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TMI Blog2015 (10) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... from the activities of export then assumption of jurisdiction u/s 147 is unsustainable in the instant case in view of the decision of Hon'ble Delhi High Court in the case of Purolator India Ltd. reported in [2011 (11) TMI 365 - DELHI HIGH COURT ]. Since the order of ITAT was passed on 31stMarch, 2008, the AO while recording of reasons on 31st March, 2010 could not have reasons to believe doubting factum of export. Law relating to change of opinion being not permissible for invoking proceedings u/s 147 of the Act is now well settled. Support in this regard can be derived from the decisions of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India reported in (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) and the judgment of Delhi High Court in the case of Usha International Ltd. reported in (2012 (9) TMI 767 - DELHI HIGH COURT ). Moreover after initiating reassessment proceedings doubting factum of export the AO thereafter in the reassessment order has accepted the submission of assessee on this issue in para 3.4 and restricted his findings only on the issue of foreign exchange fluctuation gain. As far as the objection as to the factum of export and issue relating to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi passed u/s. 263 of the Income-tax Act, 1961, revising the reassessment order dated 24.12.2010. Since both these appeals were heard together, both the appeals are decided by this consolidated order. 2. The brief facts of cases are that the assessee-company is engaged in the business of producing customize software/programs for broadcasters like Star TV, BBC, Vijay Television etc. The assessee filed its return of income on 02.12.2003, declaring total income at ₹ 14,41,49,689/-. In this return deduction under section 80HHF of ₹ 12,01,29,653/- was claimed by the assessee. The case was selected for scrutiny and the assessment order u/s. 143(3) was completed on 28.02.2006, assessing the total income at ₹ 26,55,52,542/-. In his order of assessment deduction under section 80HHF of the Act was re-computed by the AO at ₹ 12,06,49,803/-. 2.1 Subsequently, the Assessing Officer reopened the assessment of assessee u/s. 147 by issuing notice u/s. 148 of the Act after recording following reasons : Return of income in this case for A.Y. 2003-04 was filed on 02.12.2003 declaring income of ₹ 14,41,49,689/- after claiming deduction u/s 80HHF of the I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of computation of deduction. The assessee has deliberately included this amount in total turnover and export turnover as a result of which the assessee was wrongly allowed excess deduction under section 80HHF.Moreover, in para (6) of Schedule 15 of audited accounts, it has been clearly mentioned that the company is in the business of producing television software. It nowhere states that it is in the business of export of television software. Nowhere in the return of income has it been clearly mentioned that the deduction under section 80HHF has been claimed excess that the adjusted profits of ₹ 26,37,75,032/- on which deduction under section 80HHF has been claimed include the amount on account of gains on Foreign Exchange Fluctuation. Thus, the assessee has failed to disclose this material fact that gains of ₹ 1,19,64,641/- have also been included for claiming deduction under section 80HHF. Though it has been mentioned that Foreign Exchange Fluctuation gains on remittance are included in the export turnover, but has not been mentioned about the amount on which Foreign Exchange Fluctuation has been gained by eligible profit for the purposes of computation of dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sales. He observed that as per Explanation (f) to sub-section (6) of section 80HHF, profit of the business is worked out after reducing 90% of any receipt by way of brokerage, commission, interest, rent, charges or any other receipts of the similar nature included in the profits and the foreign exchange fluctuation gain comes under any other receipts of the similar nature mentioned in the section itself. Hence, foreign exchange fluctuation gain will not form part of the export turnover and total turnover. He, thus, found that the assessee had wrongly computed the adjusted profit because the foreign exchange fluctuation gain was not included in other income and also the adjusted profit were wrongly calculated by not excluding 90% of foreign exchange fluctuation gains. The Assessing Officer, therefore, held that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. Therefore, the AO formed the reason to believe that the income liable to tax has escaped assessment because of the excess deduction claimed by assessee and allowed by AO u/s. 80HHF in the original assessment proceedings u/s. 143(3). The cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Parliament as evidenced by the language used in subsection (1) of section 80HHF. The statute contemplates a deduction where an assessee, being an Indian Company or a person resident in India, is engaged in the business of export out of India of any software to which the section applies. In such a case, the assessee is allowed, in computing the total income, a deduction to the extent of profits derived by the assessee from the export of eligible items. The deduction, in other words, relates to the 'profits that are derived by the assessee from export. Now it is a well settled principle of law that the expression 'derived from' is of narrower connotation than the expression attributable to'. The expression 'derived' postulates the existence of a direct and proximate nexus with the export activity. The expression 'derived from' was explained in the judgment of Hon'ble Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 129 Taxman 539 in the context of the use of that expression in section 80HH. In that case the assessee had placed a deposit with an electricity board for obtaining the supply of electricity and the submission of the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT Chennai in the case of DCIT v. Astron Document Management (P) Ltd. [2011] 16 taxmann.com 33 (Chennai) where it is held that the exchange fluctuation in EEFC account arising after completion of export activity, did not bear a proximate and direct nexus with the export transaction so as to fall within the expression derived by the assessee. The above decisions are squarely applicable in the case of the appellant. 