Wp/43237/2013 Of Eit Services India Pvt. Ltd., Formerly Hewlett Packard Globalsoft Private Limited v. The Assistant Commissioner Of Income Tax

Digitallysigned byJAGADISH T RDate:2023.12.2010:29:10+0530 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE DAY 19 OF DECEMBER 2023 BEFORE THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV -WRIT PETITION No.15061/2013 (TIT)C/WWRIT PETITION No.43236/2013WRIT PETITION No.43237/2013 IN W.P. NO.15061/2013 BETWEEN: EIT SERVICES INDIA PVT. LTD., FORMERLY HEWLETT PACKARD GLOBALSOFT PRIVATE LIMITED NO.39/40, ELECTRONIC CITY, PHASE II BANGALORE - 560 030 REPRESENTED HEREIN BY ITS INDIA TAX DIRECTOR MR. MANOJ BAVLE ... PETITIONER (BY SRI PERCY PARDIWALLA, SENIOR ADVOCATE FOR Ms.TANMAYEE RAJKUMAR, ADVOCATE) AND: 1. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(4), ROOM NO.516 5 FLOOR, RP BHAVAN OPP. RBI, NRUPATHUNGA ROAD BANGALORE - 560 001. 2. THE COMMISSIONER OF INCOME TAX-I CENTRAL REVENUE BUILDING QUEEN'S ROAD BANGALORE - 560 001. ... RESPONDENTS (BY SRI E.I. SANMATHI, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA, PRAYING TO DECLARING THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE 1 RESPONDENT UNDER SECTION 147 READ WITH SECTION 148 OF THE ACT ARE BARRED BY LIMITATION AND OPPOSED TO THE SAID PROVISIONS AND THEREFORE WITHOUT JURISDICTION AND ETC. IN W.P. NO.43236/2013 BETWEEN: EIT SERVICES INDIA PVT. LTD., FORMERLY HEWLETT PACKARD GLOBALSOFT PRIVATE LIMITED NO.39/40, ELECTRONIC CITY, PHASE II BANGALORE - 560 030 REPRESENTED HEREIN BY ITS INDIA TAX DIRECTOR MR. MANOJ BAVLE ... PETITIONER (BY SRI PERCY PARDIWALLA, ADVOCATE FOR MS.TANMAYEE RAJKUMAR, ADVOCATE) MS.TANMAYEE RAJKUMAR, ADVOCATE) AND: 1. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-11(4), ROOM NO.516 5 FLOOR, RP BHAVAN OPP. RBI, NRUPATHUNGA ROAD BANGALORE - 560 001. 2. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(4), ROOM NO.516 5 FLOOR, RP BHAVAN OPP. RBI, NRUPATHUNGA ROAD BANGALORE - 560 001. 3. THE COMMISSIONER OF INCOME TAX-I CENTRAL REVENUE BUILDING QUEEN'S ROAD BANGALORE - 560 001. ... RESPONDENTS (BY SRI E.I. SANMATHI, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA, PRAYING TO DECLARING THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE 1 RESPONDENT UNDER SECTION 147 READ WITH SECTION 148 OF THE ACT ARE BARRED BY LIMITATION AND OPPOSED TO THE SAID PROVISIONS AND THEREFORE WITHOUT JURISDICTION AND ETC. IN W.P. NO.43237/2013 BETWEEN: EIT SERVICES INDIA PVT. LTD., FORMERLY HEWLETT PACKARD GLOBALSOFT PRIVATE LIMITED NO.39/40, ELECTRONIC CITY, PHASE II BANGALORE - 560 030 REPRESENTED HEREIN BY ITS INDIA TAX DIRECTOR MR. MANOJ BAVLE ... PETITIONER (BY SRI PERCY PARDIWALLA, ADVOCATE FOR MS. TANMAYEE RAJKUMAR, ADVOCATE) AND: 1. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-11(4), ROOM NO.516 5 FLOOR, RP BHAVAN OPP. RBI, NRUPATHUNGA ROAD BANGALORE - 560 001. 2. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(4), ROOM NO.516 5 FLOOR, RP BHAVAN OPP. RBI, NRUPATHUNGA ROAD BANGALORE - 560 001. 3. THE COMMISSIONER OF INCOME TAX-I CENTRAL REVENUE BUILDING CENTRAL REVENUE BUILDING QUEEN'S ROAD BANGALORE - 560 001. ... RESPONDENTS (BY SRI E.I. SANMATHI, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA, PRAYING TO DECLARING THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE 1 RESPONDENT UNDER SECTION 147 READ WITH SECTION 148 OF THE ACT ARE BARRED BY LIMITATION AND OPPOSED TO THE SAID PROVISIONS AND THEREFORE WITHOUT JURISDICTION AND ETC. THESE WRIT PETITIONS PERTAINING TO PRINCIPAL BENCH, BENGALURU HAVING BEEN HEARD AND RESERVED ON 03.11.2023 AND COMING ON FOR PRONOUNCEMENT OF ORDERS THROUGH VIDEO CONFERENCING AT DHARWAD BENCH, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER S. SUNIL DUTT YADAV. J This Order has been divided into the following Sections to facilitate analysis: QUEEN'S ROAD BANGALORE - 560 001. ... RESPONDENTS (BY SRI E.I. SANMATHI, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA, PRAYING TO DECLARING THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE 1 RESPONDENT UNDER SECTION 147 READ WITH SECTION 148 OF THE ACT ARE BARRED BY LIMITATION AND OPPOSED TO THE SAID PROVISIONS AND THEREFORE WITHOUT JURISDICTION AND ETC. THESE WRIT PETITIONS PERTAINING TO PRINCIPAL BENCH, BENGALURU HAVING BEEN HEARD AND RESERVED ON 03.11.2023 AND COMING ON FOR PRONOUNCEMENT OF ORDERS THROUGH VIDEO CONFERENCING AT DHARWAD BENCH, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER S. SUNIL DUTT YADAV. J This Order has been divided into the following Sections to facilitate analysis: The petitioner has filed three Writ Petitions before this Court i.e., W.P. Nos.15061/2013, 43236/2013, 43237/2013. The petitioner who is common in all these Writ Petitions has sought to challenge the re-assessment proceedings initiated pursuant to the notice issued under Section 148 read with Section 147 of the Income Tax Act, 1961 (‘I.T. Act’). 