By TIOL News Service

SHIMLA, AUG 28, 2017: THE issue before the Bench is - Whether when the AO expresses an opinion against the objections raised by the assessee against Sec 147 proceedings, it is to be seen as the AO exceeding his jurisdiction. YES is the verdict.

Facts of the case

The Assessee-company is engaged in the business of information technology services and Call Centre as specified in the Fourteenth Schedule with three separate units, one at Baddi and two at Shimla. The Assessee filed its return and claimed Sec 80IC benefits. However, for the AY 2010-2011, the AO held that the Assessee would not have obtained Central Excise 4/6 Digit classification or National Industrial Classification (NIC) Code in 1998, hence, the Assessee was not eligible for statutory deductions. With respect to the subsequent F.Ys. the very same view was taken holding that the Assessee was ineligible for the statutory deductions. The AO issued notices u/s 148 disclosing that he had reasons to believe that with respect to previous A.Ys. 2007-2008, 2008-2009 & 2009-2010, income had escaped assessment, as per sec. 147.

The HC held that,

++ the only objection being that since the Assessee does not possess NIC code and Excise Classification, it is not entitled to the statutory deduction. It is here, we find the AO to have committed grave illegality in correctly and completely construing the provisions of the Schedule. In fact, from the observations of the AO, it stands admitted that the code/ classification, is required only for such of those activities, which fall under the category of 'manufacture'. Assessee is running a Call Centre. It does not deal with computer hardware or is in the business of manufacturing information and communication technology. It is not into the business of manufacture or production of any articles referred to in item at Sr. No.13. It carries out operation of such items, which do not require registration or necessitate obtaining permission under the provisions of the Central Excise Act or National Industrial (Activity) Classification, 1998;

++ if the Assessee is otherwise not subjected to any of the provisions of the Statute, Rules, Notifications, circulars, under the said provisions, and when it does not relate to the activity of operations, so carried out by him, that of running a Call Centre, for which, in any event, the aforesaid provisions are not applicable, then obviously it would be incorrect and illegal to read the provisions relating to the code into the expression 'Call Centre', which is an activity, totally distinct and separate from 'manufacture' or 'production of information and communication technology'. It is in this backdrop, we find the AO to have erred in forming its opinion or reason to believe that the Assessee, was not entitled to statutory deductions. The interpretation is perverse, resulting into travesty of justice;

++ opinion of the AO in reopening the assessments for these years is on the ground that even though the activity carried out by the Assessee was not manufacturing of the items specified in the Schedule and was otherwise not required to obtain the code, but since it otherwise did not have the same, was not entitled to statutory deductions. It is in this backdrop, we find the action initiated by the Revenue in trying to reopen the assessments, beyond a period of four years, i.e. with respect to the years 2007- 2008, 2008-2009, to be barred by limitation. Significantly, no such action is contemplated with respect to the assessment carried out in the first year i.e. Assessment Year 2006-2007;

++ it is true that notice is only subjective satisfaction and not final opinion, but then the AO has decided the objections, already expressing an opinion on the Assessee’s entitlement for statutory deduction. The question is not whether the action taken is in good faith or not. What is important is that the AO has exceeded its jurisdiction erroneously. Which, in our considered view, he has so done, rendering the action to be absolutely illegal and unsustainable in law. The impugned action cannot be said to be only in the nature of SCN.

(See 2017-TIOL-1677-HC-HP-IT)