L & T Infocity Ltd., Hyd, Hyderabad vs Assessee

This is an appeal by assessee against the order of the Commissioner of Income Tax(Appeals)-V, Hyderabad dated 15-12-2010 for the Assessment Year 2002-03. The issues in this appeal are with reference to the jurisdiction to complete assessment and addition made while computing the income u/s.115JB of the Income Tax Act (Act).

:- 2 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

2. We have heard Ld.Counsel for assessee, Ld.DR and perused the Paper Book placed on record.

3. Briefly stated, assessee-company is engaged in the business of development and maintenance of infrastructure facilities for IT/software and related companies. For the AY.2002-03, the assessee-company filed its return of income on 29-10-2002 admitting total income at NIL after claiming deduction u/s.80IA of the Act and the same has been processed u/s.143(1) of the Act. Thereafter, the Assessing Officer found that while arriving at the tax payable u/s.115JB of the Act, the assessee-company had added provision for taxes of Rs.1,40,98,185/- but omitted to add provision for deferred tax of Rs.4,55,57,386/- and issued notice u/s.148 of the Act. Assessee objected before the Assessing Officer about the jurisdiction and adjustments being made, however, AO rejected the same. Assessment was completed determining the book profit u/s.115JB at Rs.18,42,89,994/. Before the Ld.CIT(A), assessee has raised various grounds inter alia objecting to the issuance of notice u/s.143(2), which assessee's claims to be barred by limitation. In addition to that assessee also objected to the re-opening of the assessment on the reason that Assessing Officer could not have initiated proceedings for re-opening when the amendment to the Act has come up subsequently on 28th February, 2008 where as proceedings were initiated on 17th May, 2007. It was further contended that re-opening was on mere change of opinion without any factual foundation. Assessee also contended that adjustments u/s.115JB cannot be made consequent to the retrospective amendment. Ld.CIT(A) has considered all these objections and rejected them.

:- 3 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

4. On the issue of notice u/s.143(2) being barred by limitation thereby making entire proceedings null and void, Ld.CIT(A) considered the same as under:

"4.2 During appeal proceedings, the first issue raised was that the notice u/s 143(2) issued on 17.10.2008 was barred by limitation. The appellant contended that the original return was furnished on 29.10.2002 and the revised return on 06.9.2003. The return in response to notice U/s 148 was filed on 11.6.2007. Therefore, notice u/s 143(2) could have been issued only upto 30.9.2008 whereas the Assessing Officer issued it on 17.10.2008. The appellant placed reliance on the following ratios:

1. ACIT Vs Smt Jyoti Devi (2004) 84 TTJ 689 (Jd-ITAT)

2. ITO Vs Smt Sukhini P Modi (2008) 112 ITD 1 (Ahmd-ITAT)

3. AClT Vs Muthoot Leasing & Finance Ltd (2008) 21 SOT 281 (Coch-ITAT)

4.3 I have considered carefully the facts and arguments. There is no doubt that the notice U/s 143(2) has to be issued within 12 months from the end of the month in which the return of income was furnished. Clearly, the notice issued on 17.10.2008 is barred by limitation. However, with effect from 01.4.2008, the Finance Act, 2008 has introduced Section 292BB, which is quoted as below:

"Section 29BB:

Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is requiredtobeservedupon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was-

(a) not served upon him; or

(b) not served upon him in time; or

(c) served upon him in an improper manner:

Provided that nothing contained in this section shall apply where the assessee as raised such objection before the completion of such assessment or reassessment."

4.4 A plain reading of the above section which was in force on 17.10.2008 i.e. on the date of issue of notice u/s 143(2) clearly shows that if an assessee has not raised any objection to the issue of notice during the assessment proceedings, then that plea cannot :- 4 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

be taken later on during appeal proceedings. An examination of the Assessment record shows that at no stage during the assessment proceedings did the appellant object to the issue of notice U/s143(2).

In fact, on 29.01.2009, the appellant wrote the following to the Assessing Officer:

"3. Conduct of the assessee during the assessment proceedings

It is reiterated that the assessee has voluntarily and in good faith, made full and true disclosure, in its return of income and books of account. Further, the assessee has voluntarily extended full co-operation to the Revenue authorities during the assessment proceedings. This is proved by the fact that the entire assessment is based on the facts provided/discussed by the assessee itself. It is not out of place to mention that the assessee co-operated with the revenue authorities in all enquiries relating to the subject assessment and provided all requisite information and documents in response to the various queries raised, so as to enable a complete understanding of the facts related to the case .

