Allowed

M/s.Cognizant Technology v. The Assistant Commissioner

Madras HC7 Sept 2021WP/2025/2016

Case brief

AI extract

What is this about?

Madras HC allowed a writ petition filed by a technology company against reopening of assessment under Sections 147 and 148 of the Income Tax Act. The court quashed the order disposing of objections due to the Assessing Officer not adequately considering certain issues, directing a fresh reconsideration of the objections on merits.

What did the court decide?

Impugned order of disposal dated 02.11.2015 quashed and matter remitted for fresh reconsideration of objections and passing orders on merits.

M/s.Cognizant Technology Vs The Assistant Commissioner — Income Tax | Madras HC (2021)

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED : 07.09.2021

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CORAM

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THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM

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W.P. No. 2025 of 2016
and
W.M.P. No. 1766 of 2016

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M/s. Congnizant Technology Solutions India P.Ltd.
Sixth Floor, New No. 165, Old No. 110
Menon Eternity Building
St. Mary's Road
Chennai – 600 018
Represented by its Director

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 ... Petitioner

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Vs.

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1. The Assistant Commissioner of Income Tax
 Large Taxpayer Unit
 1775, Jawaharlal Nehru Inner Ring Road
 Anna Nagar Western Extension
 Chennai – 600 101.

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2. The Deputy Commissioner of Income Tax Large Taxpayer Unit 1775, Jawaharlal Nehru Inner Ring Road Anna Nagar Western Extension Chennai – 600 101.

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3. The Commissioner of Income Tax
 Large Taxpayer Unit
 1775, Jawaharlal Nehru Inner Ring Road
 Anna Nagar Western Extension
 Chennai – 600 101. ... Respondents

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Petition filed under Article 226 of the Constitution of
India, praying for issuance of a Writ of Certiorari, calling for
the records of the First Respondent pertaining to the reopening
notice dated 26.03.2015 for assessment year 2008-2009 and the
consequential communication dated 02.11.2015.

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For Petitioner : Mr. Srinath Sridevan

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 For Respondents: Mr. A.P.Srinivas
 Senior Standing Counsel (For Income Tax)

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https://hcservices.ecourts.gov.in/hcservices/

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O R D E R

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The Writ on hand is instituted questioning the validity of
the reopening proceedings dated 26.03.2015 initiated under
Sections 147 and 148 of the Income Tax Act [hereinafter referred
to as 'the Act' for short], and consequential proceedings dated
02.11.2015 disposing of the objections raised by the
Petitioner /Assessee.

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2. The Petitioner is a private limited company,
incorporated under the Companies Act, 1956 and engaged in the
business of development of computer software and related
services and it provides /exports various software solutions to
variety of industries. The Assessee-Company carries out its
business activities through various units set up in Software
Technology Parks (STPs) and Special Economic Zones (SEZs), and
claims deductions under Sections 10A and 10AA of the Act. The
Assessee-Company filed its return of income on 30.09.2008 for
the Assessment Year 2008-09. The return of income was processed
under Section 143(1) of the Act on 08.03.2010.

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3. The case of the Assessee-Company was selected for
scrutiny by the Assistant Commissioner of Income Tax under
Section 143(2) of the Act on 12.08.2009 and details were called
for by the Respondents, and in that regard, the Assessee-Company
submitted explanations, materials and relevant documents.
Thereafter, the matter was referred to the Transfer Pricing
Officer for necessary verification under Section 92CA of the
Act, as the Assessee /Company has international transactions
with its group companies abroad. The Transfer Pricing Officer
vide its proceedings dated 11.10.2021 accepted the arm's length
price of the transactions of the Assessee-Company with that of
its group companies abroad.

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4. The Learned Counsel for the Petitioner referred the
informations and details provided by the Assessee-Company in its
return of income, and elaborated that there was no suppression
of material facts of the Assessee-Company. The facts,
informations, Books of Accounts in all respects were submitted
truly and fully, and queries raised by the Assessing Officer
were also answered, and having satisfied with the materials
provided by the Assessee-Company, the assessment order dated
30.12.2011 was passed under Section 143 (3) of the Act. The
point of disallowance of provisions made on contingent
liabilities and depreciation claim on computer software were
considered by the Assessing Officer. Under these circumstances,
Rectification proceedings dated 22.08.2013 were issued under
Section 154 of the Act, wherein mistakes apparent from record
were noticed and the Assessee-Company was asked to submit its
reply. The Assessee-Company also elaborately submitted their
explanations on the alleged mistakes raised by the Respondents

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https://hcservices.ecourts.gov.in/hcservices/

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vide proceedings dated 22.08.2013 issued under the Act. However,
no decision was taken on the said proceedings and thus, it is to
be construed as it has been impliedly dropped by the department.

