Commissioner of Income Tax vs Sonata Software Ltd.

These Appeals of the Revenue challenge the order passed by the Income Tax Appellate Tribunal, Mumbai Bench dated 20th January 2012 in Income Tax Appeal Nos. 1253 to 1256. The assessment year is 1999-2000 and 2000-2001. The two Appeals of the year 2006 are by the Assessee and two by the Revenue. They were directed against four orders of the Commissioner of Income Tax Appeals-VII, Mumbai for assessment years 1997-1998 to 2000-2001.

We are concerned in these Appeals with the assessment year 1999-2000 and 2000-2001.

The contention of Mr. Chhotaray, learned Counsel, appearing on behalf of the Revenue is that the Appeals raise a substantial question of law. The questions of law are formulated at pages 15 and 16 of the paper book of Income Tax Appeal No. 947 of 2012 and 14 and 15 of paper book of Income Tax Appeal No. 856 of 2012. It is urged that the Tribunal has erred in law in not considering the merits of the claim or the grounds on which the assessment was reopened. Mr. Chhotaray submits that the Tribunal was aware that the assessment was reopened within four years from the end of the relevant assessment year. That power of the Assessing Officer is very wide. The provision has been amended from 1st April, 1989. Therefore, the Tribunal erred in holding that the reassessment has been erroneously reopened. Further, the Tribunal''s conclusion that the reopening of the assessment is vitiated by change of opinion is totally perverse. The Assessing Officer has not considered the applicability of section 40(a) of the Income Tax Act, 1961. There was no opinion formed or conclusion reached by him on that count. If that is the position, then the Tribunal could not have concluded that the reopening is vitiated by a change of opinion. Mr. Chhotaray would rely upon the judgments of the Hon''ble Supreme Court in the case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., and the earlier judgments of the Hon''ble Supreme Court. He also relies upon the Division Bench Judgment of this Court in the case of Export Credit Guarantee Corporation of India Ltd. Vs. Additional Commissioner of Income Tax and Others, .

He therefore submits the Appeals be admitted.

On the other hand, Mr. Pardiwalla, learned Senior Counsel, appearing on behalf of the Assessee would submit that the Tribunal''s findings and conclusions cannot be termed as perverse. The Tribunal has opined and very clearly that the Assessing Officer was satisfied with the claim of the Assessee and did not make any disallowance under section 40(a) of the Income Tax Act of the payments made to non-residents for software. If there is no attempt on the part of the Department to prove anything in relation to trading of software which was imported by the Assessee, then, the conclusion reached is that the Assessing Officer and the Department was satisfied that there is no occasion for applying this legal provision. In any event, the assessment is reopened without any basis. The Assessing Officer in the order sheet dated 10th October 2003 recorded the so called reason for reopening the assessment in that he has made reference to substantial payments made to foreign parties for license to use of software. If the Assessee is trading in software and the basis for reopening assessment is payment made to foreign parties for license to use software, then, further particulars and details ought to have been set out as to why section 195 of the Income Tax Act is applicable. That on such payments tax has to be deducted at source should have been indicated with sufficient particulars. The attempt to reopen is by relying upon an order passed by the Commissioner of Income Tax having jurisdiction over one Lucent Technologies Ltd. Without indicating as to how the Assessee stands on the same footing as Lucent Technologies Ltd. and whether the Department view therein would apply to the Assessee''s case it was not open for the Assessing Officer to reopen the assessment. Therefore, the Tribunal has found that this is nothing but a change of opinion and which cannot be the basis for reopening the assessment even within the permitted period of four years. The essential ingredients enabling reopening of the assessment are thus not satisfied is the conclusion reached and which a possible one is. There is no perversity therein so as to enable this court to interfere in its further appellate jurisdiction.

With the assistance of both sides we have perused the Memo of Appeals and all Annexures thereto including the copy of the order sheet dated 10th October 2003 which has been produced for our perusal. Upon perusing the same carefully and together with the order of the Tribunal we are of the opinion that the Revenue Appeals have no merits. The Assessing Officer in the assessment order has referred to the facts. He has held that the Assessee Company is one of the leading names in providing services of trained computer man power to foreign as well as domestic clients. It has filed a return of income and claimed amount of deduction under section 10A. Scrutiny Assessment proceedings were initiated, the questionnaire issued and together therewith there are responses from the Assessee. The relevant details are furnished; all the books were filed with the return. The business activities are referred to in great details and rather bifurcated and trifurcated. The trading imported software in India is one of the components in the business activities. In a very lengthy order and running into more than 30 pages the Assessing Officer has not found that there is any payment made to foreign parties for license to use software, rather the activity or component of trading of imported software in India has been referred. In such circumstances, the Tribunal concluded that the reasons which have been assigned to reopen the assessment are nothing but reflecting a change in the opinion. That cannot be the basis for reopening the same is the settled legal position and in that regard the Tribunal has not only referred to the judgment of the Hon''ble Supreme Court in the case of Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, but the other judgments. The recent judgments have also be noted and a finding of fact which has been recorded by the Tribunal is that there is no tangible material based on which the Assessing Officer can come to a conclusion that the payment made by the Assessee to foreign parties for software was a payment for license to use the software. The reliance by the Assessing Officer on an order passed by the Commissioner of Income Tax (Appeal) having jurisdiction over some other Assessee cannot be the sole basis for reopening the assessment and forming the belief that income chargeable to tax in the hands of the present Assessee has escaped assessment. In the absence of relevant materials and particulars substantiating and proving these reasons and grounds the Tribunal concluded that the reopening is purely on a change of opinion. We do not see how such a conclusion of the Tribunal can be termed by the Revenue as totally perverse or vitiated by an error of law apparent on the face of the record.

We are not unmindful of the decisions and the view taken by this Court and the Hon''ble Supreme Court in binding judgments. Pertinently in both judgments relied on by the Revenue we find that the Court''s jurisdiction under Article 226 of the Constitution of India was invoked by the Assessee to challenge the reasons or the basis for reopening the assessment. In considering that argument and within the limited jurisdiction of this Court that this Court pointed out that so long as there are reasons and which constitute the belief for reopening the assessment whether they are established or proved is something which cannot be decided in the writ jurisdiction. Then, the law must be allowed to take its course. Meaning thereby the Assessing Officer should be allowed to pass an order relying upon the contents of that notice or the reasons based on which it is issued. It is in that context that the Hon''ble Supreme Court in the case of the Assistant Commissioner of Income Tax vs. Rajesh Jhaveri(supra) outlines the ambit and scope of section 147 and concludes that if the Assessing Officer has reason to believe that income and escaped assessment it confers jurisdiction to reopen the same. The reasons therefor or their adequacy or sufficiency is not something which a writ court can probe or go into and in such details as is desired by the Assessee. We do not see how such conclusions go counter to the view taken by the Tribunal in this case. The ambit and scope of these powers being clear, in no case they enable the Assessing Officer to reopen the assessment on mere change of opinion. Why in these cases he has been faulted has been clarified by the Tribunal and by assigning cogent and satisfactory reasons which are consistent with the materials placed before it. In such circumstances, we are unable to agree with Mr. Chhotaray that the Tribunal''s order is perverse. If it is not so then no substantial question of law arises in these Appeals. On the conclusion that the Tribunal reached it did not find or deemed it necessary to go into the merits of the grounds on which the assessment is reopened. Equally that is a permissible course and in the given facts and circumstances. The Appeals are therefore dismissed. No costs.