2.4 The learned CIT(A) also considered various decisions relied upon by the assessee on the issue and observed that the decisions relied on by the assessee are not applicable in the instant case and as such held that the foreign exchange fluctuation gain cannot be regarded as profits derived by the assessee from the export of eligible software items. The learned CIT(A), therefore, confirmed the reassessment order vide impugned order dated 10.01.2013. The assessee has assailed this order by way of appeal No. 1023/Del/2014 before us, inter alia, on the following grounds : 1. That on facts and in laws, the orders passed by both the Assessing Officer (hereinafter referred to as the AO ) and the Commissioner of Income Tax (Appeals) {hereinafter referred to as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of items were to continue with the assessee co. after the export. iv). The assessee has not filed FIRC's to the extent of ₹ 10.73 crores ($30,00,000) out of total export claimed to have been made to M/s. Star TV in A.Y. 2003-04. v). The credit of advance money of ₹ 10.73 crores received in year 1997 and 1999 in respect to earlier agreements between M/s. NDTV and M/s. NTVI have been claimed as export turnover of the year. vi). M/s. NTVI is subsidiary of M/s. Star TV and original agreement (on stamp paper) was between M/s. NDTV and M/s. NTVI. Subsequent agreements are only internal arrangements between M/s. NTVI and M/s. Star TV. Therefore, sale made in consequence of agreement between M/s. NTVI and M/s. NDTV dt. 21.02.1997 cannot be termed as export turnover. 3.1 The learned Commissioner observed that the Assessing Officer failed to examine these issues which were very crucial for determination of the eligibility of deduction u/s. 80HHF of the Act. The learned Commissioner after going through clause 17 of the agreement dated 21.02.1997, further opined that since NTVI Pvt. Ltd. which is an Indian Company, was solely responsible for uplinking, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That on facts and in law the order u/s. 263 of the Act is bad in law in as much as the order sought to be revised itself is bad in law and sans jurisdiction. 4. From the above narration of facts, we find that since the reassessment order u/s 147/143(3) dated 24.12.2010 has been the subjected matter of revision order u/s 263, we would conveniently like to take up ITA 1023/Del/2013 first. ITA 1023/Del/2013 5. During the course of hearing before us, it was argued by the ld. AR that as regards foreign exchange fluctuation gain of ₹ 1,19,64,641/- full and true disclosure of all material facts was made by the assessee. In this regard, our attention was invited towards the profit and loss account of the assessee placed at pages 11 and 17 of the paper book wherein the said income was specifically credited. Ld. AR also referred to the CA Certificate in Form No.10CCAI placed at page 2 of the paper book, wherein, the figure of export turnover of ₹ 98,67,38,000/- included the gains derived on account of foreign exchange fluctuation (i.e ₹ 97,47,73,359/- plus ₹ 1,19,64,641/-). Reference was also made to the computation of total income, copy of which is placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge of AO so as to justify assumption of jurisdiction u/s. 147 after four years of the relevant assessment year. It was argued that based upon the existing material in the return of income itself which was in knowledge of the AO during the course of proceedings u/s 143(3) of the Act, the subsequent AO has merely tried to conduct a fishing expedition. In this regard, Ld. AR relied upon decisions of Delhi High Court in the case of Northern Strips Ltd. reported in 331 ITR 224 (Del) and Satnam Overseas reported in 329 ITR 237 (Del). As regards factum of export being made, the Ld. AR submitted that the notice u/s 148 was issued by the AO on 31stMarch, 2010 and as on that date ITAT in appellant's own case for A.Ys. 1999-2000 and 2002-03 vide orders dated 26th July, 2004 and 31st March, 2008 respectively (copies placed in paper book) had accepted the stand of the appellant that eligible items were being exported out of India thereby satisfying the conditions stipulated in section 80HHF of the Act. As regards reasons to believe that foreign exchange fluctuation gains are not eligible for claiming deduction u/s 80HHF of the Act, it was submitted by the Ld. AR that this issue is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 143(3). It is thus hard to comprehend that the AO framing the original assessment did not apply his mind to the computation of income and Form 10CCAI furnished along with the return of income. It is an established principle of law that if conscious application of mind is made to the relevant facts and material available while making the assessment and again a different or divergent view is taken, it would amount to nothing but change of opinion. In the instant case, the subsequent AO appears to have initiated reassessment proceedings on account of mere change of opinion. Moreover, we