We respectfully submit that there is no evidence on record of nay omission on the part of the assessee in furnishing the particulars relevant for assessment or concealment of income. In fact, the entire assessment has been framed based on the information and particulars which were furnished by the assessee. Further, there was no deliberate act of defiance of the law by the company and the company's claim in its return of income is based on the judicial precedents and bonafide belief in the legal position adopted.

In light of the well settled an established principles of law as illustrated above, it is submitted that initiation of penalty proceedings without any legal foundation is not sustainable".

4.5 It is clear from above that the appellant did not raise any objection to the issue of notice U/s143(2) as discussed earlier. Therefore, Section 292BB introduced w.e.f.01.4.2008 is clearly applicable to the case of the appellant. Accordingly, the first issue is decided against the appellant and in favour of the revenue. The Assessment proceedings are not vitiated by the issue of notice U/s 143(2) on 17.10.2008."

5. With reference to the issue of re-opening on the amendment subsequently brought out, Ld.CIT(A) noticed that Assessing Officer has :- 5 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

communicated the reasons differently whereas he has recorded the reasons correctly. He has extracted the reasons in para 5.2 and analyzed the facts and dismissed the grounds on this issue. Coming to the merits u/s.115JB, assessee's objections were also considered and rejected by stating as under:

"7.1 I have considered carefully the aforementioned arguments and facts and I find that the following retrospective amendment was introduced in Section 115JB.

"Section 115JB - Special provision for payment of tax by certain companies

(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent.

(2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts 11 and III of Schedule VI to the Companies Act, 1956 (1 of 1956) :

Provided that while preparing the annual accounts including profit and loss account,

(i) the accounting policies;

(ii) the accounting standards adopted for preparing such accounts including profit and loss account;

(iii) the method and rates adopted for calculating the depreciation,

shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) :

Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,

(i) the accounting policies;

:- 6 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

(ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation,

shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year.

Explanation [l]. For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by

a) the amount of income-tax paid or payable, and the provision therefor: or

b) the amounts carried to any reserves, by whatever name called other than a reserve specified under section 33AC; or

c) the amount or amounts set aside to provisions made for meetinq liabilities, other than ascertained liabilities; or

d) the amount by way of provision for losses of subsidiary companies; or

e) the amount or amounts of dividends paid or proposed; or

f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or

g) the amount of depreciation,

h) the amount of deferred tax and the provision therefor,

i) the amount or amounts set aside as provision for diminution . in the value of any asset,

if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,]]

................................................................................................................................ ............................................................................................................................ "

7.2 A plaint reading of the above leaves no doubt that the addition made by the Assessing Officer is in order and there is no room for any :- 7 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

ambiguity or discussion on the same".

6. Assessee is aggrieved and raised the following grounds:

1. Erred in confirming the order passed by the Ld.AO which is barred by limitation of time as the same has been passed pursuant to a time barred notice u/s.143(2).

1(a) Erred in confirming that the Ld.AO acted as per law, though reasons sought by the appellant for re-opening the assessment were not provided within a reasonable time and disposing the jurisdictional challenge before proceeding with the assessment. That the re-assessment proceedings are void ab-initio as the same were initiated on the basis of a non-existent reasons. The learned AO has cited a non-existent amendment made to section 115JB as reasons for re-opening the assessment. The amendment cited by the learned AO was tabled in the parliament only on February 28, 2008 whereas the reassessment proceedings were initiated on May 17, 2007.

1(b) Erred in confirming that the Ld.AO acted as per law in re-opening the assessment on a mere change of opinion without any factual foundation or documentary evidence on record to support a valid reason in relation to escapement of income.

2. Erred in confirming that the adjustments made to the book profits of the appellant u/s.115JB of the Act based on a retrospective amendment as correct.

3. Erred in confirming the interest levied u/s.234D of the Act, which is otherwise applicable only from Assessment Year.2004-05.

4. The appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.

7. Ld.Counsel referring to the fact sheet submitted that the notice issued u/s 143(2) was barred by limitation. It was further submitted that reliance of Ld.CIT(A) on Section 292BB is not correct as assessee has objected to the jurisdiction before AO. Referring to submissions made before AO vide letter dt.28-11-2008, Ld.Counsel submits that assessee having objected to the time barred nature of the notice, the provisions of section 292BB are not applicable. Since notice was served beyond the time provided under the Act, assessment u/s.147 is not :- 8 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

valid. Coming to the merits of the addition, Ld.Counsel has fairly admitted that retrospective amendment makes it obligatory to add provision for deferred tax., whereas the same provisions were not available at the time of filing return or at the time of filing return in response to notice u/s.147. Therefore, addition made by the Assessing Officer is not proper.

