2012 (7) TMI 455 - AT - Income Tax

Whether CIT erred while passing the order under section 263 of the Income Tax Act, 1961 wherein the order under section 263 has been passed based on the change of opinion Held that - On change of opinion, the CIT cannot assume his jurisdiction under section 263 of the Act - Assessing Officer erred in calculating the exemption u/s. 10A of the I.T. Act after deducting the telephone charges from the export turnover - Once an appeal is taken and is decided the original order merges in the appellate order and thereafter it is the appellate order which is operative and enforceable - order of the CIT passed under section 263 of the Act cannot be survived - appeal of the assessee is allowed.

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the Income Tax Act, 1961.
2. Exemption under section 10A on export turnover.
3. Change of opinion by CIT and its impact on jurisdiction.

Analysis:

Issue 1: Jurisdiction of CIT under section 263
The appeal challenged the CIT's order under section 263 of the Income Tax Act, 1961, for the assessment year 2006-07. The CIT found the assessing officer's order erroneous and prejudicial to revenue due to discrepancies in the exemption allowed under section 10A. The CIT remanded the matter back to the assessing officer for verification and disallowance of the deduction after providing the assessee with an opportunity to be heard. The Tribunal held that the CIT's assumption of jurisdiction was based on a change of opinion, which is impermissible under section 263. The Tribunal cited a similar case to support its decision, emphasizing that the CIT cannot reassess deductions based on a subsequent clarification when they were allowed after due verification by the assessing officer.

Issue 2: Exemption under section 10A on export turnover
The dispute centered around the exemption claimed under section 10A on the export turnover of the company. The CIT contended that the company had not received the foreign exchange as claimed, leading to discrepancies in the export turnover and the exemption amount. The assessee argued that the amount shown in Form 56F as export turnover was accurate, supported by receipts transferred through FIRCs and deposits in a foreign bank account before the due date of filing. The company's operations involving the Indian and US branches were detailed, with the Indian company selling software to a US entity for further processing and sale to clients. The Tribunal noted the assessing officer's thorough verification before allowing the deduction, highlighting the correctness of the export turnover amount claimed by the assessee.

Issue 3: Change of opinion by CIT and its impact on jurisdiction
The Tribunal further addressed the impact of a change of opinion by the CIT on jurisdiction under section 263. It emphasized that the CIT's jurisdiction cannot be invoked based on a subsequent clarification or change of opinion when deductions were allowed after proper verification by the assessing officer. The Tribunal underscored the principle that the CIT's assumption of jurisdiction must be based on substantial grounds and not merely on a change of opinion. The decision highlighted the merging of the entire assessment order into the appellate order, rendering the CIT's order under section 263 invalid. Consequently, the Tribunal allowed the appeal, canceling the CIT's order under section 263 dated 31.3.2011.

In conclusion, the Tribunal's detailed analysis of the issues surrounding the CIT's jurisdiction under section 263 and the exemption under section 10A underscored the importance of proper verification and substantial grounds for invoking jurisdiction. The judgment provided clarity on the impermissibility of reassessing deductions based on subsequent clarifications or changes of opinion, ensuring a fair and just application of tax laws.