Ita/65/2014 Of The Commissioner Of Income Tax, Cit(A) v. M/S Hewlett Packard Globalsoft Pvt Ltd

1. R IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 14th DAY OF AUGUST, 2015 PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND THE HON’BLE MR. JUSTICE ARAVIND KUMAR ITA Nos.65/2014 C/W 66/2014 BETWEEN: 1.)THR COMMISSIONBR OF INCOME TAX, CIT (A), C.R. BUILDING, QUEENS ROAD, BANGALORE.| iaTHER ASSISTANT COMMISSIONER OF INCOME TAX| CIRCLE-11(4)RASHTROTHNA BHAVANNRUPATHUNGA ROADBANGALORE.|RASHTROTHNA BHAVANNRUPATHUNGA ROADBANGALORE.| ~ COMMON APPBLLANTS (BY SRI. K.V. ARAVIND, ADVOCATE) AND: M/s.HEWLETT-PACKARDGLOBALSOFT PVT. LTD., 39/40, ELECTRONIC CITY,|PHASE-IT, HOSUR ROAD,BANGALORE-560 100. ~ COMMONRESPONDENT (BY SRI.T. SURYANARAYANA FOR M/S KING ANDPARTRIDGE, ASSOCIATES, ADVOCATE, 2 ITA NO. 69/2014 IS FILED UNDER SECTION 260-A|OF INCOME TAX ACT, 1961 PRAYING TO FORMULATETHE SUBSTANTIAL QUESTIONS OF LAW STATEDABOVE AND ALLOW THER APPEAL AND SET ASIDE THEORDER PASSED BY THE ITAT, BANGALORE IN ITANO.283/BANG/2012, DATED 30.09.2013 AND CONFIRMTHR ORDER OF THE APPELLATE COMMISSIONER.CONFIRMING THR ORDER PASSED BY THE ASSISTANTCOMMISSIONER.OF|INCOME|TAX,CIRCLE-1 1(4),BANGALORE.| ITA NO. 66/2014 IS FILED UNDER SECTION 260-A|OF INCOME TAX ACT, 19601 PRAYING TO FORMULATETHE SUBSTANTIAL QUESTIONS OF LAW STATEDABOVE AND ALLOW THR APPBAL AND SET ASIDE THRORDERS PASSED BY THE ITAT, BANGALORE IN ITANO.2607/BANG/2012, DATED 30.09.2013, CONFIRMINGTHR ORDEBR OF THR APPBLLATK COMMISSIONBR ANDCONFIRM THR ORDER PASSKHD BY THR DBPUTYCOMMISSIONER.OF|INCOMETAX,CIRCLE-11(4),BANGALORE.| THESE APPEALS BEING HEARD AND RESERVED,FOR ORDERS, COMING ON FOR PRONOUNCEMENTTHIS DAY,ARAVIND KUMAR J,DELIVERED THERKOLLOWING: JUDGMENT Revenue has preferred these appeals calling inquestion the order passed by the Income Tax|Appellate Tribunal, “C” Bench, Bangalore in ITA Nos.283/BANG/2012.and267/Bang/2012—dated30.09.2013whereunder.theTribunal,while O| examiningthevalidityOT re-opening OT theassessment, has set aside the same on the ground|that Assessing Officer, on mere change of his opinionand without any tangible material, could not have|reopened the concluded assessment and as such heldthat reopening is invalid. 2 |We have heard the arguments of Sri|K.V.Aravind,learnedAdvocateappearingfor.appellant-revenue and Sri.T.Suryanarayana, learned|Advocate appearing on behalf of respondent-assessee. | 3.|The above appeals came to be admitted toconsider the following substantial questions of law: “(1) Whether on the tacts and in|the circumstances of the case, the)Tribunal was correct in holding thatthe reopening of assessment is by|mere change of opinion, without|appreciatingthe.factthat|the.expenditure related|CO On-sitedevelopment of computer softwarewas not examined in the original|assessment and as such is not a. 4 deemed opinion to hold change of|opinion, (2) Whether on the tacts and in thecircumstances oT|theCa SEthetribunal was correct in holding thatreopening of assessment is mere|changeoT|opinion,whentheassessing officer has not consideredthe eligibility of the income derived|from rendering technical services|abroad to be eligible for deduction|under Section 10-A or not?” 4Briefly stated facts are: Assessee is a company engaged in the businessof soitware development. For the assessment year|2003-04 return of income was filed whereunder the|assessee claimed deduction under Section 10A of theAct. The assessee had excluded the expenses|incurred in foreign currency for providing technical|services. The return of income was processed andit |was selected for scrutiny. After issuing statutory|notice, assessment order under section 143(3) of the|Income Tax Act, 1961 (for short Act’) came to be|passed on 27.03.2006. While claiming deduction| 5 4Briefly stated facts are: Assessee is a company engaged in the businessof soitware development. For the assessment year|2003-04 return of income was filed whereunder the|assessee claimed deduction under Section 10A of theAct. The assessee had excluded the expenses|incurred in foreign currency for providing technical|services. The return of income was processed andit |was selected for scrutiny. After issuing statutory|notice, assessment order under section 143(3) of the|Income Tax Act, 1961 (for short Act’) came to be|passed on 27.03.2006. While claiming deduction| 5 under Section 1OA of the Act, the assessee had|excluded the expenses incurred in foreign currency|for providing technical services and had included theprofits derived from technical services in the eligible|profits for deduction under section 10A of the Act.