High Court Of Bombay
Siemens Information System Ltd. vs. Assistant Commissioner Of Income Tax & Ors.
Section 10A, 148
Asst. Year 1999-2000
F.I. Rebello & R.V. More, JJ.
Writ Petn. No. 2384 of 2006
3rd July, 2007
Counsel appeared : Atul K. Jasani, for the Petitioner : Ashok Kotangale, for the Respondents
JUDGMENT
F.I. REBELLO, J. :
The petitioner is a company incorporated under the provisions of the Companies Act, 1956 and is carrying on business of software development and consultancy. The petitioner is regularly assessed to income-tax. The petitioner has several EOU/STP units engaged in the business of export of software. The nature of business of these units is mainly on site projects at customer’s site abroad and off shore projects, which are executed from India. The petitioner filed return of income for the asst. yr. 1999-2000 relevant to the previous year ended 31st March, 1999 on 27th Dec., 1999 declaring loss of Rs.14,62,89,330. An intimation under s. 143(1)(a) of the Act dt. 8th Feb., 2002 was issued accepting the returned loss.
2. On 27th March, 2006 the respondent No. 1 issued notice under s. 148 of the Act in which it was stated that he had reason to believe that the petitioner’s income chargeable to tax for the asst. yr. 1999-2000 had escaped assessment within the meaning of s. 147 of the Act. It was further stated that he proposed to reassess the income of the said assessment and directed the petitioner to furnish within 30 days from the date of service of the notice a return in the prescribed form. By a letter dt. 10th April, 2006 the petitioner objected to the issuance of notice under s. 148 of the Act and sought reasons recorded prior to the issuance of the said notice and without prejudice and under protest filed the return of income declaring the income as per the original return of income. By letter dt. 31st May, 2006 the respondent No. 1 furnished a copy of the reason for reopening the assessment for the asst. yr. 1999-2000 which reads as under : “In this case, return of income has been filed on 27th Dec., 1999 declaring total loss of Rs.14,62,89,337. This return of income has been processed under s. 143(1)(a) of the Act on 8th Feb., 2002 accepting the returned loss. Perusal of the return of income for the asst. yr. 1999-2000 reveals that assessee’s claim of loss is on account of losses incurred on non 10A units. In asst. yr. 2003-04, this issue of assessee carrying forward losses of non 10A units was examined and it was held that assessee has to set off losses of non 10A units against income of 10A units and thereafter, claim deduction under s. 10A of the IT Act on the balance amount. This interpretation is evident from the wording in the section allowing deduction under s. 10A of the IT Act which states that : ‘Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertakings begins to manufacture or produce such articles or things or computer software, as the case may be shall be allowed from the total income of the assessee.’
The decision of Bombay Tribunal “E” Bench in the case of Navin Bharat Industries Ltd. vs. Dy. CIT (2005) 92 TTJ (Mumbai)(TM)1166 : (2004) 90 ITD 1 (Mumbai)(TM) is applicable to the facts of the case, wherein, it has been held in principle that losses on non 10A units has to be set off against income of 10A units. In view of this, I have reasons to believe that income to the extent of Rs.14,62,89,334 has escaped assessment within the meaning of s. 147 of the IT Act.”
3. In response to the said reasons provided by the respondent No. 1, the petitioner addressed a letter dt. 7th July, 2006 objecting to the issuance of the notice under s. 148 and stated that the reasons furnished by the respondent No. 1 had quoted the provisions of s. 10A as amended by the Finance Act, 2000 w.e.f. the asst. yr. 2001-02 and as such could not have been made applicable for the asst. yr. 1999-2000 i.e. the year under consideration and, therefore, the notice has been issued under the mistaken belief about the correct position of law. The respondent No. 1 by reply dt. 28th Aug., 2006, dealt with the objections filed by the petitioner and gave final opportunity to the petitioner to show cause as to why the loss claimed should not be disallowed to be carried forward by fixing the hearing on 14th Sept., 2006.
