Case Note & Summary
The petitioner, EIT Services India Pvt. Ltd. (formerly Hewlett Packard Globalsoft Private Limited), a company engaged in export of software services and claiming deduction under Section 10A of the Income Tax Act, 1961, challenged re-assessment proceedings initiated by the Income Tax Department for assessment years 2005-06, 2006-07, and 2007-08 by filing three writ petitions before the Karnataka High Court under Article 226 of the Constitution of India. The regular assessments for these years were completed under Section 143(3) allowing substantial deductions under Section 10A. For AY 2005-06, the assessment order dated 30.12.2008 allowed a deduction of Rs.114,87,47,042. However, the Commissioner of Income Tax, Bangalore-1, in proceedings under Section 263, set aside that order on 22.12.2009 as erroneous and prejudicial to revenue, directing re-examination of the deduction claim, specifically regarding profits from rendering technical services outside India which the CIT considered ineligible. The Assessing Officer complied and passed a fresh assessment order on 24.12.2010, disallowing deductions to the extent of Rs.74,25,62,786 by excluding foreign currency expenses from export turnover. The petitioner's appeal to the CIT(A) was dismissed on 18.10.2011, and a further appeal to the ITAT remained pending. For AY 2006-07, the assessment involved a reference to the Transfer Pricing Officer under Section 92CA due to international transactions. A draft assessment order was issued on 30.12.2009, and after objections before the Dispute Resolution Panel, the final assessment order on 11.10.2010 allowed a Section 10A deduction of Rs.68,26,69,401. The petitioner appealed to ITAT, which was pending. Similarly, for AY 2007-08, after TP reference, a draft order was issued on 23.12.2010, objections resolved, and the final assessment order on 30.08.2011 allowed a deduction of Rs.67,70,69,653. The petitioner's appeal to ITAT was also pending. Meanwhile, in the petitioner's assessment for AY 2008-09, the Additional Commissioner of Income Tax, Range-11, Bangalore, substantially disallowed the Section 10A claim. Taking note of that order and the findings therein, the Assessing Officer issued notices under Section 148 read with Section 147 proposing to reassess the petitioner's income for earlier years: dated 29.03.2012 for AY 2005-06, 13.09.2012 for AY 2006-07, and 08.10.2012 for AY 2007-08. The reasons recorded alleged that the assessee had failed to disclose fully and truly all material facts necessary for assessment, and that part of the profits related to technical services outside India was not eligible for deduction. The petitioner filed detailed objections to the reassessment notices, but the objections were rejected by orders: for AY 2005-06 on 13.03.2013, for AY 2006-07 on 22.08.2013, and for AY 2007-08 on 26.08.2013. Consequently, the petitioner approached the High Court contending that the reassessment proceedings were barred by limitation, that the notices were based on an impermissible change of opinion, amounted to borrowed satisfaction from a later assessment year, and that the third proviso to Section 147 acted as a legal bar. The court formulated specific issues for analysis: whether the assessee failed to fully and truly disclose material facts; whether the notice was a mere change of opinion; whether it constituted borrowed satisfaction; whether the third proviso to Section 147 barred reassessment; and the implication of Circular No.1/2013. The judgment was reserved on 03.11.2023 and pronounced on 19.12.2023, but the operative part and detailed reasoning are not included in the provided excerpt, leaving the final decision unknown.
Issue of Consideration
Whether reassessment proceedings are barred by limitation and without jurisdiction; whether assessee failed to fully and truly disclose material facts; whether notice under Section 147/148 is a product of change of opinion; whether it constitutes borrowed satisfaction; whether third proviso to Section 147 bars reassessment; and the implication of Circular No.1/2013.