8. Ld.DR in reply, however, submitted that the letter written by assessee is not clear whether it was relating to the service of notice u/s.143(2) or service of notice u/s.148. Since assessee co-operated before the Assessing Officer, the objection raised by assessee does not survive. Ld.DR relied on the decision of the co-ordinate bench in the case of M/s.Navayuga Spatial Technology Pvt. Ltd., in ITA No.1557/Hyd/2010 dt.26-12-2011 for this proposition.

9. Before coming to the merits as contended in Ground No.2, it is necessary to deal with Ground No.1 on the issue of jurisdiction. As rightly pointed out by the Ld.CIT(A), the Assessing Officer did record 'reasons to believe' and initiated proceedings much before the amendment to the Act was carried out subsequently. However, since assessee has asked for the reasons subsequently after a year, Assessing Officer instead of communicating the exact reasons as recorded by the Assessing Officer in the order sheet, communicated in his own way relying on the retrospective amendment. Consequently, assessee has objected to the re-opening before the Ld.CIT(A). Since Ld.CIT(A) clarified on the issue of exact noting in the order sheet, we are of the opinion that the objections raised by assessee that assessment was re-opened on non-existent amendment, raised on Ground No.1(a) and change of opinion in Ground No.1(b) does not survive. To have a 'change of opinion', there should be an assessment u/s.143(3) originally. In this :- 9 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

case there is no assessment u/s.143(3) done earlier and only an intimation u/s.143(1) was issued. The Hon'ble Supreme Court of India in the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd., (291 ITR 500) (SC) has held that an intimation u/s.143(1) is not an assessment and therefore, there is no occasion for the Assessing Officer to arrive at an opinion. Therefore, these sub grounds raised as 1(a) and 1B are rejected.

9.1 Coming to the main ground raised in Ground No.1 that the notice u/s.143(2) issued was barred by limitation of time, the assessee has furnished the sequence of dates as under:

S.No. Date Particulars

01 29-10-2002 Original return of income

02 06-05-2003 Intimation u/s.143(1)

03 05-09-2003 Revised return of income

04 22-03-2004 Sec.154 order 05 31-03-2004 Intimation u/s.143(1)

06 15-05-2007 Notice u/s.148

07 11-06-2007 Return of income

08 17-10-2008 Notice u/s.143(2)

Bar of Limitation - The proviso to Sec.143(2) stands substituted w.e.f.01-04-2008.

Prior to substitution, no notice thereunder may be served after the expiry of 12 months from the end of the month in which the return was furnished (30-06-2008) W.e.f. 01-04-2008, no notice may be served after the expiry of six months from the end of the financial year when the return was filed (30-09-2008) :- 10 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

09 17-10-2008 Reasons for reopening sought 10 21-11-2008 Reasons for reopening supplied 11 28-11-2008 Written objection before AO on assumption of jurisdiction (Pg.39, internal pg.4)

We have seen copy of the notice issued by the Assessing Officer dt.01-10-2008. As per Sec 143(2) the notice has to be issued with in twelve months from the filing of return. However, proviso to Sec.143(2) stands substituted w.e.f.01-04-2008. Prior to substitution, no notice there under may be served after the expiry of 12 months from the end of the month in which the return was furnished. That date was upto 30-06-2008. Consequent to substitution of proviso, period got extended upto 30-09-08 in this case. Thus, notice can be served upto the expiry of six months from the end of the financial year when the return was filed ie. upto 30-09-2008. Therefore as per the statutory provision, the notice could have been issued/ served on or before 30-09-2008. However, Assessing Officer has issued the notice dt. 01-10-2008,which was immediately served. Assessee has appeared on 17-10-2008. As the assessment proceedings are pending as on 01-04-2008, the provisions of section 292BB will apply. Only in the case where assessee has objected before the Assessing Officer, the provisions are not applicable. In this regard, Ld.Counsel refers to the following submissions made before the Assessing Officer to rely that assessee has objected to the notice. Para 2 of the letter addressed to Assessing Officer vide letter dt. 28-11-2008 is as under:

"2. Our submission on jurisdiction:

We wish to submit that the re-assessment proceedings suffer from lack of jurisdiction as the same are not based on valid and sufficient reasons, are time barred and not in consonance with principles of natural justice.