2. W.P.No.15061/2013 pertains to the Assessment Year 2005-2006; W.P.No.43236/2013 pertains to the Assessment Year 2006-2007; W.P.No.43237/2013 pertains to the Assessment Year 2007-2008. -I. FACTS: A. W.P.No.15061/2013 3. 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 challenge is laid to the notice at Annexure-‘G’ dated 29.03.2012, under Section 148 r/w Section 147 of I.T. Act for the Assessment Year 2005-2006 which preceded the order of reassessment. The petitioner has also sought for quashing of the order at Annexure-‘P’ dated 13.03.2013, which is the order passed by respondent No.1 rejecting the objections filed by the petitioner to the notice under Section 148 of I.T. Act for re-opening of assessment for the year 2005-2006. 4. The petitioner’s regular assessment for the Assessment Year 2005-2006 was concluded by the Assessing Officer and an order was passed under Section 143(3) of the I.T. Act dated 30.12.2008 at Annexure-‘B’ and in such order, petitioner’s claim for deduction under Section 10A of the I.T. Act came to be allowed for a sum of Rs.114,87,47,042/-. However, portion of the deduction claimed was disallowed on other grounds. 5. As against such order, on 22.12.2009[1], 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. 6. Further, the CIT had directed the Assessing Officer to re-examine the claim for deduction under Section 10A/80HHE of the I.T. Act on the ground that part of the petitioner’s profits was related to rendering technical services outside India which was not eligible for deduction. 7. The Assessing Officer thereafter taking note of the order of the CIT dated 22.12.2009 and having examined the matter afresh, passed a fresh Assessment Order dated under Section 143 (3) r/w Section 263 of the I.T. Act dated 24.12.2010 (Annexure-‘D’), wherein 1 Annexure-‘C’ the Assessing Officer made further disallowances of deductions claimed under Section 10A of the I.T. Act after excluding the expenses incurred in foreign currency from the export turnover to the extent of Rs.74,25,62,786/-, on the ground that the said amount related to the petitioner’s personnel rendering technical services outside India. 7. The Assessing Officer thereafter taking note of the order of the CIT dated 22.12.2009 and having examined the matter afresh, passed a fresh Assessment Order dated under Section 143 (3) r/w Section 263 of the I.T. Act dated 24.12.2010 (Annexure-‘D’), wherein 1 Annexure-‘C’ the Assessing Officer made further disallowances of deductions claimed under Section 10A of the I.T. Act after excluding the expenses incurred in foreign currency from the export turnover to the extent of Rs.74,25,62,786/-, on the ground that the said amount related to the petitioner’s personnel rendering technical services outside India. 8. The petitioner thereafter preferred an appeal to the Commissioner of Income Tax (Appeals)-I, Bangalore against the fresh Assessment Order dated 24.12.2010. The said appeal came to be dismissed by its order dated 18.10.2011. It is further submitted that the petitioner has preferred an appeal against the order dated 18.10.2011 before the Appellate Tribunal, which is still pending adjudication. 9. During the consideration of such of the proceedings referred to above, 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. It is the case made out by the petitioner that taking note of the assessment for the Assessment Year 2008-2009, 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. 10. Insofar as the reassessment under Section 148 of the I.T. Act, the reasons recorded prior to issuance of notice was responded by filing of detailed objections by the petitioner invoking the provisions under Section 147 of the I.T. Act which came to be rejected by an order dated 13.03.2013. B.W.P. No. 43236/2013 11. The petitioner has sought for a declaration that the proceedings initiated by the respondent No.1–Assistant Commissioner of Income Tax under Section 147 read with Section 148 of the I.T. Act as being barred by limitation and without jurisdiction. The petitioner has also challenged the notice dated 13.09.2012 (Annexure-‘D’) under Section 148 read with Section 147 of the I.T. Act for the Assessment Year 2006-2007. Further, the petitioner has also sought for quashing of the order F.No.DCIT-C-11-4/BGL/13-14 dated 22.08.2013 at Annexure-‘J’ which is the order passed by respondent No.2 rejecting the objections filed by the petitioner to the notice under Section 148 of the I.T. Act for reopening of assessment in respect of Assessment Year 2006-2007. 