Case Details
2023 LawText (KAR) (12) 28
Writ Petition No.15061/2013 (T-IT) connected with Writ Petition Nos.43236/2013 and 43237/2013
Percy Pardiwalla, Tanmayee Rajkumar, E.I. Sanmathi
EIT Services India Pvt. Ltd. (formerly Hewlett Packard Globalsoft Private Limited)
Deputy Commissioner of Income Tax, Circle-11(4), Bangalore and others
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Nature of Litigation
Challenge to re-assessment proceedings initiated under Section 147/148 of Income Tax Act for assessment years 2005-06, 2006-07, 2007-08, seeking declaration that proceedings are barred by limitation and without jurisdiction.
Remedy Sought
Petitioner sought declaration that impugned proceedings are barred by limitation and without jurisdiction; quashing of notices under Section 148 and orders rejecting objections.
Filing Reason
Assessing Officer issued re-assessment notices based on orders for assessment year 2008-09 where deduction under Section 10A was disallowed, alleging failure to disclose material facts and claiming that profits from rendering technical services outside India were not eligible for deduction.
Previous Decisions
Regular assessments completed under Section 143(3) allowing Section 10A deduction; Commissioner set aside assessment for AY 2005-06 under Section 263 and ordered re-examination; re-assessment order passed disallowing part of deduction; appeals pending before ITAT for AYs 2006-07 and 2007-08.
Issues
Whether the petitioner assessee has failed to “disclose fully and truly all material facts necessary for assessment”?
Whether the re-assessment notice under Section 147 r/w Section 148 of the I.T. Act is merely a product of change in opinion and accordingly is impermissible in law?
Whether the re-assessment notice under Section 147 r/w Section 148 amounts to borrowed satisfaction as it places reliance on findings recorded in the assessment proceedings recorded in the Assessment Year 2008-2009?
Whether the bar under third Proviso to Section 147 of the I.T. Act is a legal impediment insofar as the present re-assessment notice is concerned?
Implication of Circular No.1/2013
Judgment Excerpts
The petitioner has sought for a declaration that the proceedings initiated by the respondent No.1- Deputy Commissioner of Income Tax (DCIT) under Section 147 read with Section 148 of the I.T. Act, as being barred by limitation and without jurisdiction.
The Commissioner of Income Tax, Bangalore-1, Bangalore (“CIT”) initiated proceedings under Section 263 of the I.T. Act on the ground that the assessment completed was erroneous and was prejudicial to the interest of the Revenue and set aside the Assessment Order.
the Additional Commissioner of Income Tax Range-11, Bangalore, took up the petitioner’s assessment for the Assessment Year 2008-2009 and had disallowed the petitioner’s claim for deduction under Section 10A of the I.T. Act substantially.
the Assessing Officer issued a notice dated 29.03.2012 under Section 148 r/w Section 147 of the I.T. Act proposing to reassess the petitioner’s income for the Assessment Year 2005-2006.
Procedural History
For AY 2005-06: regular assessment under Section 143(3) on 30.12.2008 allowed Section 10A deduction of Rs.114.87 crore; CIT set aside under Section 263 on 22.12.2009; fresh assessment order on 24.12.2010 disallowed part of deduction; appeal to CIT(A) dismissed on 18.10.2011, further appeal to ITAT pending. For AY 2006-07: assessment under Section 143(3) with TP reference; final order on 11.10.2010 allowed Section 10A deduction of Rs.68.26 crore; appeal to ITAT pending. For AY 2007-08: final assessment order on 30.08.2011 allowed Section 10A deduction of Rs.67.70 crore; appeal to ITAT pending. For AY 2008-09, Additional Commissioner disallowed Section 10A substantially. Based on AY 2008-09 findings, AO issued Section 148 notices: for AY 2005-06 on 29.03.2012, for AY 2006-07 on 13.09.2012, for AY 2007-08 on 08.10.2012. Objections filed and rejected: on 13.03.2013, 22.08.2013, 26.08.2013 respectively. Writ petitions filed challenging reassessment proceedings.
Acts & Sections
- Income Tax Act, 1961: 10A, 80HHE, 92CA, 92E, 143(3), 147, 148, 263
- Constitution of India: 226