concur with the submissions of the Ld. AR that no new facts have come to the knowledge of the AO justifying assumption of jurisdiction after four years. Hon'ble Delhi High Court in the case of Satnam Overseas (supra) has clearly laid down in this regard as under :- We feel that the Writ Petitions have to succeed because the contentions as raised on behalf of the counsel for the petitioner are well founded. The only reason which has been given seeking reopening of the assessment for the years 1997-98 and 1998-99 is that suppression of sales have taken place on account of the fact that when av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is thereafter the duty of AO to properly apply the law thereto. Even if one presumes for a moment that in proceedings u/s 143(3) of the Act, the then AO did not properly appreciate the law that income from foreign exchange fluctuation is not derived from the activities of export then assumption of jurisdiction u/s 147 is unsustainable in the instant case in view of the decision of Hon'ble Delhi High Court in the case of Purolator India Ltd. reported in 343 ITR 155 (Del) wherein it has been held as under:- 10. In the present case, there is no indication that the assessee had failed or omitted to disclose the material or primary facts. These were available on record. The assessing officer, it is stated, had failed to draw correct legal inferences at the time of original assessment from the said primary facts. This is not an error or omission on the part of the respondent-assessee. It is not alleged that the assessee had suppressed, misrepresented or falsified the record/facts. It is not alleged that there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or had falsified or disclosed inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er banking channels. During the year export income equivalent to INR 974,773,359/- was earned. Detail of party wise sales including exports has already been submitted. The assessee fulfills all the conditions for the claim of deduction u/s 80HHF which has already been allowed in the assessment of AY 2000-01, 2001-02 2002-03. The essential conditions for the deductions are summarized as under :- a) The assessee being an Indian Company is engaged in the business of television news software / television software. b) The consideration against the export of software is received in India in convertible foreign exchange within a period of 6 months from the end of the previous years. c) It is reiterated that the facts and circumstances for the year relevant to the assessment year 2003-04 are exactly the same as were for the years relevant to assessment years 2000-01, 2001-02 2002-03 for which deduction has already been allowed in the assessments under section 143(3). The same may kindly be allowed for this year also. We have been directed vide questionnaire to furnish the evidence in support of export / transmission made by the assessee company and also evidence in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement dated 21st of February 1997 with M/s News Television (India) Pvt. Ltd. (hereinafter referred to as NTVI ), Indian arm of STAR TV of Hong Kong. According to the agreement, NDTV i.e. the appellant company was responsible for the production of the entire software (Programming for a 24 hrs. Indian News Channel, which will be supplied to NTVI who would broadcast it through STAR TV or any other company. In fact clause (iv) of the aforesaid agreement provides as under: NDTV shall export to STAR TV programme/footage tapes relating to the Channel; for the purposes of broadcasting overseas STAR TV shall have the right to broadcast overseas only on any channel owned by it or its associated companies, any complete story or programme on the 24 Hours Indian News Channel contemplated under this Agreement. This will be a limited non-exclusive for such right shall be USD 3 Million payable to NDTVB, which shall be paid irrespective of actual broadcasts or usage by STAR TV. The total consideration for the five year aggregating to USD 15 Million will be paid............... 7. Thereafter, another agreement was signed on 21st of March' 1998 between the appellant company, STAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of deduction u/s 80HHF of the Act in respect of consideration received by the Appellant from production and export of television news software in A.Y. 2000-01 by observing in the order of assessment as under: Deduction claimed u/s 80HHE during the assessment year 1999- 2000 was not allowed as it was held that assessee was not engaged in the production and export of computer software. It was held that the assessee was engaged in the production of Television News Software. During the course of assessment proceedings for the assessment year 2000-01 it was submitted that w.e.f. 01.04.2000. Section 80HHE has been brought on the statute which specifically includes 'Television Software' and Television News Software as eligible business activities. It was therefore, pleaded that in case there was any doubt on the eligibility for deduction u/s 80HHE, the deduction could be allowed u/s 80HHF. It was also mentioned in the TAX AUDIT REPORT filed with the return of income. The deduction claimed after considering all relevant facts is allowed. 9. Likewise identical claim of deduction u/s 80HHF of the Act was allowed in order of assessments for assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80HHF. There is thus no need on the part of the assessee to produce any evidence for the same. It is sufficient for the assessee to demonstrate that the television software rights are transferred and that the receipts in convertible foreign exchange are in respect of such transfer. The rights are transferred by means of a lawful agreement which was available for verification of the Assessing Officer. The CIT(A)'s observation that the means of transfer have to be legitimate means and it was essential for the appellant to adduce evidence to the effect that the cassettes were cleared through the official channels is also thus devoid of any legally sustainable basis. The CIT(A) has completely ignored the crucial distinction between 'transfer of television software rights' and 'transfer of television software'. 