|Hence, notice under section 148 came to be issued|for reopening the concluded assessment on the|eround that claim made by the assessee under|section 10A of the Act by including the profits derivedfrom technical services in the eligible profits was|excess claim. ‘Thereafter re-assessment came to be|completed on 31.12.2007 by excluding the profits|derived from technical services from the eligible|profits and consequently, the deduction under|Section 1OA came to be re-concluded. The said re-assessment order was challenged by the assessee|before the CIT (A) questioning the validity of the re-opening on the ground that it would amount to|change of opinion. Though appellate Commissioner|confirmed the validity of re-opening of assessment| 6| under Section 148 of the Act, partial relief was|eranted to the assessee on merits by order dated|28.11.2011. Hence, assessee as well as revenue filed|separate appeals before the Tribunal against the|order of CIT{(A). The assessee challenged the|confirmation of validity of re-opening of assessment.The revenue challenged the partial relief granted by|the appellate Commissioner to the assessee. The.Tribunal annulled the re-assessment proceedings andheld it is not valid in law. In view of the same, the.Tribunal did not examine other issues raised by the|assessee and consequently, the appeal filed by the|revenue also came to be dismissed. Hence, the|revenue has filed these two appeals. 5It is the contention of Sri K.V.Aravind,|learned Advocate tor the revenue that Tribunal erred|in holding that assessing Officer sought to initiate there-assessment.proceedings|by Inle€change.ot opinion, without considering the fact that the| 7| expenditure related|CO onsitedevelopmentot computer software and same had not been examined.in the original assessment and as such, it is not a|deemed opinion. He would submit that when the.assessing Officer has not examined the eligibility ofthe income derived from rendering technical services|abroad to be eligible for deduction under Section 10A|or not, question of change of opinion did not arise. —He would submit that eligibility of income derived|from technical services was not to be included in the)eligible profits under Section 10A of the Act and the|assessing Officer, while framing the assessment|proceedings, had not examined inclusion of income|from technical services into the eligible profits for|computing deduction under Section 1OA. He would|submit that assessee had claimed deduction under|section 1OA of the Act by including the profits from|rendering technical services in the eligible profits andas such deduction claimed under Section 10A of the|Act by the assessee was excessive and Explanation to 8| Section 147 of the Act was attracted and it would|amount to deemed escapement of income to tax. |Hence, he contends that the re-opening of the|concluded assessment is valid. | 8| Section 147 of the Act was attracted and it would|amount to deemed escapement of income to tax. |Hence, he contends that the re-opening of the|concluded assessment is valid. | 6. He|would|furthersubmitthat|theassessing Officer had not expressed any opinion on the controversy regarding inclusion of profits derived|from rendering technical services into the eligible|profits and as such, no opinion had been expressed.during assessment proceedings and thereby change|of opinion would not arise. On these grounds, he|would seek for substantial questions of law being|answered in favour of the revenue and prays for|allowing the appeal. In support of his submissions,|he has relied upon the following judgments: :!