Lcc Infotech Limited, Kolkata vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA [Before Shri P. K. Bansal, AM & Shri Mahavir Singh, JM]

I.T.A No.1055/Kol/2010 Assessment Year: 2001-02 Income Tax Officer, Ward-2(3) Vs. M/s L.C.C.Infotech Limited Kolkata P-16, CIT Road, Kolkata-700 014 (PAN: AACCA2580J) (Appellant) (Respondent)

Date of hearing: 09.04.2015 Date of pronouncement: 07.05.2015

For the Appellant: Shri Prakash Nath Barnwal, JCIT, Sr. DR For the Respondent: Shri Subash Agarwal, Advocate

ORDER Per Shri Mahavir Singh, JM:

This appeal by revenue is arising out of order of CIT(A), Jalpaiguri in appeal No. 326/CIT(A)-1/Wd-2(2)/07-08 dated 04.03.2010. Assessment was framed by ITO Ward- 2(2), Kolkata u/s. 254/143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2001-02 vide his order dated 28.12.2006.

2. The only issue in this appeal of revenue is against the order of CIT(A) in accepting the revised computation of total income at lower figure than the returned income u/s 148 of the Act without revising the balance-sheet and profit and loss account filed along with the return income u/s 148 of the Act. For this, Revenue has raised following three grounds:-

"1. That the Ld. CIT(A) has erred on the facts and circumstances of the case and in law in directing the assessing officer to accept the revised computation of total income at Rs.2,07,85,537/- in the return filed u/s. 148 as against the total income assessed in the assessment u/s. 143(1) at Rs.4,04,03,267/- (both figures being before deduction u/s. 10A of the IT Act, 1961).

2. That in doing so Ld. CIT(A) has erred in accepting assessee's contention and additional evidence in the form supplementary auditor's report although the relevant entries were not there in the books of account for A.Yr. 2001-02 and no revised Balance Sheet and Profit & Loss A/c was filed along with the return u/s. 148 of the Act.

3. The Ld. CIT(A) has erred is not appreciating the decision of the Hon'ble Supreme Court in case of CIT VS Sun Engineering Works (P) Ltd. (198 ITR-297)."

2 ITA No.1055/K/2010 M/s LCC Infotech Ltd. AY 2001-02

3. Briefly stated facts are that assessee is a corporate body engaged in computer training and software development. During the relevant previous year, the assessee was registered as software unit under STP, made Project Exports to certain parties. The profit from such project export was exempted u/s 10A of the Act. The assessee-company field returns of its income showing the total income at Rs.51,51,190/- after claiming a deduction therein of Rs.3,52,52,076/- u/s 10A of the Act. The auditor's certificate in Form No. 54F in respect of the said claim of deduction was also annexed with the return of income, which was duly accepted u/s 143(1). In the said certificate in Form No. 54F dated 29.08.2001, it was stated by the auditor that till the date of signing of the report certain amounts against project exports remain unrealized. On the basis of the said observation, the Assessing Officer issued a notice u/s 148 of the Act. During the course of said proceedings, u/s 147 of the Act, the filed a supplementary auditor's report dated 15.07.2004 claiming the profit from software export at a reduced figure Rs.1,56,34,346/- because of net profit as shown in profit and loss account at Rs.5,60,62,177/- was reduced to Rs.3,64,44,447/- due to the sales return amounting to Rs.1,96,17,730/- against the project exports. But the AO without accepting the said claim of sales return took the net profit at Rs.5,60,62,177/- for the computation purpose and after allowing the claim u/s. 10A to the extent of Rs.1,54,51,000/- assessed the total income at Rs.2,49,52,270/-. Being aggrieved with the order of AO passed u/s 147/143(3) assessee preferred appeal before CIT(A) which was dismissed. On further appeal, this Tribunal vide its order passed on 06-01-2006 in ITA No.1877/Kol/2005 restored the issue to the file of AO to examine the matter afresh as to why the net profit was taken at Rs.5,60,62,177/- as against of Rs.3,64,44,447/- shown by the assessee. However, in the fresh assessment proceedings, the AO again taking the net profit at Rs.5,60,62,177/- computed the total income of Rs.2,49,74,150/-. For this, the AO recorded the following findings:-