12. Petitioner’s regular assessment for the Assessment Year 2006-2007 was taken up under Section 143(3) of the I.T. Act. In the due course of assessment with regard to certain international transaction and furnishing of Audit Reports under Section 92E reference was made to Transfer Pricing Officer under Section 92CA of the I.T. Act. Thereafter, vide order dated 30.12.2009 a draft assessment order was forwarded to the assessee and the assessee filed objections to it before the dispute resolution panel. Subsequently, the Assessment Order came to be passed vide order dated 11.10.2010 and in such order the petitioner’s claim for deduction under Section 10A of the I.T. Act came to be allowed for a sum of Rs.68,26,69,401/-. 13. Being aggrieved by the said Assessment Order, the petitioner preferred an appeal before the Income Tax Appellate Tribunal, Bangalore, which is pending adjudication. 143(3) of the I.T. Act. In the due course of assessment with regard to certain international transaction and furnishing of Audit Reports under Section 92E reference was made to Transfer Pricing Officer under Section 92CA of the I.T. Act. Thereafter, vide order dated 30.12.2009 a draft assessment order was forwarded to the assessee and the assessee filed objections to it before the dispute resolution panel. Subsequently, the Assessment Order came to be passed vide order dated 11.10.2010 and in such order the petitioner’s claim for deduction under Section 10A of the I.T. Act came to be allowed for a sum of Rs.68,26,69,401/-. 13. Being aggrieved by the said Assessment Order, the petitioner preferred an appeal before the Income Tax Appellate Tribunal, Bangalore, which is pending adjudication. 14. In the meanwhile, 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. It is the case of the petitioner that taking note of the Assessment Year 2008-2009, the Assessing Officer issued a notice dated 13.09.2012 under Section 148 r/w Section 147 of the I.T. Act proposing to reassess the petitioner’s income for the Assessment Year 2006-2007. 15. Insofar as the reassessment under Section 148 of the I.T. Act, the reasons recorded prior to issuance of notice was responded by filing of detailed objections by the petitioner invoking provisions under Section 147 of the I.T. Act which came to be rejected by an order dated 22.08.2013. C. W.P. No. 43237/2013 16. The petitioner has sought for a declaration that the proceedings initiated by the respondent No.1–Assistant Commissioner of Income Tax under Section 147 read with Section 148 of the I.T. Act for the Assessment Year 2007-2008 as being barred by limitation and without jurisdiction. The petitioner has also challenged the notice dated 08.10.2012 (Annexure-‘D’) under Section 148 r/w Section 147 of the I.T. Act for the Assessment Year 2007-2008. Further, the petitioner has also sought for quashing of the order bearing F.No.DCIT-C-11-4/BGL/13-14 dated 26.08.2013 (Annexure-‘J’) which is the order passed by respondent No.2 rejecting the objections filed by the petitioner to the notice issued under Section 148 of the I.T. Act for reopening of assessment in respect of Assessment Year 2007-2008. 17. Petitioner’s regular assessment for the Assessment Year 2007-2008 was taken up under Section 143(3) of the I.T. Act. In due course of assessment with regard to certain international transaction and furnishing of Audit Reports under Section 92E reference was made to Transfer Pricing Officer under section 92CA of the I.T. Act. Thereafter, vide order dated 23.12.2010 a draft assessment order was forwarded to the assessee and the assessee filed objections to it before the Dispute Resolution Panel. Subsequently, the Assessment Order came to be passed vide order dated 30.08.2011 and in such order the petitioner’s claim for deduction under Section 10A of the I.T. Act came to be allowed for a sum of Rs.67,70,69,653/-. 18. Being aggrieved by the said Assessment Order, the petitioner preferred an appeal before the Income-tax Appellate Tribunal, Bangalore, which is pending adjudication. 19. In the meanwhile, 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. It is the case of the petitioner that taking note of the Assessment Order for the Year 2008-2009, the Assessing Officer issued a notice dated 08.10.2012 under Section 148 of the I.T. Act proposing to reassess the petitioner’s income for the Assessment Year 2007-2008. 18. Being aggrieved by the said Assessment Order, the petitioner preferred an appeal before the Income-tax Appellate Tribunal, Bangalore, which is pending adjudication. 