(2010) 320 ITR 561Commissioner ot Income Tax vs.Kelvinator of India Ltd.Commissioner ot Income Tax vs.Kelvinator of India Ltd. ::!(2007) 291 ITR 500 (SC).Assistant Commissioner ot Income§Tax|VS.|RajeshJhaveriStockBrokers (P) Ltd.Assistant Commissioner ot Income§Tax|VS.|RajeshJhaveriStockBrokers (P) Ltd. 9| :::!(2012) 348 ITR 485 (Delhi)Commissioner ot Income TJax-VI vs.Usha International Limited.Commissioner ot Income TJax-VI vs.Usha International Limited. :0!(2011) 242 CTR 425.Commissioner ot [Income Jax &Another vs. Rinku ChakraborthyCommissioner ot [Income Jax &Another vs. Rinku Chakraborthy 0!(2013)350 ITR 6951ExportCreditGuarantee|CorporationOT India|Ltd. VS.Additional Commissioner ot [IncomeTax.ExportCreditGuarantee|CorporationOT India|Ltd. VS.Additional Commissioner ot [IncomeTax. 0:!(2014) 265 CTR 540°Commissioner ot Income Tax &Another vs. Sasken CommunicationTechnologies Ltd. Commissioner ot Income Tax &Another vs. Sasken CommunicationTechnologies Ltd. T.|Per contra, Sri Suryanarayana, learned|Advocate would support the order passed by the|Tribunal and contends that the assessing Officer at|the first instance had examined the issue _ oexcluding certain sum from the export turnover on|the ground it was expenditure incurred in foreign|exchange for providing technical services outside|India and in the reasons recorded for re-opening the|assessment, he has taken the view that aforesaid|amount cannot be considered as income derived trom. export of articles or things or computer software at all. He would submit that by issuing the notice for re-assessment, the assessing Officer intends to re-examine the deduction claimed by the assessee undersection lIOA which itself amounts to change ofopinion and even if there was a failure on the part ofthe assessing Officer with regard to computation ofexport turnover, the only course of action left to the|revenue was to take recourse under Section 263 otfthe Act. Hence, he prays for dismissal of the appeals. In support of his submissions, he has relied upon the following judgments: :!(2002) 256 ITR 1.CommissionerOT IncomeTaxVS.Kelvinator ot India Ltd.CommissionerOT IncomeTaxVS.Kelvinator ot India Ltd. ::!(2001)116 Taxman 274 (Kar)Commissionerot IncomeTax|VS.Hardware Trading Co.|Commissionerot IncomeTax|VS.Hardware Trading Co.| :::!ReplikaPress)PrivateLimitedODAnother vs. Deputy Commissioner of|Income Tax Circle —(W.P.(C) 7452/2010 dated 9[th]August,2013)Another vs. Deputy Commissioner of|Income Tax Circle —(W.P.(C) 7452/2010 dated 9[th]August,2013) :0!(2014) 363 ITR 603 (Bom)NDT Systems and another vs. Income-TaxOfficer and othersNDT Systems and another vs. Income-TaxOfficer and others 0!(2014) 366 ITR 134 (Guy)Deepakbhai Ramyjibhai Patel vs. IncomeTax OfficerDeepakbhai Ramyjibhai Patel vs. IncomeTax Officer upon the following judgments: :!(2002) 256 ITR 1.CommissionerOT IncomeTaxVS.Kelvinator ot India Ltd.CommissionerOT IncomeTaxVS.Kelvinator ot India Ltd. ::!(2001)116 Taxman 274 (Kar)Commissionerot IncomeTax|VS.Hardware Trading Co.|Commissionerot IncomeTax|VS.Hardware Trading Co.| :::!ReplikaPress)PrivateLimitedODAnother vs. Deputy Commissioner of|Income Tax Circle —(W.P.(C) 7452/2010 dated 9[th]August,2013)Another vs. Deputy Commissioner of|Income Tax Circle —(W.P.(C) 7452/2010 dated 9[th]August,2013) :0!(2014) 363 ITR 603 (Bom)NDT Systems and another vs. Income-TaxOfficer and othersNDT Systems and another vs. Income-TaxOfficer and others 0!(2014) 366 ITR 134 (Guy)Deepakbhai Ramyjibhai Patel vs. IncomeTax OfficerDeepakbhai Ramyjibhai Patel vs. IncomeTax Officer 8.