"17. Moreover, since the proceedings u/s 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, it cannot be allowed to be converted as 'revisional' or 'review' proceeding at the instance of the assessee in CIT vs. Sun Engineering Works Pvt. Ltd. IXT was held that 'a matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as "escaped income". It was further held that "even in cases where the claims of the assessee 3 ITA No.1055/K/2010 M/s LCC Infotech Ltd. AY 2001-02

during the course of reassessment proceedings relating to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of "reassessment"

cannot be reduced beyond the income originally assessed". In the instance case the claim of sales return of Rs.1,96,17,730/- has been introduced to reduce not only the export proceeds/total turnover but also export profit/total profit. But the said sales and profits were neither altered by the Revenue before the proceedings u/s. 147 nor the same were agitated ever by the assessee before initiation of proceedings u/s. 147 of the Act. As such in the instance proceedings income from the business (export/total) cannot be allowed to be reduced beyond the income originally assessed. As such net profit from the business is being taken at Rs.5,60,62,177/- originally claimed by the assessee and accepted by the AO as against the fresh claim of the assessee - reducing the same in proceedings u/s. 147 to Rs.3,64,44,447/-.

18. In views of above export turnover is being taken at Rs.1,54,51,000/- the amount repatriated within the prescribed period and deduction allowable u/s. 10A of the Act is being calculated accordingly on the basis of original turnover and profit figures filed with the original return at Rs.1,54,29,116/-"

4. Aggrieved, assessee preferred appeal before CIT(A), who accepted the revised computation of total income filed during the course of re-assessment proceedings u/s. 147 r.w.s 143(3) of the Act in his order, which reproduced as under:-

"A careful perusal of the assessment order under consideration in this appeal, the assessment order of the AO and the submissions made on behalf of the Appellant leads same to the view that the AO's belief that the net profit was reduced on the basis of the Auditors' 'Supplementary Report' would not be valid as the Word 'supplementary' means effectively enhancing or expanding something and not negating it. In his rival submission, the A/R contended that the view of the AO is incorrect as the supplementary report did not mean that there should be an increase in figures but meant to make further comments and/or notes to be given by the auditor. In my opinion a "supplementary Report" amplifies the findings if any relating to any kind of modification in any form for giving effect to the original report. As such the total sales shown in the audited accounts required to be reduced by the sales returned of Rs.1,96,17,730/- on the basis of the auditor's supplementary certificate.

With respect to the view of the AO concerning the inadmissibility of the auditor's supplementary report and the Auditor's amended report u/s 10A of the IT Act in the course of assessment proceedings u/s. 147, his reliance upon the case of CIT V Sun Engineering Works (P) Ltd (1999) 198 ITR 29T (SC) bears mention. The A/R of the Appellant stressed that in the above case, the matter before the Hon'ble Supreme Court concerned loss that was not allowed with respect to belated returns. Furthermore, the assessee, on his appeal being dismissed by the Ld. A.A.C. did not prefer any second appeal. Thereafter, on being reassessed u/s 147 of the IT Act on another issue, the assessee re-agitated this issue of loss also before the Appellate authorities. This however is not the case here. There being no re-agitation of any issue as, the original assessment was completed u/s 143(1) and there being no decision of any appellate authority or the appealed order of assessment being passed as per direction of the Hon'ble ITAT. The return u/s. 148 was filed well before the Hon'ble ITAT's order, thus the question of finality of assessment does not arise. There was no change in the returns filed u/s 139 and u/s 148. The Ld. A/R submitted that the assessee could file a revised computation at any time before the final computation of total income by the AO and reliance was placed on various decisions as noted below:-

(i) Bihar Co-operative Bank -vs-CIT in 39 ITR 114 (SC) 4 ITA No.1055/K/2010 M/s LCC Infotech Ltd. AY 2001-02

(ii) N.C. Srinivasam -vs- CIT in 211 ITR 36 (MAD) (iii) Smt. SNEHALATA -vs-CIT in 61 ITR (Allahabad)

The Ld A/R also relied on the judgment of the Hon'ble ITAT, Kolkata in the case of ACIT

-Vs-Blue Chip Capital Market Pvt Ltd in ITA No.2211/Kol/2004. The case relied upon by the Ld. A/R states the well stated position that an assessee can file a revised computation before the final computation of total income. The Ld. A/R also submitted that the facts of the cases cited by him before the AO had not been distinguished by the AO with the facts of the case of Sun Engineering 198 ITR 297 supra. In the appellant's case the Return of Income was processed u/s. 143(1). Further no fresh issue was agitated after the filing of the return in response to notice u/s. 148 of the Income Tax Act. A perusal of the assessment order shows that the AO's view that the supplementary report effectually reduces everything rather than enhancing anything appears to be misplaced and misconstrued. Supplementary as a word means supplementing or clarifying something. The AO's conclusion that "as there was nothing left for completion in the supplementary report filed with the return u/s. 148 etc. side steps the main issue which is what the supplementary report is all about as it clarifies the sales return to and to certify the deduction u/s. 10A of the reduced figure of Rs.1,56,34,346/- as against the original clam of Rs.3,52,076/-". This main issue has only been restated by the AO from the earlier order.