19. In the meanwhile, 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. It is the case of the petitioner that taking note of the Assessment Order for the Year 2008-2009, the Assessing Officer issued a notice dated 08.10.2012 under Section 148 of the I.T. Act proposing to reassess the petitioner’s income for the Assessment Year 2007-2008. 20. Insofar as the reassessment under Section 148 of the I.T. Act, the reasons recorded prior to issuance of notice was responded by filing of detailed objections by the petitioner invoking provisions under Section 147 of the I.T. Act which came to be rejected by an order dated 26.08.2013. II. CONTENTIONS OF THE PETITIONER:- 21. The petitioner has raised common contentions in all these writ petitions, which are as follows:- (a) That the present matter is covered by the judgment of this Court in Infosys Ltd. v. Deputy Commissioner of Income Tax, Circle-11 (4), Bangalore[2]. (b) That jurisdictional conditions for exercise of power are absent and accordingly, the authority could not have initiated reassessment without (i) there being reason to believe that income has escaped assessment of the assessing officer; (ii) such escapement as being on account of failure on part of the assessee to disclose fully and truly all material facts; (iii) that the belief is not on the basis of change of opinion; (iv) a valid sanction has been obtained 2W.P.No.29828/2011 c/w W.P.Nos.14424 and 53886/2013 (TIT) dated 17.06.2009 from the sanctioning Authority after application of mind. -III. CONTENTIONS OF THE RESPONDENT/REVENUE: 22. The Revenue has raised common contentions in these Writ Petitions, which are as follows:- (a) The reassessment proceedings are taken up by the Authority on the basis of valid reasons recorded which satisfies the conditions for invoking reassessment proceedings and such reason is based on the tangible material noticed in the assessment for of the year 2008-2009. That the materials, such as, Master Service Agreements (MSA), Works Contracts/ Scope of Work (SCW), Invoices and other details related to claim of rebate under Section 10A of the I.T. Act establishes that the assessee has earned income from Deputation of Technical Manpower (DTM) and not from export of software. Such material was not part of the assessment proceedings for the Assessment Years in question. (b) The Tangible material that has come forth during the assessment proceedings for the Assessment Year 2008-2009 was not a part of the records during the earlier assessment proceedings and accordingly, on the basis of such material re-assessment is permissible. (c) That the aspect of deputation of technical manpower was not dealt with by the Assessing Authority in the earlier assessment proceedings and such DTM came to light only in the assessment year 2008-09 and hence subject matter is different and accordingly third proviso to Section 147 is not attracted. (d) The re-assessment notice cannot be said to be on the basis of change of opinion as assessment proceedings never dealt with the issue of eligibility of Section 10A deduction, but only dealt with type of expenditure that has to be excluded as per Section 10A(4) of the I.T. Act and the definition of export turnover. (e) There is no nexus between the software developed in India which has emerged from Software Technology Park (STP) unit of assesee and technical manpower deputed outside India. (c) That the aspect of deputation of technical manpower was not dealt with by the Assessing Authority in the earlier assessment proceedings and such DTM came to light only in the assessment year 2008-09 and hence subject matter is different and accordingly third proviso to Section 147 is not attracted. (d) The re-assessment notice cannot be said to be on the basis of change of opinion as assessment proceedings never dealt with the issue of eligibility of Section 10A deduction, but only dealt with type of expenditure that has to be excluded as per Section 10A(4) of the I.T. Act and the definition of export turnover. (e) There is no nexus between the software developed in India which has emerged from Software Technology Park (STP) unit of assesee and technical manpower deputed outside India. (f) Petitioner has failed to give primary facts and details relating to DTM Activity were not forthcoming at the relevant period of time which is now evident from MSA, SCW and Invoices submitted during assessment proceedings for the year 2008-2009. When assessee is substantively in business of providing of deputation of technical manpower services, it should have disclosed the same before the Assessing Officer and not having done so, can be construed to be withholding of facts and making of a wrongful claim of deduction under Section 10A of the I.T. Act. -IV. ANALYSIS: 23. The following points arise for consideration:- (i) Whether the petitioner assessee has failed to “disclose fully and truly all material facts necessary for assessment”? to “disclose fully and truly all material facts necessary for assessment”? (ii) 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? 