|Assessee is in the business of software|development. For the assessment year 2003-04|return of income was filed on 31.10.2003 declaring|income of=a15,00,92,060/- aiter claiming deductionof|v99,67,/1,161/- under Section 10A of the Act. —Assessment order came to be framed under Section|143(3) of the Act on 27.03.2006. The Assessing|OfficerreducedtheclaimoT deductionv99,07,/1,161/- tov89,08,386,/78/-. Notice under|section 148 of the Act was issued on the ground thatexcess deduction under Section l1OA has beenclaimed and hence the deduction has to beérecomputed. Aiter considering the reply given by theassessee, order of reassessment was passed undersection 143(3) read with Section 147 on 31.12.2007. | from This was carried in appeal by the assessee and was|successful partially. The assessee being aggrieved by |the finding recorded by the Appellate Commissioner|that reopening being proper, filed further appeal|before the Tribunal and the revenue being aggrieved|by the grant of partial relief to the assessee by the|Appellate Commissioner, filed an appeal before the|Tribunal. Thus, both the appeals came to be taken.up together by the Tribunal and by the impugned|order set aside the reopening of the assessment on|the ground that it is change of opinion and_consequently allowed the appeal filed by the assesseeand dismissed the appeal filed by the revenue. |Hence, revenue has preferred these two appeals. RE: SUBSTANTIAL QUESTIONS OF LAW Nos.1 & 2: 9 |The validity of initiation of reassessment|proceedings under Section 14/7 of the Act by theAssessing Officer was challenged by the assessee|before the Assessing Officer, Appellate Commissioner| as well as Tribunal. Perusal of the original records|would indicate that Assessing Officer for the reasonsrecorded in the order sheet dated 05.09.2006 to'reopen the concluded assessment for the year 2003-O4. It reads as under: “The expenses incurred in_ foreigncurrency in respect of technical service|renderedoutsideIndia.aT|Rs.34,5145,781 has been reduced fromthe export turnover as per clause (iv) ofthe Expl. 2 to Section 1OA. Actually|profitsfromprovidingtechnicalservices abroad should be excluded|while computing deduction u/s 10A. In|the|instant.Ca SEthe|expenditure for providing technical|servicesaT|11.71%|oT the|totalexpenditureandtheprofitsfromproviding technical services is to be|estimated at 11.71% of the totalprofits, which is eligible for deduction|u/s 100A. Consequent short levy of tax andsurchargeworksOUTTO Rs.1,/76,39,326/-. Therefore, I have|TE€aSONSTO believethat|incomechargeableTO Taxhas.escaped assessment for the Ay 2003-04”. | As per Section 147 of the Act, if the Assessing Officer|has reason to believe that any income chargeable to tax has escaped assessment for any assessment year|he may, subject to provisions of Section 148 to 153,|assess or reassess such income. In|the|instant.Ca SEthe|expenditure for providing technical|servicesaT|11.71%|oT the|totalexpenditureandtheprofitsfromproviding technical services is to be|estimated at 11.71% of the totalprofits, which is eligible for deduction|u/s 100A. Consequent short levy of tax andsurchargeworksOUTTO Rs.1,/76,39,326/-. Therefore, I have|TE€aSONSTO believethat|incomechargeableTO Taxhas.escaped assessment for the Ay 2003-04”. | As per Section 147 of the Act, if the Assessing Officer|has reason to believe that any income chargeable to tax has escaped assessment for any assessment year|he may, subject to provisions of Section 148 to 153,|assess or reassess such income. 10.|In the instant case, the Tribunal, while|accepting the plea of the assessee that merely on|change of opinion, the concluded assessment was|being reopened, noticed that the Assessing Officer|had already gone into specific issues arising under|Section 1OA of the Act. It can be noticed that from|the reasons recorded for issue of notice under Section148 of the Act, the assessing Officer wanted to hold|that the entire sum towards employee's salary,|overseas travel, in all totaling ©S|154,05,83,125/-_towards expenditure incurred in foreign currency for|rendering technical services outside India ought to|have been considered as not profits derived by an|undertaking from export of articles or things or| computer software under Section 1OA(1) of the Act|and that the same should be totally excluded