:- 11 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

Your goodself has served us with a notice on May 17, 2007 to initiate assessment under section 147 while the reasons cited for reopening of assessment first came into existence only on February 28, 2008. Accordingly your goodself had no reason to believe that income had escaped assessment while issuing the notice under section 148. Further the action of your goodself is not in consonance with principles and procedures as laid down by the Supreme Court in GKN Drive shaft 259 ITR 19 (2003)".

(emphasis supplied)

9.2 As can be seen from the above, what assessee is objecting as 'time barred' is not clear. The context in which the above was submitted to the Assessing Officer indicate that assessee is objecting to the time barred nature of the notice u/s.148 but not notice u/s.143(2). The word 'Time barred' used in the second sentence is clarified by the para given below that it refers to notice u/s.148. There is no reference to either service of notice beyond the time period nor even a reference to notice u/s.143(2). In view of this, we are not convinced with the Ld.Counsel's argument that the word used 'Time barred' refers to the time barred nature of notice u/s.143(2). In our opinion, assessee has not raised any objection on the notice u/s.143(2) before Assessing Officer and therefore provisions of Section 292BB are clearly applicable.

9.3 Co-ordinate bench at ITAT,Hyderabad in the case of M/s.Navayuga Spatial Technology Pvt. Ltd., (supra) has considered similar issue and held as under vide para 5.

"5. As for ground No.2(b), we find that the plea with regard to belated the service of notice under S.143(2), viz. more than 12 months after the month of filing of the return, was not raised before the assessing officer during the assessment proceedings, and such a plea is raised for the first time in the appellate proceedings, that too before this Tribunal. In view of the provisions of S.292BB, mistake on account of belated service of notice is a curable mistake. Since the assessee has not raised such a plea before the assessing officer, and fully participated in the assessment proceedings, the so-called mistake in serving the notice under S.143(2) of the Act, stood cured, on account of the assessee's action in ignoring the same and participating in the proceedings before the assessing officer.

:- 12 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

Learned counsel for the assessee has contended before us that the recently inserted provision of S.292BB, effective from 1st April, 2008, is applicable only from the assessment year 2008-09 only, and since the present appeal relates to assessment year 2005-06, the saving provision of that section does not come to the rescue of the Department. We are afraid, such a plea cannot be accepted, for the reason that the provision of S.292BB is only a procedural one, and as such, it applies to all the pending proceedings, irrespective of the assessment years, to which they relate, as held by the Punjab and Haryana High Court in the case of Om Sons International V/s. CIT(2011) 60 DTR (P&H) 393, wherein it was held-

"....The provision has been made effective from 1st April, 2008 and therefore, shall apply to all pending proceedings. The CBDT issued Circular No.1 of 2009 dt 27th March, 2009 ((2009) 222 CTR (St) 69); (2009)310 ITR (ST) 42) giving explanatory notes on the provisions relating to direct taxes contained in Finance Act, 2008. Clause 42.7 (at p.86 of the report) is relevant which relates to applicability of this provision and reads thus- :

"42.7 Applicability: This amendment has been made applicable w.e.f. 1st April, 2008. This means that the provision of new s.292BB shall apply to all proceedings which are pending on1st April, 2008.

........"

We are also supported in this behalf by the decision of the Special Bench of the Tribunal in Kuber Tobacco Products (P) Ltd. V/s Dy. CIT(117 ITD

273), wherein it was held that by insertion of S.292BB, right of the assessee to challenge the validity of assessment or reassessment proceedings during the course of appellate proceedings has been taken away by the statute w.e.f. 1.4.2008. In this view of the matter, we find no merit in ground No.2(b) of the assessee, which is accordingly rejected".