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5. With this backdrop, the reopening proceedings are
initiated under Section 147 of the Act and the impugned notice
under Section 148 of the Act was issued on 26.03.2015 and the
Assessee-Company vide letter dated 27.04.2015 requested the
First Respondent to furnish reasons for reopen. Subsequently,
the reasons are communicated to the Assessee-Company vide its
proceedings dated 17.07.2015 and the Assessee-Company submitted
its detailed objections on the re-opening of assessment on
18.08.2015. The contentions of the Assessee-Company is that the
objections submitted were not considered and the impugned order
of disposal was issued in a routine and mechanical manner,
without taking note of the objections in detail.

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6. The Learned Counsel for the Assessee-Company
reiterated that the rectification proceedings dated 22.08.2013
initiated under Section 154 of the Act were not continued. The
reasons stated in the rectification proceedings and reasons
stated for re-opening of assessment are similar or one and the
same. Thus, the re-opening proceedings are liable to be set
aside.

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7. In support of the said contentions, Learned Counsel
for the Petitioner company relied on the judgment in
Commissioner of Income-tax -vs- Computer Age Management Services
(P.) Ltd reported in [2019] 109 taxmann.com 134 (Madras). In the
said case, before the Hon’ble Division Bench of this Court, the
Revenue raised similar contentions that what were acquired by
the Assessee-Company were only licenses, which were intangible.
However, the Assessing Officer held that they would fall under
Part B of New Appendix I that the Assessee was entitled to
depreciation at 25%. In the present case also, the very same
arguments are advanced on behalf of the Revenue. In this regard,
the Hon'ble Division Bench of this Court held in paragraph Nos.
7, 8 and 10 are as follows :-

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“7. As noticed above, the assessee is in the business
of registrar and transfer agent as licensed by the
SEBI handling large volume of market sensitive data
and information, which is available only through
general customized application software. The assessee
acquired software licenses capitalized during the
relevant years in the books of accounts and claimed
depreciation at 60%. In paragraph 20 of the order
passed by the Tribunal, the nature of items, on which,
the assessee claimed depreciation at 60% has been
listed out and they are 17 in number, from which, we
find that substantial amount of server licenses, which

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https://hcservices.ecourts.gov.in/hcservices/

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have been obtained by the assessee are customized and
some of which are single user licenses.

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8. The question would be as to whether the software
application, which was acquired by the assessee would
fall under Entry 5 of Part A of New Appendix I, which
states that computers including computer software are
entitled to depreciation at 60%. Note 7 of the
Appendix defines the expression 'computer software' to
mean any programs recorded on CD or disc, tape,
perforated media or other information storage devices.
10. We find that Part B of New Appendix I is a general
entry whereas Entry 5 of Part A of New Appendix I is a
specific entry read with Note 7. In the instant case,
the Tribunal, in our considered view, rightly held
that the assessee is eligible to claim depreciation at
60%.”

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8. It is further contended that in the Assessee’s own
case in I.T.A. No. 1921/Mds/2010 the Hon’ble Income
Tax Appellate Tribunal, Chennai Bench considered the similar
issue. The said judgment, which is binding on the department,
was not taken into consideration, while disposing of the
objections raised by the Assessee-Company. As far as Para 2.2.5
of the Objections dated 18.08.2015 raised is concerned, the
Assessee-Company has contended that the Income Tax Appellant
Tribunal has decided the issue relating to depreciation on
‘computer software’ to 25 percent, as against the rate of 60
percent claimed by the Assessee-Company. However, the said issue
was not considered. Thus, the orders impugned are untenable.

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9. The Learned Senior Standing Counsel appearing on
behalf of the Revenue objected the contentions raised on behalf
of the Assessee-Company, by stating that once the Assessing
Officer has reasons to believe and could able to trace out
materials from and out of the Books of Accounts and the
informations provided by the Assessee-Company, then there is no
bar for re-opening of assessment under Section 147 of the Act.
The wider scope of re-opening of assessment under Sections 147
and 148 of the Act was considered by the Hon'ble Supreme Court
of India in the case of A.L.A.Firm -vs- Commissioner of Income-
tax reported in [[1995] 55 Taxman 497(SC)].

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10. The Learned Senior Standing Counsel appearing on
behalf of the Revenue, relying on the four principles formulated
by the Three Judges Bench of the Hon'ble Supreme Court of India,
contended that the case of the Assessee-Company is falling under
the principles laid down and there cannot be any adjudication on
merits at this point of time in this Writ Petition. If at all
the Assessee-Company could able to establish their case through
documents and judgments, the same is to be done before the
Assessing Officer and the present Writ Petition is filed

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https://hcservices.ecourts.gov.in/hcservices/

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challenging the re-opening proceedings, which is akin to that of
the show cause notice and in the event of allowing the Writ
Petition, the Revenue is deprived of adjudicating the case of
the Assessee-Company on merits, facts and circumstances and
other technicalities involved, with reference to the issues
raised. Therefore, it is for the Assessee-Company to participate
in the re-opening proceedings to establish their case.