from|the computation of deduction under Section 10A of)the Act and as such, consideringy38,01,45,781/-as part of the export turnover, while computing|deduction under Section 410A ot the Act wasincorrect. Hence, the assessing Officer had proposed|to re-assess. The assessee had contended that there|was application of mind by the assessing Officer on all issues including the question as to whether the|sum of |S|38,91,45,781/- is not profit derived by the)assessee from the export of articles or things or'computer soitware. The assessing Officer while|completing the assessment under Section 143(3) of|the Act, has gone into the question of excluding the|sum ofS|38,91,45,781/- from the export turnover on)the ground that it was expenditure incurred in|foreign exchange for providing technical services|outside India. However, the reasons recorded for re-opening the said assessment is that the aforesaid| sum cannot be considered as income derived from|export of articles or things or computer software at all. Thus, it has to be seen whether it would be a.different dimension or the income had escaped.assessment or whether the assessing Officer had|adopted one of the views possible and as such, he|could not have taken recourse to re-assessment ot the proceedings. 11.)Jurisdiction under Section 147 of the Act|can be invoked by the assessing Officer where he hasreason to believe that income chargeable to tax has|escaped assessment. However, such ‘reason to|believe’ cannot be based on a mere change of opinion. ©It is not in dispute that the assessing Officer does nothave jurisdiction to review his own order. The power|of rectification of mistakes conferred on the assessing|Officer is circumscribed by the provisions of Section|154 of the Act. | 17 11.)Jurisdiction under Section 147 of the Act|can be invoked by the assessing Officer where he hasreason to believe that income chargeable to tax has|escaped assessment. However, such ‘reason to|believe’ cannot be based on a mere change of opinion. ©It is not in dispute that the assessing Officer does nothave jurisdiction to review his own order. The power|of rectification of mistakes conferred on the assessing|Officer is circumscribed by the provisions of Section|154 of the Act. | 17 12.)Hromthe|perusalOT the|provisions contained in Section 147 of the Act, as it stood up to.31.03.1999, it is evident that to confer jurisdiction|under Section 147/(a) of the Act, twin conditions wererequired to be satisfied namely, (1) the assessing|officer must have reason to believe that income|chargeable to tax has escaped assessment; and (2) hemust also have a reason to believe that such!escapement occurred by reason of either —- (a)omission or failure on the part of the assessee to.make a return of his income under Section 139 or (b)omission or failure on the part of the assessee to|disclose fully and truly all material facts necessary|for his assessment for that year. Both conditions arecumulative and in the given circumstances of the|case, if these two conditions are not fulfilled, thennecessarily notice issued by the assessing Officer|would be wholly without jurisdiction. | 18 13. The effect of amendment to Section 147came to be examined by the Hon’ble Apex Court in CIT vs KELVINATOR OF INDIA LIMITEDreported |1n (2010) 320 ITR S61and observed as under: “AOn|soingthroughthe changes, quoted above, made toSection147of the Act, we find that, prior to|Direct Tax Laws (Amendment) Act,|1987, reopening could be done under|above two conditions and fulfillment of.the said conditions alone conferred.jurisdiction on the Assessing Officer to make a back assessment, but inSection 147of the Act |with effect from|lst April, 1989], they are given a go by|and only one condition has remained,|viz., that where the Assessing Officer|has reason to believe that income has|escapedassessment,|confersjurisdiction to reopen the assessment.