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? (iii) 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? 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? (iv) 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? Section 147 of the I.T. Act is a legal impediment insofar as the present re-assessment notice is concerned? 24. The analysis of the points for consideration raised hereinabove is as follows:- (i) Whether the petitioner assessee has failed to “disclose fully and truly all material facts necessary for assessment?” 25. In W.P.No.15061/2013, for the purpose of initiating proceedings under Section 147 of the I.T. Act, as the Assessment Year in question is 2005-2006 and notice at Annexure-‘G’ seeking to initiate proceedings was issued on 29.03.2012, in terms of the proviso to Section 147 of I.T. Act, any action taken after the expiry of four years from the end of relevant assessment year would require that the assessee has failed to disclose fully and truly all material facts necessary for assessment. 26. The relevant extract of Section 147 of I.T. Act prior to its substitution reads as follows:- “147. 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 the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : 26. The relevant extract of Section 147 of I.T. Act prior to its substitution reads as follows:- “147. 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 the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: xxx” Accordingly, the jurisdiction to re-open the assessment is only if there is statement of income filed by the petitioner failing to fully and truly disclose all material facts necessary for assessment. 27. The law laid down by the Constitution Bench of the Apex Court in Calcutta Discount Company Ltd. v. Income Tax Officer[3]on the above aspect regarding disclosure requires to be noticed. The validity of notice under Section 34 of Indian Income Tax I.T. Act, 1922 (corresponding to Section 147 of the Income Tax Act, 1961), whereby re-assessment proceedings was sought to be initiated was called in question by the assessee on the ground that the said notice was issued without the existence of necessary condition precedent which confers jurisdiction under Section 34 of Indian Income Tax I.T. Act, 1922. The relevant observations are as follows:- 3 (1961) 41 ITR 191 (SC) "8. Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the Income Tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. The words used are “omission or failure to disclose fully and truly all material facts necessary for his assessment for that year”. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise—the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. 9. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income Tax Officer might have discovered, the legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example — “I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose : My duty is done with disclosing these account-books and the documents”. His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to “omission to disclose fully and truly all material facts necessary for his assessment”. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them—including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed. 10. Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else — far less the assessee — to tell the assessing authority what inferences whether of facts or — law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences — whether of facts or law he would draw from the primary facts. 11. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn? 12. It may be pointed out that the Explanation to the sub-section has nothing to do with “inferences” and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income Tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose “inferences” to draw the proper inferences being the duty imposed on the Income Tax Officer. 13. We have therefore come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this." 12. It may be pointed out that the Explanation to the sub-section has nothing to do with “inferences” and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income Tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose “inferences” to draw the proper inferences being the duty imposed on the Income Tax Officer. 