By TIOL News Service

NEW DELHI, APRIL 05, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether if entire turnover of the software sale is through online transmission and no expenditure is incurred towards freight and insurance then reassessment on ground that freight and insurance on export is not deducted from export turn over before claiming deduction u/s 10A is wrong - YES IS THE VERDICT.

Facts of the case:

The assessee company filed return for relevant AY, claiming deduction u/s 10A of Act. The case was selected for scrutiny by issuance of notice u/s 143(2) which ensued passing of assessment order u/s 143(3), at a huge income as against the loss reflected in return filed. But the AO had allowed the claim of deduction u/s 10A. Post passing of such an order, assessee had filed application u/s 154 and on such an application, order was passed u/s 154/143 (3) and revised income was assessed. After completion of the assessment, the assessee's case was sought to be reopened u/s.147 by issuance of notice u/s 148 for the reason that mistake had occured in allowance of deduction u/s 10A and their was escapement of income. The assessee objected to the reopening of assessment u/s 147 on the ground that it was barred by limitation and based on "change of opinion" which was not permissible in law. The AO rejected the assessee's objections on the ground that due law had been followed for reopening the case. AO held that freight and insurance on export was not deducted from export turn over and this had resulted business loss to the assessee. Therefore, deduction u/s 10A was not allowable to the assessee. Therefore an amount of Rs. 2,09,37,331/- claimed and allowed to the assessee during the course of original assessment u/s 143(3) was being disallowed and added back to the total taxable income of the assessee. On appeal, CIT(A), deleted the addition on merits. The CIT(A) held that AO was wrong in reopening the assessment u/s.147.

Tribunal held that,

++ all material facts clearly indicate that not only in the return of income but also during the course of the original assessment proceedings, the assessee had made full and true disclosure of all the material facts relating to computation of deduction u/s.10A; working of freight and insurance that it pertains to the entire business and not to the undertaking; and also the calculation of the total turnover of the business along with calculation of deduction from the profit of the undertaking. Not only that, such a disclosure and material facts have been examined by the AO during the course of the assessment proceedings, and after such examination, assessee's claim for deduction has been accepted. Now the assessee's assessment has sought to be reopened on the ground that 'freight and insurance' on exports has not been deducted from the export turnover and that is the reason why it has resulted into business loss and hence deduction u/s.10A should have been disallowed completely. From a bare perusal of the "reasons recorded", first of all, it is noticed that Assessing Officer has referred to the records which were already available at the time of original assessment and secondly, he has held that deduction u/s.10A should have been disallowed by the Assessing Officer and such a mistake has resulted into incorrect allowance. After ascribing such a failure in the original assessment order, he mentions that escapement of income has been by the reasons of failure on the part of the assessee to disclose full and true all material facts. Nowhere has he brought out even remotely as to what was the failure on the part of the assessee in making the true and full disclosure. Mere stating these words will not suffice, because Assessing Officer while acquiring jurisdiction u/s 147 beyond the period of four years from the end of the relevant Assessment Year for reopening an assessment which has been completed u/s.143(3) in terms of proviso, can acquire jurisdiction only when the condition precedent given in the proviso has been satisfied, that is, firstly, there is a failure on the part of the assessee to file return of income u/s.139 or in response to notice issued u/s.142(1) or Section 148; and or secondly, there has been failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year. If such conditions are not satisfied then assessment completed u/s. 143(3) cannot be reopened beyond the period of four years. It appears that Assessing Officer has blindly gone by the objections raised by the Revenue's Audit party without his own independent application of mind or the actual verification of the assessment records;

++ AO in the course of the original assessment proceedings had raised the query on deduction u/s.10A to which assessee had duly responded and explained the entire computation and this goes to show that the assessee has disclosed full and true disclosure of all the material facts relevant for the claim of deduction u/s.10A. The deduction of Section 10A has been claimed in respect of an undertaking which is completely into computer software export and whether the freight and insurance at all pertains to such an export turnover or to total turnover of the business has neither been examined by the Assessing Officer nor has he applied his mind at the time of assuming the jurisdiction u/s.147. Freight and insurance if at all will come into the picture, once there is a physical movement in the form of hard-discs/CDs etc. The entire turnover of the software sale pertaining to the STPI unit has been stated to be made through online transmission only and no expenditure has been stated or found to be incurred by the company towards freight and insurance. When all these facts are there on record, then where is the question of either failure on the part of the assessee to disclose fully and truly all material facts or any wrong or incorrect allowance of deduction given by the Assessing Officer at the time of original assessment proceedings. The duty cast upon the assessee is only to disclose truly and fully all material fact necessary for computation of its income and what legal inference which has to be drawn on such material fact is upon the Assessing Officer. If Assessing Officer on perusal of the entire material fact disclosed and after raising a specific query has accepted the computation of the claim, then there cannot be any failure ascribed to the assessee so as to warrant acquiring of jurisdiction for reopening the assessment beyond the period of four years in terms of proviso to Section 147. Here in the "reasons recorded" the Assessing Officer has simply tried to use the phraseology appearing in the proviso to Section 147, without even actual examination as to what is the actual failure on the part of the assessee. Though there are catena of decisions both on the issue of, what is the meaning of failure on the part of the assessee to disclose fully and truly all material facts; and also on the issue of 'change of opinion' which has been elaborated and discussed in the impugned order and also referred and relied upon by the parties in the open court, therefore, we are not referring to these judgments as these proposition are quite settled. On the facts and the record itself, we hold that there is no failure on the part of the assessee in terms of proviso to Section 147, and therefore, the CIT (A) has rightly held that reopening of assessment u/s.147 in terms of aforesaid "reasons recorded" is unjustified in law. Thus, order of the CIT (A) on the issue of validity of the reopening is upheld and the grounds raised by the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.

(See 2018-TIOL-501-ITAT-DEL)