9.4 Hon'ble Special Bench of ITAT in the case of Kuber Tobacco Products (P) Ltd., Vs. DCIT (117 ITD 273) (Delhi) considered the provisions of Section 292BB and its application to the services of notices held as under:

" In the memorandum explaining the provisions of section 292BB reference is made to sub-section (2) of section 143. However, the section does not limit its applicability only to notice under section 143(2). The scope of section is that where an assessee has appeared in any proceedings or has co-operated in any inquiry relating to the assessment or reassessment, then the consequences that would ensue would be that it will be deemed that any notice under any provisions of the Act which is :- 13 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

required to be served on an assessee has been duly served on him and it will further be deemed to have been served in time and in accordance with the provisions of the Act. The assessee is debarred from taking the defence or raise any objection in any proceeding or inquiry that the notice was -

(a) not served upon him;

(b) not served upon him in time; and

(c) served upon him in any improper manner. [Para 23] The assessee has a right of being served with the notice in case proceedings are taken against him and in case of invalid notice the whole proceedings taken pursuant to that notice would be void ab initio (subject to provisions of section 292B) and will have no legal consequences. To overcome such situations section 292BB has been brought on the statute as explained in the memorandum explaining the provisions as well as notes on clauses. As explained earlier, the applicability of section 292BB is not strictly restricted to issue of notice under section 143(2) but it is in respect of other notices relating to any provisions of the Act which include notice to initiate reassessment proceedings and other proceedings also.

[Para 30] It is well-settled that while construing a deeming provision, full effect must be given to the statutory fiction. It should also be carried to its logical conclusion. To that end, it would be proper and even necessary to assume all those facts on which alone the fiction can operate. Therefore, where the statute under section 292BB deems service of notice, it will always include issue of notice, as service cannot be effected without issuance thereof.

Thus, the argument of the assessee, that unless there exists issuance of notice, service thereof cannot be presumed or deemed and section 292BB would not be applicable, could not be accepted. [Para 32] No doubt, the issue of notice as well as service of notice is a procedural section, but when the same has time limitation, the obligation of the department to issue notice within a prescribed time becomes the right of the assessee to receive that notice in time to validly commence the proceedings and to validly complete the same. [Para 33]"

In view of this, we are of the opinion that even though the notice was issued and served beyond the time, it is covered by the provisions of Section 292BB. Therefore, the proceedings are held to be valid. The order of Ld CIT(A) on this is upheld. Ground No.1 of this issue is accordingly rejected.

:- 14 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

10. Coming to Ground No.2, this issue was considered by the Ld.CIT(A), and has already crystalised against assessee, consequent to the retrospective amendment brought out by the Finance Act, 2008. In view of this, the ground raised by assessee has no merit. We accordingly uphold the orders of the Assessing Officer/ CIT(A).

11. Ground No.3 pertains to issue of demand raised u/s.234D. It was the contention that Assessing Officer has raised the demand u/s.234D which is not applicable for the impugned Assessment Year as it was applicable from AY.2004-05. As can be seen from the order of the Assessing Officer, Assessing Officer has raised interest u/s.234D at Rs.9,91,911/- without giving any working, as to how that amount was arrived at. Assessee has objected to the same before the Ld.CIT(A). The Ld.CIT(A) unfortunately has considered the provisions of Section 234B and not 234D vide para 8 of the order.

11.1 After considering the rival submissions, we are of the opinion that this issue requires re-examination by the Assessing Officer. As seen an intimation u/s.143(1), as noted in the assessment order, was issued on 06-05-2003 i.e., before 01-06-2003. The provisions u/s.234D were introduced effective from 01-06-2003 and it was already held by various High Courts that if the refund is issued after that date, interest under Section 234D can be levied, even for the Assessment Years prior to AY.2004-05. Therefore, the crucial issue to be examined is whether the refund was issued prior to 01-06-2003 or later. This aspect was not brought on record nor Assessing Officer gave any detailed working how it is applicable. In the interest of justice, we restore the same to the file of Assessing Officer to calculate the interest according to the provisions of the Act and law on the subject. Assessee should be given due opportunity and a detailed order should be passed, so that the veracity :- 15 -: I.T.A. No. 282/Hyd/2011 L&T Infocity Ltd.,

of the same can be examined by higher judicial authorities if required. With these observations and directions, Ground No.3 is set aside to the file of Assessing Officer and is considered as 'Allowed for statistical purposes'.

12. In the result, appeal is partly allowed for statistical purposes.

Order pronounced in open Court on 16th January, 2015.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 16th January, 2015.

TNMM

Copy to :

1. L&T Infocity Limited, 1Q4-A1, 1st Floor, Cyber Towers, Hitech City, Madhapur, Hyderabad-500 082

2. Deputy Commissioner of Income Tax, Circle-16(1), 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad

3. CIT(A)-V, Hyderabad

4. CIT-IV, Hyderabad

5. D.R. ITAT, Hyderabad.