13. We have therefore come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this." 28. From the above, it can be stated as follows:- a)Assessee is to disclose the primary facts in his possession and the Assessing Authority his possession and the Assessing Authority on the basis of such recovery or facts discovered on the basis of facts disclosed or otherwise, could draw inferences regarding such other facts. discovered on the basis of facts disclosed or otherwise, could draw inferences regarding such other facts. b)The duty to disclose does not extend beyond full and truthful disclosure of all primary facts. full and truthful disclosure of all primary facts. c)It is not the duty of the assessee to tell the Assessing Authority what inferences whether of facts or law should be drawn. Assessing Authority what inferences whether of facts or law should be drawn. d)There is no duty cast on the assessee to disclose inferences which is a duty imposed on the Income Tax Officer. disclose inferences which is a duty imposed on the Income Tax Officer. e)The duty to disclose primary facts extends to making a disclosure which is full and true and excludes falsity. to making a disclosure which is full and true and excludes falsity. 29. It is to be noted that as the profits derived from export of computer software is eligible for deduction under Section 10A of the I.T. Act which has been claimed by the petitioner, at the same time profits derived from business of rendering technical services outside India are eligible for deduction under section 80HHE of the I.T. Act. 30. Further, in terms of Explanation-2 to Section 10A(iv), the term export turnover excludes “… expenses, if any incurred in foreign exchange in providing the technical services outside India”. Section 80HHE provides for deductions in respect of profits from export of computer software where the business entity provides technical services outside India in connection with developments or production of computer software. Hence, the aspect of deduction under Section 10A or under Section 80HHE of the I.T. Act as the case may be, has been a subject matter of litigation between the petitioner and the Revenue. Whether the petitioner is eligible for deduction under Section 10A under the head of ‘Profits’ derived from export of computer software or under the head of ‘rendering technical services outside India’ and having a nexus with export outside India of computer software is an unresolved issue between the petitioner and the Revenue. It is the case of Revenue that unless a nexus is shown, the assessee cannot claim deduction and that the tangible material that was made available during the assessment proceedings for the Assessment Year 2008-2009 including MSAs, Work Orders, SCWs and Invoices has led to the initiation of proceedings under Section 147 of the I.T. Act. The case made out by the Revenue is that there is non-disclosure as contemplated under Section 147 of the I.T. Act of the tangible material that was placed before the assessing authority with respect to the proceedings in Assessment Year 2008-2009 and on such ground of non-disclosure fully and truly, that the re-assessment proceedings have been initiated. It is in such context that a finding is to be recorded as to whether the assessee has failed to “disclose fully and truly all material facts necessary for assessment”. 31. In the present case, the assessee has filed his declaration in Form-56F in terms of Rule 16D of the Income Tax Rules, 1962whereby, assessee who seeks to claim deduction under Section 10A of the I.T. Act has to make a declaration in Form-56F in the form of report of an accountant along with the return of income[4]. The omission of Rule 16D was only later and was in existence on the relevant date when the assessee has filed the return of Income. In terms of the declaration, the accountant has certified that the petitioner was engaged in export of computer software and the relevant details relating to deduction under Section 10A of the I.T. Act has been detailed in Annexure-‘A’. The further declaration in Annexure-‘1’ annexed to Annexure-‘A’ which provides details relating to claim by the exporter for deduction under Section 10A of the I.T. Act contains a declaration as follows:- 4 Rule 16D has been omitted by IT(21st Amendment) Rules, 2021 w.e.f. 29.07.2021 32. The obligation of disclosure extends to disclosing fully and truly material facts necessary for assessment. Pursuant to the order passed by CIT, Bangalore-1 under Section 263 of the I.T. Act dated 22.12.2009 the assessment proceedings were directed to be re-done by recording a