Duty of assessee does not extend beyond disclosure of all material facts in reassessment

Brief of the case: Bench of ITAT Delhi reversed the order passed by CIT (A) in which he confirmed the reassessment order after the lapse of four year when no new facts was revealed by the AO.

Facts of the case:

• Assessee was engaged in the business of producing customize software/programs for broadcasters like Star TV, BBC etc.
• The assessee filed its return of income on 02.12.2003, declaring total income at Rs.14,41,49,689/- after claiming deduction under section 80HHF of Rs. 12,01,29,653/-.
• The case was picked for scrutiny and In order u/s 143 (3) deduction u/s 80HHF was re-computed by the AO at Rs 12,06,49,803/-.
• Later on case was reopened on account of failure on the part of the assessee to disclose all material facts fully and truly for claiming deduction u/s 80HHF.
• Reassessment was completed 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.
• Against the reassessment order appeal was filed which was dismissed by the CIT (A).

Contention of the revenue:

•  There is 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.
• Assessee is liable to reduce 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/- and to 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.

Contention of the assessee:

• Complete disclosures were made pursuant to specific queries raised by the Ld. AO during the course of original assessment proceedings u/s 143(3).
• Objecting to the assumption of jurisdiction u/s 147, it was submitted 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.
• The AO in the reassessment proceedings has merely tried to conduct a fishing expedition and all material was already existing in the ROI which was checked by the AO in proceeding u/s 143 (3).
• In earlier years ITAT had accepted the stand of the appellant that eligible items were being exported out of India thereby satisfying the conditions stipulated in section 80HHF.

Held by CIT (A):

 Decisions relied on by the assessee are not applicable in the instant case and the foreign exchange fluctuation gain cannot be regarded as profits derived by the assessee from the export of eligible software items.

 Held by ITAT:

• 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.
• The 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.

Comments by Author:

• 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).
• One another aspect in this case was regarding passing order by CIT u/s 263 after reopening. A separate appeal was filed before ITAT against the order u/s 263. Hon’ble ITAT held that CIT cannot assign jurisdiction when proceeding u/s 147 was vitiated by ITAT itself.