In the circumstances, I find it difficult to sustain the order of the assessing officer and therefore the computation of the net profit by the AO is to be reconsidered in the light of my observations above. The Appellant claim that the net profit be taken at Rs.3,64,44,447/- is reasonable in the circumstances as it is backed by a competent auditor's report u/s. 10A of the IT Act.

This ground is allowed. The appellant gets the consequent relief.

In view of the above, the AO is directed to re-compute the total income after entertaining the Supplementary Auditor's certificate and the modified report u/s. 10A of the Income Tax filed before him."

Aggrieved, now Revenue is in appeal before us.

5. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee was registered as software unit under STP, made Project Exports to certain parties. The profit from such project export was exempted u/s 10A of the Act. The assessee-company field returns of its income showing the total income at Rs.51,51,190/- after claiming a deduction therein of Rs.3,52,52,076/- u/s 10A of the Act. The auditor's certificate in Form No. 54F in respect of the said claim of deduction was also annexed with the return of income, which was duly accepted u/s 143(1). In the said certificate in Form No. 54F dated 29.08.2001, it was stated by the auditor that till the date of signing of the report certain amounts against project exports remain unrealized. On the basis of the said observation, the Assessing Officer issued a notice u/s 148 of the Act. During the course of said proceedings, u/s 147 of the Act, the 5 ITA No.1055/K/2010 M/s LCC Infotech Ltd. AY 2001-02

assessee filed a supplementary auditor's report dated 15.07.2004 claiming the profit from software export at a reduced figure Rs.1,56,34,346/- because of net profit as shown in profit and loss account at Rs.5,60,62,177/- was reduced to Rs.3,64,44,447/- due to the sales return amounting to Rs.1,96,17,730/- against the project exports. But the AO without accepting the said claim of sales return took the net profit at Rs.5,60,62,177/- for the computation purpose and after allowing the claim u/s. 10A to the extent of Rs.1,54,51,000/- assessed the total income at Rs.2,49,52,270/-. Apart from not accepting the revised accounts, the AO has not given any basis for computing higher total income. Simply the AO has not accepted the revised accounts and for that no reasoning were adduced by the AO. The assessee before the AO filed documentary evidence in respect to the sales returns which were included in the revised accounts by the assessee. On these documentary evidences also, the AO has not commented and simply ignored the sales returns. Even the AO has not rejected the books of account and without rejection he cannot deny the claim and reduce the sale returns. In the present facts of the case, we find that the assessee filed a supplementary auditor's report dated 15.07.2004 claiming the profit from software export at a reduced figure Rs.1,56,34,346/- because of net profit as shown in profit and loss account at Rs.5,60,62,177/- was reduced to Rs.3,64,44,447/- due to the sales return amounting to Rs.1,96,17,730/- against the project exports. Once this fact has not been negated by the AO, he has no authority to enhance the income. In such circumstances, we confirm the order of CIT(A) and this issue of revenue's appeal is dismissed.

6. In the result, appeal of Revenue is dismissed.

7. Order is pronounced in the open court on _07/05/2015.

Sd/- Sd/- (P. K. Bansal) (Mahavir Singh) Accountant Member Judicial Member

Dated : 7th May, 2015

*Dkp/P.S 6 ITA No.1055/K/2010 M/s LCC Infotech Ltd. AY 2001-02

Copy of the order forwarded to:

1. APPELLANT - ITO Ward-2(2), Aayakar Bhawan, P-7. Chowringhee Square, Kolkata-69 2 Respondent -M/s L.C.C. Inftech Ltd. P-16, CIT Road, Kolkata-14

3. The CIT(A), Jalpaiguri

4. CIT, Jalpaiguri

5.

DR, Kolkata Benches, Kolkata

/True Copy, By order,

Asstt. Registrar.