13. The Commissioner has thereafter only stated that, the aforesaid decision has not been accepted by Revenue. In our opinion, such an approach is not a valid approach for assumption of jurisdiction u/s 263 of the Act. In any case, the finding does not show that the view adopted by the AO was not a possible view . 8.2 Since the above orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven independently, we are of the view that the foreign exchange gain arising out of the fluctuation in the rate of foreign exchange cannot be divested from the export business of the assessee. As noted, once export is made, due to variety of reasons, the remission of the export sale consideration may not be made immediately. Under the accounting principles, therefore, the assessee, on the basis of accrual, would record sale consideration at the prevailing exchange rate on the quoted price for the exported goods in the foreign currency rates. If during the same year of the export, the remission is also made, the difference in the rate recorded in the accounts of the assessee and that eventually received by way of remission either positive or negative, would be duly adjusted. May be the accounting standards require that the same may be recorded in separate foreign exchange fluctuation account. Nevertheless any deviation either positive or negative must have direct relation to the export actually made. Payment would be due to the assessee on account of the factum of export. Current price of the goods so exported would also be pre-decided in the foreign exchange currency. The exact rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble bearing on the ultimate conclusion that we arrive in this respect. What is to be excluded under the said sub-clause (1) of clause (baa) is any other receipt of a nature similar to the brokerage, commission, interest, rent or charges. The receipt by way of foreign exchange fluctuation not being similar to any of these receipts mentioned above, application of clause (baa) must be excluded. Sub-rule (1) of rule 115 only provides for adopting the rate of exchange for calculation of value of rupee of any income accruing or arising in case of an assessee and provides that the same shall be telegraphic transfer of buying rate of such currency on the specified date. The term specified date has been defined in Explanation-2 to the said sub-rule (1). Rule 115 of the Income-tax Rules, 1962 thus has application for a specific purpose and has no bearing while judging whether foreign exchange rate fluctuation gain can form part of the deduction under section 80HHC of the Act .. 10.1 Further we find that ITAT Delhi Bench in the case of Sujata Grover (supra) has also considered this issue holding as under :- By applying the said rule to the present situation it is seen that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (baa) below section 80HHC(4B) it is noted that 90 per cent of the sums referred to are of the nature of brokerage and commission, etc. In other words, these sums are in no way part of export turnover and hence do not contribute to the making of exports. These items are independent receipts and are in the nature of income and not turnover or its part. So to place income from exchange rate fluctuation in relation to exports of earlier years in this category by classifying it under the expression any other receipts of a similar nature is not in accordance with rule of ejusdem generis a discussed above. 11. Respectfully following the above precedents, we do not concur with the findings recorded by the authorities below on this issue. Per contra, the decisions relied upon by the Ld. CIT(A), being distinguishable on facts, are not found applicable to the case in hand. Accordingly, ground Nos. 3 3.1 are decided in favour of the assessee. 12. In Ground No.4, the assessee has challenged the levy of interest u/s 234B 234D of the Act. To this we direct the AO to allow consequential relief. As a result the appeal of the assessee deserves to be allowed. ITA No. 5126/D/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court will thus apply with equal force to the year under consideration. 14.1 From a perusal of the impugned order passed by CIT under section 263 of the Act we find that all the allegations / objections raised by the Ld CIT, barring one, are similar to those levied by him in case of appellant for AY 2002-03. In the impugned order in para 9, the Ld. CIT has alleged that assessee has inflated export turnover by ₹ 10.73 crores equivalent to USD 30,00,000. Ld CIT has also held that assessee has not furnished FIRC's to this extend. In our considered opinion assumption of jurisdiction u/s 263 cannot be sustained for the simple reason that no show cause notice was issued by Ld. CIT on this issue. We find that the show cause notices dated 21stJuly, 2011 and 10th August, 2011 issued by the Ld. CIT in the instant case do not put the assessee to show cause on this issue. In this regard we note that Hon'ble Delhi High Court in the case of Contimeter Electrical Pvt. Ltd. reported in 317 ITR 249(Del) has held as under: 10. The Tribunal considered the rival contentions and referred to the Supreme Court's decision in the case of Commissioner of Customs v. Toyo Engg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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