Cognizant Technology Solutions India P. Ltd. Vs Asst.CIT (Madras High Court)
Facts- Impugned notice was issued under section 148 for reopening of the assessment. The petitioner questioned the legal validity of the initiation of the reopening proceedings.
Conclusion- If the Assessing Officer has reason to believe that the particular issue has not been considered or scrutinised during the course of original assessment proceedings, then he is empowered to reopen the assessment under Section 147/148 of the Act. Thus, Section 147 provides an opportunity to the Revenue to reopen the proceedings if the Revenue is able to trace out new information or materials within or from any other source for the purpose of reopening. The very same materials in which certain issues were not considered and such non-consideration resulted in escapement, then also reopening is permissible.
Wider scope contemplated under Section 147 for reopening of assessment to protect the interest of Revenue is to be interpreted pragmatically, so as to ensure that if the Assessing Officer has reason to believe, which is not change of opinion, then he must be allowed to complete the reassessment proceedings as contemplated under the provisions of the Act.
The respondent has established the reasons to believe for reopening of assessment, which is a pre-condition contemplated under section 147 of the act.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The writ petition has been instituted to quash the initiation of reopening proceedings under Section 148 of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’, in short] and the consequential order disposing of the objections filed by the petitioner in proceedings dated 02.11.2015.
2. The petitioner is a Private Limited Company engaged in the business of development of computer software and related services and its export. It provides various software solutions to variety of industries. The petitioner carries out its business activities through various units set up in Software Technology Parks (STPs) and Special Economic Zones (SEZs) and claims deduction under Sections 10A and 10AA of the Act.
3. The petitioner filed its return of income for the assessment year 2010-2011 on 13.10.2010. It was processed under Section 143(1) of the Act, on02.2012. The petitioner filed revised return of income on 31.03.2012 and the case was selected for scrutiny by the Deputy Commissioner of Income Tax/second respondent under Section 143(2) of the Act on 06.09.2011. The details were called for by the first respondent and the petitioner also furnished all details, informations, books of accounts etc.
4. The case of the petitioner was referred to the Transfer Pricing Officer for necessary verification under Section 92CA of the Act, as the petitioner has international transactions with its group of Companies abroad. The Transfer Pricing Officer vide his order dated 22.01.2014, accepted the arm’s length price of the transactions of the petitioner with that of its group Companies abroad. Consequently, no transfer pricing adjustments were made by the second respondent.
5. The second respondent passed the assessment order under Section 143(3) r/w Section 92CA of the Act for the assessment year 20102011 on03.2014, certain dis-allowances were made in the assessment order. After making dis-allowances and adjustments, the second respondent assessed the income of the petitioner at Rs.10,97,21,20 115JB of the Act as against the returned income of Rs.10,95,97,24,038/-. Consequently, a demand of Rs.26,42,620/- was raised vide demand notice dated 31.03.2014 under Section 156 of the Act.
6. The first respondent issued the impugned notice under Section 148 of the Act for reopening of assessment for the assessment year 2010- 2011. The petitioner responded to the notice and requested to furnish the reasons for reopening and the reasons sought for were provided by the respondents.
7. The petitioner submitted its detailed objections, questioning the legal validity of the initiation of reopening proceedings and the said objections were also disposed of by the first respondent in proceedings dated11.2015. Thus, the petitioner is constrained to move the present writ petition.
8. The learned counsel appearing on behalf of the petitioner contended that the case on hand is a classic case of change of opinion and the reopening proceedings are initiated within a period of four years.
9. In order to establish the ground regarding the change of opinion, the petitioner has drawn the attention of this Court with reference to the issues adjudicated in the original assessment proceedings as well as in the assessment order. The audit objections were also taken into consideration for reopening, which is perverse. The petitioner, in its return of income, has clearly mentioned about the tax relief sought for and the block entitled for depreciation at 60%.
10. Perusal of the return of income submitted by the petitioner would reveal that the tax relief mentioned under Section 90 of the Act, is Rs.1,02,96,469/-. The block entitled for depreciation at 60% is mentioned as Rs.1,27,48,46,244/-. Similarly, in the revised return filed by the petitioner, any other benefit to employees in respect of which an expenditure has been incurred at 15J is stated as Rs.6,73,37,94,692/- In the same revised return, the petitioner has claimed the tax relief at 10(a) under Section 90 of the Act, as Rs.2,39,15,527/-.
11. Citing these particulars provided by the petitioner both in the original return of income as well as the revised return of income filed after correction, contended that the petitioner has not suppressed any facts, but provided those facts in detail for the purpose of assessment and the said particulars were scrutinised at length and an assessment order was passed. In proceedings dated 15.01.2014, issued under Section 142 (2) of the Act for scrutiny assessment, the said issues were elaborately considered.
12. In respect of stock compensation expenses, the petitioner relied on the query raised by the Assessing Officer at paragraph-7 in the proceedings dated01.2014 and regarding forward contracts paragraph-1(g) is relied on, as far as depreciation of software is concerned, paragraph-8 of the said proceedings are relied upon and regarding excess double tax recovery under Section 90, paragraph-9 of the proceedings dated 15.01.2014 is relied upon.
13. Regarding the reasons furnished for reopening of assessment, it is clarified that the very same materials were initially sought for by the original Assessment Officer, the petitioner in turn submitted the informations and the materials, which were considered by the Assessing officer and a final assessment order was passed on 31.03.2014 for the assessment year 2010-2011.
14. When the very same materials which were furnished, scrutinised, considered and a decision is taken, there is no reason for initiation of reopening proceedings and therefore, the respondents have miserably failed to establish that there is a tangible material for invoking Section 147 of the Act. Thus, the very initiation is in violation of the essential ingredients contemplated under Section 147 of the Act. Regarding the other grounds raised for reopening, depreciation claimed for the unit at Kolkatta Bantala (SEZ), the petitioner has stated that the said issue was also elaborately
15. Relying on the assessment order, more specifically in tax computation form, the learned counsel for the petitioner has stated that the relief under Section 189(1)/under Section 90, under Section 91 of the Act, has been stated as Rs.2,39,15,527/-, which is tallying with the revised return of income filed by the petitioner.
16. It is contended that an audit objection, per se, cannot be a source for initiation of reopening proceedings.
17. In the present case, audit objection is relied upon without considering the fact that the subjects discussed in the audit objection were elaborately considered by the Assessing Officer and findings are provided in the assessment order. Thus, the entire exercise made for invoking Section 147 of the Act is based on the change of opinion and not on the basis of any tangible material as required under Section 147 of the
18. The learned counsel for the petitioner relied on the reasons furnished by the first respondent in proceeding dated 28.08.2015 for reopening of assessment and compared the said reasons with reference to the detailed objections filed by the petitioner vide letter dated 25.09.2015.
19. The petitioner submitted its objections for all the reasons stated by the first respondent for reopening of assessment and furnished reply with reference to the assessment order passed by the Assessing Officer. The details of the objections read as under:-