finding as to eligibility of deduction under Section 10A/80HHE of the I.T. Act. In the fresh assessment proceedings initiated culminating in passing of the Assessment Order by the order dated 24.12.2010 as regards the expenditure relating to providing technical services outside India, the material was placed before the Assessing Officer on such aspect as is revealed from the observations at paras-9 and 10 of the order, which are extracted hereinbelow: “9. When the above issues are raised before the AR of the assessee, AR of the assessee made a detailed submission. The gist of the submission made by the assessee are that the activities regarding which the expenditure incurred in foreign exchange do not amount to providing of technical services outside India regarding exclusion of communication expenses from both export turn over and total turn over, the same was claimed to be done on the basis of parity between export turn over and total turn over and also on the basis of definition of total turn over elsewhere in the provisions of the IT Act. 10. In light of the above submissions, on verification of the details collected in respect of expenditure incurred in foreign exchange, it is clear that the company’s employees visit the clients’ location and provide software development services to the clients which are group companies. Therefore all these services rendered by the company are of the nature of technical services and therefore expenditure incurred in providing these services amounting to Rs.263,01,80,361/- are required to be reduced from the export turn over as per the definition of export turn over contained in the provisions of Section 10A of the I.T. Act.” 33. Accordingly, it is clear that there has been declaration including of expenditure relating to providing technical services. Once such primary facts have been declared and the assessee had made the declaration and claimed deduction under Section 10A of the I.T. Act, there was no further obligation on the assessee. If the Assessing Officer was of the view that details furnished would fall within Section 80HHE and not under Section 10A of the I.T. Act and accordingly, assessee was not entitled to claim such expenditure under Section 10A of the I.T. Act, the non-drawing of such legal inference by the assessing officer at the relevant point of time cannot result in holding that there is no true and full disclosure of primary facts. (ii) 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? entitled to claim such expenditure under Section 10A of the I.T. Act, the non-drawing of such legal inference by the assessing officer at the relevant point of time cannot result in holding that there is no true and full disclosure of primary facts. (ii) 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? 34. In W.P.No.15061/2013, the notice at Annexure-‘G’ under Section 148 of I.T. Act came to be issued on 29.03.2012 seeking to reassess the income which has escaped assessment in terms of Section 147 of the I.T. Act with respect to the Assessment Year 2005-2006, the assessee was called upon to deliver return within 30 days. Subsequently, the reasons for initiating proceedings under Section 147 of the I.T. Act for re-opening the assessment was communicated, which reads as follows: “2. The said return had been taken up for scrutiny and an order u/s 143(3) dated 30.12.2008 had been passed arriving at a total income of Rs.72,52,77,770/-. The various issues of additions and disallowances made in the assessment order are as below: 1. Recomputation of deduction u/s 10A a. Reduction of communication charges is restricted to export turn over only. b. Loss of one 10A unit was set off against the profits of other 10A units 2. Capitalization of Software Expenditure On account of additions and disallowances as above, the deduction of claim under Section 10A had been reduced to Rs.114,87,47,042/-. Further order u/s 143 (3) rws 263 was passed on 24.12.2010 reducing the expenditure incurred in foreign currency for providing technical services from export turn over only and the deduction u/s 10A was revised to Rs.74,25,62,786/- 3. During the course of scrutiny proceedings conducted for A.Y.2008-09 various information including a large number of Master Service Agreements, Work Contracts/Scope of works, Invoices and other details related to the deduction claimed u/s 10A of the Income-tax Act were called for. On account of detailed fact finding during the course of this scrutiny proceedings for A.Y.2008-09, the following additions/disallowances to the returned income for A.Y. 2008-09, were made a. It is noticed that the assessee company is rendering a large body of work