures that the original assessment order dated 20 December 2017 was made. The legal position also favoured the assessee’s case. The decisions of the ITAT in the case of the petitioner for the assessment year 2011-12 and the decision of the Hon’ble Supreme Court in the case of Yokogawa India Limited (supra) were very much available on the date of issue of the impugned reopening notice.
15. In its reply, the revenue admitted that reassessment proceedings were initiated due to audit objection. Significantly, no such reason was given to the petitioner, along with the impugned notice seeking to reopen the assessment. In any event, considering the decisions of this Court and the Hon’ble Supreme Court in the case of Yokogawa India Limited (supra), there was no question of seeking to reopen the assessment on the grounds or the reasons furnished to the petitioner.
16. Given the above facts and circumstances, which are borne from the record, the jurisdictional parameters for reopening the assessment beyond 4 years cannot be said to have been satisfied in this case. This was nothing but the case of mere change of opinion. It is well settled that proceedings to reopen an assessment are not akin to review proceedings. This is also not a case where there was any failure on the petitioner’s part to disclose fully and truly all material facts necessary for the assessment.
17. For all the above reasons, we allow this petition and make the Rule absolute in terms of prayer clause (a), which reads as follows:-
“(a) That this Hon’ble Court may be pleased to issue under Article 226 of the Constitution of India an appropriate direction, order or a writ, including a writ in the nature of ‘Certiorari’, calling for the records of the case and, after satisfying itself as to the legality thereof, quash and set aside the Notice u/s 148 dated 30.03.2021, Ex. “E” herein, the order disposing objections dated 08.02.2022, Ex. “K” and the draft assessment order dated 14.03.2022, Ex. “L” herein issued/passed by the Respondent and all consequential proceedings thereto.”
18. There shall be no order for costs. 2025:BHC-OS:4754-D
Notes:
1 (2017) 77 taxmann.com 41 (SC)