|Therefore, post lst April, 1989, power|to reopen is much wider. However, one|needs to give a schematic interpretationto the words "reason to believe" failing|which, we are atraid,Section 147wouldgive arbitrary powers to the Assessing)Officer to reopen assessments on the.basis of "mere change of opinion",which cannot be per se reason to)reopen. We must also keep in mind theconceptual difference between power to.review and power to reassess. TheAssessing Officer has no power to.review; he has the power to reassess.|But reassessment has to be based on.fulfillment of certain pre-condition and)if the concept of "change of opinion" is| 19 removed, as contended on behalf of theDepartment, then, in the garb of|reopeningtheassessment,|reviewwould take place. One must treat the)concept of "change of opinion" as an in-built test to check abuse of power by|the Assessing Officer. Hence, aiter 1st|April, 1989, Assessing Officer has|power to reopen, provided there is|"tangible material" to come to the|conclusion that there is escapement ofincome.{tromassessment.Reasons must have a live link with the formation|of the belief. Our view gets support|from the changes made to)Section 14/of the Act, as quoted hereinabove.|Under.theDirectTaxLaws(Amendment) Act, 1987, Parliament not|only deleted the words ‘reason to|believe" but also inserted the word|“opinion in.Section 147ot the Act.|However, on receipt of representations|from the Companies against omission|ot the|words“reasoninebelieve’,Parliament.re-introducedtheSaidexpression|and|deletedtheword"Opinion" on the ground that it wouldvest arbitrary powers in the Assessing)Officer. We quote hereinbelow the.relevant portion of Circular No.o49,.dated 31[st]Oct., 1989 |(1990) 82 CTR(St) 1], which reads as follows xxx|remain the same.”| 14.|The phrase“reason to believe’|found in section 14/7 of the Act came up for scrutiny beforethe Hon’ble Apex Court in the matter ofASSISTANT 14.|The phrase“reason to believe’|found in section 14/7 of the Act came up for scrutiny beforethe Hon’ble Apex Court in the matter ofASSISTANT COMMISSIONER OF INCOME TAX vs RAJESHreported in(2007) 291 ITR SOO (SC)andheld that the said expression cannot be read to mean.that the assessing Officer should have finally|ascertain the fact by legal evidence or conclusion ofthe fact of escapement of income from tax. It came tobe held as under: “16. Section147|authorisesand permits the Assessing Officer to assess or reassess income chargeableto tax if he has reason to believe that|income for any assessment year has|escapedassessmeng.TheWOTdC“reason” in the phrase “reason to|believe”wouldThea CAUSEOT|justification. If the Assessing Officer|has cause or justification to Know or suppose that income had escapedassessment, it can be said to have.reason to believe that an income had|escaped assessment. The expressioncannot be read to mean that theAssessing Officer should have finally|ascertained the fact by legal evidence|or conclusion. The function of the|Assessing Officer is to administer the|statute with solicitude for the public|exchequer with an inbuilt idea of|fairness to taxpayers. As observed by the Delhi High Court in Central|Provinces Manganese Ore Co. Ltd. v. ITO (1991) 98 CTR (SC) 161: (1991)|191 ITR 662 (SC), for initiation of action under Section 14/7/(a) (as thprovision stood at the relevant time)|fulfillmentoT theTWO|requisiteconditions in that regard is essential.|At that stage, the final outcome of the|proceeding is not relevant. In other|words, at the initiation stage, what is required is “reason to believe”, but not|the established fact of escapement otfincome. At the stage of issue of notice,the only question is whether there wasrelevantmaterial|OT)whichareasonable person could have formed arequisite belief. Whether the materials|wouldconclusivelyprovetheescapement is not the concern at that|stage. This is so because the formationof belief by the Assessing Officer is withintherealmotsubjectivesatistaction(seeITOVoSelectedDalurband Coal Co. Pvt. Ltd. |(1996)|132 CTR (SC) 162: (1996) 217 ITR 997|(SC)|; Raymond Woollen Mills Ltd. v. ITO |(1999) 152 CTR (SC) 418: (1999)|236 ITR 