onshore abroad related to software developmental activities. However, it was detected that none of the said software development activities onshore abroad had any link whatsoever with the STP Undertakings in India. It had been noticed that the assessee had claimed all revenue from Software developmental activities under STPs based in India only. No part of the income had ever been admitted as generated out of the company’s activities abroad. During the course of investigation conducted, it had been detected on facts as per various contracts/SOW, work orders and invoices that a large body of work related to software development activity conducted onshore abroad had no link whatsoever with the STP units in India. The said revenue receipt from onshore activity was treated as not related to the undertaking eligible for deduction u/s 10A of the I.T.Act. Such onshore receipts were treated as companywide software receipts not related to the STP Undertakings in India. This had been computed and the deduction claimed u/s 10A of the I.T.Act had been drastically reduced. b. During the course of said fact finding it had also been detected that the assessee company is in the business of deputing technical manpower (DTM) of providing short duration technical manpower abroad. Such business activity commonly known as Body Shopping was eligible for deduction u/s 80HHE of the I.T. Act and was not included as an eligible activity u/s 10A of the I.T. Act. It had been noticed from the contracts and invoices that the assessee company had substantial revenue from such DTM activity and it claimed the revenue receipt from the same as software development b. During the course of said fact finding it had also been detected that the assessee company is in the business of deputing technical manpower (DTM) of providing short duration technical manpower abroad. Such business activity commonly known as Body Shopping was eligible for deduction u/s 80HHE of the I.T. Act and was not included as an eligible activity u/s 10A of the I.T. Act. It had been noticed from the contracts and invoices that the assessee company had substantial revenue from such DTM activity and it claimed the revenue receipt from the same as software development activity. It had been detected that assessee had made similar claims for earlier Assessment Years also. 6. None of these facts of DTM activity conducted, onshore revenues earned without any link to the STP Undertakings in India have been disclosed by the assessee in the returns of income and the Annual Reports submitted. It is also seen that failure on the part of assessee to disclose fully and truly all materials with regard to deduction u/s 10A has resulted in allowing excess deduction u/s 10A for AY 2005-06.” 35. It is the contention of Sri Percy Pardiwalla, learned Senior Counsel appearing on behalf of Ms.Tanmayee Rajkumar for the petitioner/assessee, that the reasons for re-opening would indicate the stand of the Revenue that the deputation of technical man-power relating to software development activity conducted abroad had no link with the STP units in India. Further, that such activity was known as body shopping and eligible for deduction under Section 80HHE of the I.T. Act and was not an activity that was eligible for deduction as regards expenses under Section 10A of the I.T. Act. 36. It is submitted that this very aspect has been a subject matter of consideration by the Assessing Officer while passing a fresh Assessment Order on 24.12.2010 consequent to the directions made in the order under Section 263 of the I.T. Act dated 22.12.2009 vide F.No.17/263/CIT-1/2009-10 (Annexure-‘C’). It is submitted that in the Assessment Order passed, while computing deduction under Section 10A there was exclusion of expenditure relating to the visits of the Company’s employees as well as expenses incurred relating to software development services to the clients amounting to Rs.263,01,80,361/-. Accordingly, it is contended that the very aspect of profits from rendering technical services in context of export of computer software having been examined and a decision based on legal appreciation having been arrived at, cannot be reconsidered subsequently in reassessment proceedings, as it is impermissible to reopen assessment on the basis of “mere change of opinion”. 37. The Apex Court in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd[5] [Kelvinator] has reiterated the settled position that mere change of opinion cannot be a ground for re-opening concluded assessments. The observations made at paras-5, 6, 7 and 8 are extracted as herein below: “5. On going through the changes, quoted above, made to Sectio