4. According to the petitioner, the notice dt. 27th March, 2006 under s. 148 of the Act to reopen the assessment for the asst. yr. 1999-2000 is invalid, improper without jurisdiction and or in excess of jurisdiction and, therefore, liable to be quashed. At the hearing of this petition, on behalf of the petitioner, it is firstly submitted that notice under s. 148 of the Act cannot be issued without there being reason to believe that any income has escaped assessment. In the alternate, the submission is that in fact no income has escaped assessment and consequently, the notice is liable to be quashed and set aside. On behalf of the respondents, the learned counsel supports the notice and also relies on the judgment of the Karnataka High Court in the case of CIT vs. Himatasingike Seide Ltd. (2006) 206 CTR (Kar) 106 : (2006) 286 ITR 255 (Kar).
5. The first issue that we are called upon to answer is whether in fact, the respondent had reason to believe to enable him to exercise jurisdiction to issue the notice. We have already reproduced the contents of the notice containing reasons to believe wherein the respondent No. 1 has relied on the provisions of law which were inapplicable insofar as the petitioner is concerned for the relevant assessment year. The relevant provision of law as it then stood, reads as under : “10A. Special provision in respect of newly established undertakings in free trade zone, etc.—(1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee.” It would be clear from the reason given that the respondent No. 1 proceeded on the presumption that the law applicable was the law after the amendment and not the law in respect of which the petitioner has filed the return of income for the year 1999-2000. This by itself clearly demonstrates that there was total non application of mind on the part of the respondent No. 1 and consequently, the notice based on that reason would amount to non application of mind.
The other reason given was the judgment in the case of Navin Bharat Industries Ltd. vs. Dy. CIT (2005) 92 TTJ (Mumbai)(TM) 1166 : (2004) 90 ITD 1 (Mumbai) (TM). Let us consider the issue in controversy in Navin Bharat Industries. The issue was “the assessee is entitled to setting off the loss incurred by SEEPZ unit entitled for deduction under s. 10A against other business income of the assessee”. The AM held that the assessee was entitled to set off the loss incurred by SEEPZ not against other business income of the assessee. The JM held that it was not allowable. The Third Member noted that the assessee had taken the benefit of the provision of s. 10A for a period of three years, but for the relevant assessment year had not taken the benefit and opted to get the profits of the new industrial undertaking assessed under the normal provisions. On these facts, the learned Third Member held that a privilege cannot be to a disadvantage and an option cannot become an obligation and if the assessee does not want to avail of the benefit entitled in that respect for some reasons, that benefit cannot be forced upon him. It would be clear that the judgment is not an authority for the proposition as to whether losses suffered being undisputedly covered by s. 10A as it then stood could be set off against profits of other business income of the assessee or vice versa. It would thus be clear that the respondent No. 1 proceeded to issue notice under s. 148, on non existing reasons and as such, the material relied upon could not constitute ‘reasons to believe’. The notice on this count alone is to be quashed and set aside.
6. So far as the second contention is concerned, the learned counsel has drawn our attention firstly to the provisions of s. 4 of the Act which sets out that where any Act enacted that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions, including the provisions for the levy of additional income-tax in respect of the total income of the previous year of every person. Our attention is invited to s. 2(45). Total income means the total amount of income referred to in s. 5, computed in the manner laid down in this Act. Next, our attention is invited to what is gross total income under s. 80B(5). The gross total income has been described to be the total income computed in accordance with the provisions of the Act before making any deduction under the relevant chapter. A perusal of s. 10A(1) at it stood at the relevant time clearly sets out that subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which the section applies shall not be included in the total income of the assessee. In other words, it is clear that the income derived from an industrial undertaking by the assessee to which s. 10A applies could not be included in the total income of the assessee. Once that is the case, the petitioner was right in filing the income (sic-return) by excluding the income of income (sic) in terms of s. 10A. The learned counsel for the respondents has drawn our attention to the judgment of the Karnataka High Court in the case of Himatasingike Seide Ltd. (supra) which was considering the provisions of s. 10B. After perusing the facts in issue in this case and the facts before the Karnataka High Court, in our opinion the said case is not applicable to the facts of this case.
7. For the aforesaid reasons, the petition has to be allowed on both the counts. In the light of that, rule is made absolute in terms of prayer cl. (a).
[Citation : 293 ITR 548]