34 (SC)]. — 17. The scope and effect ofsection 147 as substituted with effect|from lst April, 1989, as also Sections|148 to 192 are substantially different|from the provisions as they stood priorto such substitution. Under the old|provisions of Section 14/7, separateclauses (a) and (b) laid down the|circlimstances under which incomeescaping assessment for the past|assessment years could be assessed orreassessed.TOCONIETjurisdictionunder Section 14/(a) two conditions|were required to be satisfied firstly theAssessing Officer must have reason to believe that income profits or gains| 22 chargeableineincome-TAX|haveescaped assessment, and secondly hemust also have reason to believe that|such escapement has occurred byreason of either (1) omission or failure|on the part of the assessee to disclose|fullyOT|trulyallmaterial factsnecessary for his assessment of that|YCal.BoththeseconditionsWETEconditions precedent to be _ satisfiebefore the Assessing Officer could havejurisdiction to issue notice under|section 148 read with Section 147(a).|But under the substituted Section 147existence of only the first condition|suftices.InotherwordsiftheAssessing Officer for whatever reason|has reason to believe that income has|escapedassessmentit|conters jurisdiction to reopen the assessment.It is however to be noted that both theconditions must be fulfilled if the case|falls within the ambit of the proviso tosection 147. The case at hand iscovered by the main provision and not|the proviso.” | 15.Thus, it boils down to the fact that“escapement of income” from tax for whatever reason|would suifice for the assessing Officer to initiate re-assessment proceedings by issuance of notice under|Section 147 of the Act. 15.Thus, it boils down to the fact that“escapement of income” from tax for whatever reason|would suifice for the assessing Officer to initiate re-assessment proceedings by issuance of notice under|Section 147 of the Act. 16.|Keeping the above dicta in mind, when thefacts on hand are re-examined, it would indicate that.while completing the assessment under Section|143(3) of the Act, the assessing Officer has gone into|the|question|OT excludingtheSUTIS|38,91,45,781/- from the export turnover on theeround that it was expenditure incurred in foreign|exchange for providing technical services outside|India. However, for re-opening the assessment the|assessing Officer has intended to take a view that|aforesaid sum cannot be considered as income|derived from export of articles or things or computer|software at all. It would not be out of place to.mention that while concluding the assessment|proceedings under Section 143(3) and during the|course of assessment proceedings, the assessing|Officer had called for clarifications trom the aSSeSSEéEand in reply to the notice issued under Section|143(2)(11) of the Act, the assessee on 06.03.2006 has|categorically stated as under: ot 24 “Based on the above definition, itmay be appreciated that only such|CXPCIScsby.otfreight,telecommunication charges or insurance|attributable to the delivery of computer|soitware outside India, needs to be|excluded from the export turnover in|case of a company engaged in software|development activities and expenses, if any, incurred in foreign exchange would|need to be reduced only in the case of a|company engaged in rendering technical|services outside India. In this context, we wish to submitthat the Company is primarily engaged|in software development activities and is not involved in rendering any technical|services outside India.”