+W.p.(C) 8162/2010Hcl Technologies Ltd v. Asst Commissioner Of Income Tax & Anr

$~36 *IN THE HIGH COURT OF DELHI AT NEW DELHI +W.P.(C) 8162/2010HCL TECHNOLOGIES LTD. ..... PetitionerThrough:Mr. Ajay Vohra, Senior Advocatewith Ms. Kavita Jha and Mr. VaibhavKulkarni, Advocates. Versus ASST COMMISSIONER OF INCOME TAX & ANR.... RespondentsThrough:Mr. Rahul Choudhary andMr. Raghvendra Singh, Advocates. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRIO R D E R %23.11.2016 1.Theassessee/petitionerquestionsareassessmentnoticeunderSections 147/148 of the Income Tax Act, 1961 (hereinafter to be referred as‘the Act’), issued to it on 30.03.2010 in respect of AY 2004-05.Threeissues were sought to be highlighted against the petitioner by the AO whorecorded his reasons to believe that reopening was essential. It was stated –in the AO’s opinion that the claim of set-off under Section 72 of the Act oflosses of the exempt unit under Section 10A of the Act as against the profitsof the non-exempt unit was unjustified.The other two grounds relate todeduction of software licence fee and interest payable to ABN Amro Bank.According to the AO, either disclosure was not adequate or not made, andthat in respect of these, the assessee had not made true and completedisclosure of material facts.2.The Revenue which has filed its counter-affidavit justifies thereassessment notice contending that losses of a legible exempt unit cannot be set-off and relies upon various judgments of the Court. It highlights thatthe assessee filed Form 56F alongwith its returns which was not justified. Inthis respect, learned counsel relied upon the text of Sections 10A(1) and 10A(5) of the Act together with Rule 16F and submitted that the question ofreporting losses does not arise because the profits from the exempt unit areto be disclosed in Form 56F.Elaborating on this part of the “reason tobelieve”, counsel for the Revenue submitted that the filing of the Form itselfresulted in misleading the AO into permitting the losses and the set-off asper the Act which is completely incorrect. Justifying the reasons to believeupon which the reassessment notice was premised, the Revenue urges thatthe full, complete and true disclosure in the circumstances would havemeant that the assessee should have desisted from filing Form 56F in respectof the unit which reported losses. 3.The petitioner who relied upon the grounds highlighted that in thecourse of the scrutiny assessment, queries were specifically raised by theAO with respect to the eligibility of the assessee’s claim for set-off losses ofSection 10A unit as against the profits earned by the other units. Learnedcounsel highlighted the extracts of the AO’s questionnaire which were dulyanswered/replied by the assessee and the relative conclusion in the form ofpermissibility of the set-off as against the total profits recorded in the otherunits. It was submitted that this itself represented the conscious view of theAO and that the assessment should not have been re-opened on a re-appreciation or a better appreciation of the law.4.As far as the other two questions are concerned, learned counselsubmitted that the decision of this Court in Commissioner of Income Tax-IIVs. Maruti Suzuki India Ltd., LAWS (DLH)-2012-10-307 concludes that the expenses towards software were justified and fell in the Revenue’sstream and that the decision in Moser Baer India Ltd. Vs. DCIT & Ors.,2012 (12) TMI 456 supports it with respect to the interpretation of Section43B of the Act vis-a-vis Section 10A of the Act. The assessee had togetherwith its original return filed a note which specifically stated as follows:- “5.The following 5 STP units of the Company areeligible for a deduction under Section 10A of the Act:-eligible for a deduction under Section 10A of the Act:- a)445, Udyog Vihar, Phase-II, Gurgaon, Haryana; b)5, 6 & 7, Udyog Vihar, Phase-II, Gurgaon, Haryana;c)3[rd]Floor, 43-44, Montieth Road Egmore, Chennai;andc)3[rd]Floor, 43-44, Montieth Road Egmore, Chennai;and d) E-33, 34, 35 Sector-11 Noida, UP, and e) No. 8 & 9 G.B. Palya, Off Hosur Road, Bangalore. “5.The following 5 STP units of the Company areeligible for a deduction under Section 10A of the Act:-eligible for a deduction under Section 10A of the Act:- a)445, Udyog Vihar, Phase-II, Gurgaon, Haryana; b)5, 6 & 7, Udyog Vihar, Phase-II, Gurgaon, Haryana;c)3[rd]Floor, 43-44, Montieth Road Egmore, Chennai;andc)3[rd]Floor, 43-44, Montieth Road Egmore, Chennai;and d) E-33, 34, 35 Sector-11 Noida, UP, and e) No. 8 & 9 G.B. Palya, Off Hosur Road, Bangalore. However, these units have suffered a loss during the yearand accordingly, no relief has been claimed by theCompany in respect of these units for the assessment year2004-05.The said units are eligible for a relief undersection 10A of the Act and such relief will be claimed inrespect of export profile of these units in the subsequentassessment years.”and accordingly, no relief has been claimed by theCompany in respect of these units for the assessment year2004-05.The said units are eligible for a relief undersection 10A of the Act and such relief will be claimed inrespect of export profile of these units in the subsequentassessment years.” 5.The Revenue’s contention is that Form 56 F itself was a misleadingdocument that should not have been presented alongwith the return.Acareful reading of the queries raised by the AO in the form of aquestionnaire – which has been annexed together with the writ petition inthis case (dated 22.08.2006), especially queries 1 and 32 to 34 and the replyof the assessee dated 04.09.2006 would reveal that the question of losses ofthe exempt unit vis-a-vis the profits of the non-exempt unit was present inthe mind of the AO. That he did not choose to elaborate on this discussionwould, in our opinion, mean that he accepted it, as is evident from hisconclusion whereby set-off was permitted. 6.What really is the impugned “reason to believe” blows down thereforeto the AO’s opinion, at the fag end of the six years’ period, that the Form56F should not have been filed at all.Unfortunately, the AO does notcategorically say that; he only states that if there are losses, Form 56F isunwarranted. That, in our opinion, is insufficient to uphold the Revenue’scontention that there was no true and material disclosure of facts – there wasmaterial disclosure of all the facts, which was even considered by the AO inthis case.That the AO did not correctly draw the inference or that hisconclusion is based on incorrect premises is not sufficient for a justifiedreassessment notice, which has to be based on something objective outsideof the record. In the present case where a contrary view was expressed bythe AO, that just is not enough to fall within the calculus of permissiblereassessment notice in terms of CIT Vs. Kelvinator of India Ltd. 320 ITR561 (SC). 7.As far as the other issues are concerned, it is plain that both of themare covered by the decisions of this Court. 8.Fortheforegoingreasons,theimpugnednoticeandfurtherproceedings cannot be upheld; they are hereby quashed. 9.The writ petition is allowed in the above terms. S. RAVINDRA BHAT, J. NAJMI WAZIRI, J.