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11. Prima facie, the issue relating to 'software key' was
raised as a reason for re-opening of assessment. The said issue
was not taken into consideration by the Assessing Officer, while
passing the Assessment Order issued under Section 143 (3) of the
Act. Thus, there is no impediment for reopening of assessment,
which would not confer any right on the Assessee-Company to
claim complete relaxation. It is the opportunity for the Revenue
to adjudicate the omitted issues and the issues, which were not
considered by the Assessing Officer at the first instance.

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12. This Court is of the considered opinion that the
scope of re-opening of the assessment is wider enough to cover
numerous circumstances. If the Assessing Officer has reason to
believe that the income chargeable to tax has escaped
assessment, notice under Section 148 of the Act could be issued.
Admittedly, in the case on hand the reopening proceedings are
initiated beyond the period of four years but within the period
of six years and the conditions as stipulated in the proviso
clause to be complied with.

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13. In the present case, the Assessee-Company states that
they have not suppressed any material facts and they have
disclosed all the facts truly and fully, and the Assessing
Officer has not recorded that the petitioner has suppressed
certain material facts. Thus, the case of the Assessee-Company
cannot be treated as that of a case where re-opening of
assessment is made within a period of four years.

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14. The reasons furnished for re-opening of assessment in
proceedings dated 17.07.2015 reveal that two issues are relied
upon for the purpose of re-opening, one relatable to software
key and another relatable to lease equalization charges under
Section 115 JB of the Act.

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15. Admittedly, the second issue was raised as a reason
for rectification in the proceedings initiated under Section 154
of the Act. Further, the issue relatable to software key was the
first reason for re-opening of assessment under Section 147 of
the Act.

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16. With reference to the issue relatable to software
key, the Learned Counsel for the Assessee-Company mainly relied
upon two judgments as follows:-

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https://hcservices.ecourts.gov.in/hcservices/

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1. Assessee-Company'sowncaseinI.T.A.No.
1921/Mds/2010 passed by the Income Tax Appellate
Tribunal and

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2. Commissioner of Income-tax -vs- Computer Age
Management Services (P.) Ltd reported in [2019] 109
taxmann.com 134 (Madras),

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wherein a similar point was considered. However, the Assesssing
Officer, while disposing the objections, has not considered the
issue relatable to software key, with reference to the
principles laid down in the Assessee's own case as well as in
the case of Commissioner of Income-Tax Vs. Computer Age
Management Services (P.) Ltd. cited supra.

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17. Therefore, the issue regarding depreciation under the
provisions and rules are to be re-considered based on those
judgments, and more so, with reference to the facts and
circumstances established by the Petitioner company.

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18. Under these circumstances, this Court is of the
opinion that the matter is to be remitted back for re-
consideration of those issues. The matter is to be remitted back
mainly on the ground that the rectification proceedings under
Section 154 of the Act were initiated and subsequently, not
continued. Thereafter, the re-opening of assessment was
initiated under Sections 147 and 148 of the Act. One issue is
admittedly the same, which was raised in the rectification
proceedings, and the other issue relating to software key was
not adjudicated elaborately in the adjudication order. However,
the issue relatable to software key is also said to be
considered by the Assessing Officer.

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19. For these reasons, the Respondents have to re-
consider the reasons and take a fresh decision for the
continuance of the re-opening proceedings. Accordingly, the
impugned order of disposal passed by the First Respondent in
proceedings No. PAN : AAACD 3312 M dated 02.11.2015 alone is
quashed. The Respondents are directed to re-consider the
objections raised by the Petitioner /Assessee-Company on
18.08.2015, with reference to the issues raised and pass orders
on merits and in accordance with law after affording
opportunities to the Assessee-Company. The said exercise shall
be completed as expeditiously as possible.

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20. With the above directions, the Writ Petition stands
allowed. No costs. Consequently, connected Miscellaneous
Petition is closed.

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Assistant Registrar (CS-III)

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https://hcservices.ecourts.gov.in/hcservices/

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Maya

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To

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1. The Assistant Commissioner of Income Tax Large Taxpayer Unit 1775, Jawaharlal Nehru Inner Ring Road Anna Nagar Western Extension Chennai – 600 101.

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2. The Deputy Commissioner of Income Tax Large Taxpayer Unit 1775, Jawaharlal Nehru Inner Ring Road Anna Nagar Western Extension Chennai – 600 101.

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3. The Commissioner of Income Tax Large Taxpayer Unit 1775, Jawaharlal Nehru Inner Ring Road Anna Nagar Western Extension Chennai – 600 101.

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+1CC to Mr.A.P.Srinivas, Advocate, SR.No. 45334

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W.P. No. 2025 of 2016

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BS(CO)

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B.VC (29/09/2021)

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https://hcservices.ecourts.gov.in/hcservices/

M/s.Cognizant Technology v. The Assistant Commissioner

Case brief

What is this about?

What did the court decide?

M/s.Cognizant Technology v. The Assistant Commissioner

Case brief

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