| 17.Considering the above explanation given|by the assessee, the assessing Officer in the original|assessment proceedings which resulted in order|passed under Section 143(3) of the Act on 27.03.2006has held to the following effect: “?.6. It is clear from the assessee’sabove submissions that the assessee isengaged in providing support services,|which are nothing but technical services.The expenditure in foreign exchange is incurredforbothdevelopmentotsottware|and|providingtechnicalservices. However, the assessee has not|been able to furnish a break-up of the|expenditure incurred for development of 25 sottware|and|providingtechnicalservices. [It has taken a stand that no'technical services are provided and the|entire expenditure is for development ofsoitware. Taking the functional analysis|reproduced above into account, and in|the absence of any break-up of the|expenditure, 29% of the expenditure|incurred under the following heads in|foreign exchange is deemed to be the|expenditure incurred in foreign exchangefor providing technical services outside|India. Employees’ salary- Rs.126,75,49,201Overseas travel- Rs. 25,30,33,9724Total- Rs.154,05,83,125. DT «|Hence,theexpenditureincurred1n foreignCUITeE?ICfor.providing technical services is adopted atRs.38,91,45,781/-and|1S allocatedbetween the five STP Units in the ratio ot|the export sales. Similarly, from out of|the communication expenses incurred in foreign currency of Rs.3,21,606,847/- anamount|ot Rs.7,03,90,077 /-(asquantified by the assessee) is taken as.attributable to the delivery of computer|software and is allocated between the'five STP Units in the same ratio of the'Export Sales. Both these amounts are|reduced from the export turnover in|accordance with the definition of ‘HKTO’given in sec.10A.” 18.|Thus, it can be seen from the original| assessment records that the claim of the assessee| 26 Employees’ salary- Rs.126,75,49,201Overseas travel- Rs. 25,30,33,9724Total- Rs.154,05,83,125. DT «|Hence,theexpenditureincurred1n foreignCUITeE?ICfor.providing technical services is adopted atRs.38,91,45,781/-and|1S allocatedbetween the five STP Units in the ratio ot|the export sales. Similarly, from out of|the communication expenses incurred in foreign currency of Rs.3,21,606,847/- anamount|ot Rs.7,03,90,077 /-(asquantified by the assessee) is taken as.attributable to the delivery of computer|software and is allocated between the'five STP Units in the same ratio of the'Export Sales. Both these amounts are|reduced from the export turnover in|accordance with the definition of ‘HKTO’given in sec.10A.” 18.|Thus, it can be seen from the original| assessment records that the claim of the assessee| 26 under Section 1l1OA of the Act was_ thoroughscrutinized, the assessing Officer had examined the|claim of expenditure incurred in foreign currency for|providing technical services by allocating the sum of >S|38,91,45,781/- between the five STP units in the)ratio of the export sales. In fact, the assessing Officer|hadraisedcertain queriesduring|assessmentyproceedings and detailed reply given by the assessee,which is extracted herein above, would leave no|doubt in our mind that the said issue was thoroughlyaddressed to by the assessing Officer, considered andthe plea of the assessee came to be accepted. In that.view of the matter, it cannot be construed that there.was either non disclosure by the assessee or the|assessing Officer had obtained material subsequent|to the framing of the assessment order on 27.03.2006so as to arrive at a conclusion that there was|escapement of income from tax. 19.|For the reasons aforestated, we are of the|considered view that the Tribunal was fully justified|in arriving at a conclusion that the re-opening ofassessment was by change of opinion and the issue|regarding eligibility of the income derived from|rendering technical services abroad to be eligible for|deduction under Section 10A or not had already beenconsidered by the assessing Officer in the assessmentconcluded under Section 143(3) of the Act on|"27.03.2006. AQ.For the reasons aforestated, we proceed topass the following: ORDER (1)Appeals are hereby dismissed by answering the substantial questionsof law in favour of the assessee and|against the revenue. *sp 28 (2)Order of the Income Tax Appellate Tribunal, “C” Bench, Bangalore inITANos.2383 /Bang/201and26/7/Bang/2012 dated 30.09.2013ITANos.2383 /Bang/201and26/7/Bang/2012 dated 30.09.2013 are hereby aifirmed. )!No order as to costs. | Sd/-. JUDGE Sd/-| JUDGE