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2017 (4) TMI 871 - AT - Income TaxValidity of reopening of assessment - not adjusted the loss of the STP units at Hyderabad and Gurgaon against the profit from other section 10A units swelling it s claim for deduction under section10A to that extent - Held that - A perusal of the assessment order dated 26.12.2008 shows that the assessee had in fact claimed deduction at a higher amount i.e. without adjusting the loss (being at Rs. . 268.72 lacs) only during the assessment proceedings (vide letter dated 18.12.2008/PB pg. 29) that per the return of income being upon such adjustment duly supporting it with a certificate from the CA in Form F which on verification appeared correct and allowed on that basis (para 5 of the assessment order). How could then we wonder this form a reason for an income escaping assessment which is clearly a change of opinion barring reassessment. - Decided in favour of assessee Merger with Orbitech Solutions Ltd.- assessee had followed pooling of interest method in taking over the assets and liabilities of the amalgamating company - Held that - apart from not claiming any expenditure (claimed @ 1/5th as provided u/s. 35DD) for the current year also surrender that claimed for the earlier years citing the receipt from OBL on that account. In fact if there was any such understanding with OBL it would not have preferred any claim for merger expenses in the first place debiting the said expenditure to the account of OBL in it s accounts. In any case it would on its receipt (of merger expenses) transfer back the expenditure deducted from the General Reserve a/c (falling under the head Reserve 33 lacs being reflected in this account so that it is this balance only which could be transferred directly to the Balance Sheet. This only would be in consistence with what is being stated in the Notes to the Accounts. In other words the assessee s claim is contradicted by its own accounts as well as it s return of income. The AO is thus justified in holding a honest belief that what is being stated is not correct and that therefore income had escaped assessment. The condition of the first proviso to section 147 is satisfied. The reassessment notice is accordingly valid on this count.- Decided against assessee Schedules VII and VIII to the Balance Sheet (as at the relevant year-end) which are in respect of Loans there being no expenditure against which the same could be considered as received. Also the expenditure incurred where and to the extent claimed as a deduction cannot also be considered as having been recovered which would be inconsistent with the assessee s accounts duly audited and the returns duly verified furnished for the current preceding and even succeeding year/s. The same is as other receipts in-asmuch as there is no corresponding obligation to return the value received either in cash or any kind only in the nature of income and rightly assessed as so and in fact to that extent rightly taken in accounts to the income account. As regards the assessee s alternate claim the amount is neither in respect of export nor received in convertible foreign exchange and accordingly there is no basis for it s claim for deduction u/s. 10A or s. 80HHE in its respect. Qua quantum the AO shall verify the assessee s claim in this regard and decide on the foregoing terms on the basis of his factual findings. The onus to prove its claim/s we may add would be on the assessee. The assessee s claim is partly allowed on the foregoing terms disposing the aforesaid grounds of the appeal. Disallowance of legal and professional fee - Held that - reference to the Notes to the Accounts to the assessee s final accounts for AY 2009-10 is part of the legal charges paid to a law firm for acquisition of a US company by the name Data Inc. USA (at USD 6 lacs). The expenditure being in respect of acquisition of a company was thus construed as capital in nature. The primary facts are not disputed; in fact at any stage including before us being rather arising from the assessee s own audited accounts. We accordingly find no infirmity in the said disallowance and confirm the same.
Issues Involved:
1. Jurisdiction of reassessment initiated after four years. 2. Non-adjustment of loss from STP units against profit from other section 10A units. 3. Receipt of Rs. 7.50 crores from Orbitech Ltd. and its taxability. 4. Disallowance of legal and professional fees. Detailed Analysis: 1. Jurisdiction of Reassessment Initiated After Four Years: The appeal contested the reassessment initiated after four years from the end of the relevant assessment year, arguing no failure to disclose fully and truly all material facts and claiming no new or tangible material informed the Revenue’s case. The Tribunal examined the reasons for reopening the assessment and upheld the AO’s action regarding the second reason (receipt of Rs. 7.50 crores from Orbitech Ltd.), finding that the assessee did not disclose fully and truly all material facts relevant for its assessment. This satisfied the condition of the first proviso to section 147, making the reassessment notice valid on this count. 2. Non-Adjustment of Loss from STP Units Against Profit from Other Section 10A Units: The first reason for reopening was that the assessee had not adjusted the loss of the STP units at Hyderabad and Gurgaon against the profit from other section 10A units, inflating its claim for deduction under section 10A. The Tribunal found that the assessee had claimed the deduction without adjusting the loss during the assessment proceedings, which was verified and allowed. This constituted a change of opinion, barring reassessment. Therefore, the reassessment on this ground was invalid. 3. Receipt of Rs. 7.50 Crores from Orbitech Ltd. and Its Taxability: The second reason was the receipt of Rs. 7.50 crores from Orbitech Ltd. during the merger, which the AO considered as income assessable under section 28(iv). The Tribunal found contradictions in the assessee’s claims and accounts, indicating that the receipt was not fully disclosed as a reimbursement for merger expenses. The Tribunal upheld the reassessment on this count, stating the receipt should be considered income unless the assessee provided external evidence supporting it as a capital receipt for merger expenses. The Tribunal directed the AO to verify the assessee’s claim and decide based on factual findings. 4. Disallowance of Legal and Professional Fees: The final issue was the disallowance of Rs. 13.53 lakhs paid as legal and professional fees for acquiring a US company, Data Inc., USA. The AO disallowed the expenditure as capital in nature. The Tribunal confirmed the disallowance, finding no infirmity in the AO’s decision, as the expenditure was indeed for acquiring a company. Conclusion: The Tribunal partly allowed the assessee’s appeal, validating the reassessment for the receipt of Rs. 7.50 crores from Orbitech Ltd. and confirming the disallowance of legal and professional fees. The reassessment on the non-adjustment of loss from STP units was invalidated as a change of opinion. The appeal was partly allowed for statistical purposes, with directions for the AO to verify the assessee’s claims regarding the receipt from Orbitech Ltd.
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