M/s.Congnizant Technology solutions India Private Ltd. Vs… — Income Tax | Madras HC (2021)

M/s.Congnizant Technology solutions India Private Ltd. Vs… — Income Tax | Madras HC (2021)

 IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED : 09-08-2021

CORAM

THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM

WP No.29023 of 2018
And

WMP No.33925 of 2018

M/s.Cognizant Technology Solutions India

 Private Limited,
Represented by Authorised Signatory Mr.Gopakumar R.,
No.165, Menon Eternity Building,
6th Floor, St. Mary's Road,
Chennai-600 018. ...Petitioner

vs.

1.Assistant Commissioner of Income Tax,
 Large Taxpayer Unit-1,
 7th Floor, Room No.712,
 121, Nungambakkam High Road,
 Chennai-600 034.

2.Joint Commissioner of Income Tax,
 Large Taxpayer Unit,
 7th Floor, Room No.711,
 121, Nungambakkam High Road,
 Chennai-600 034. ...Respondents

Writ Petition is filed under Article 226 of the
Constitution of India, praying for the issuance of a Writ of
Certiorari, calling for the records on the file of the first
respondent and quash the impugned notice PAN:AAACD3312M dated
29.03.2018 issued under Section 148 of the Income Tax Act for
the Assessment Year 2013-2014 in Notice No.ITBA/AST/148/2017-
18/1009530834 (1) along with the impugned order in
LTU1/AAACD3312M/2018-19 dated 16.10.2018.

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

For Petitioner :Mr.N.V.Balaji
For Respondents :Mr.A.P.Srinivas,
Senior Standing Counsel for
Income Tax.

O R D E R

The lis on hand is filed challenging the notice issued
under Section 148 of the Income Tax Act, 1961 for the assessment
year 2013-2014 and the order passed by the Assessing Authority,
disposing of the objections filed by the petitioner.

2. The petitioner is a Company incorporated under the
Companies Act, 1956 and is engaged in the business of software
development. The petitioner is regularly assessed to income tax.
The petitioner had filed its return of income for the assessment
year 2013-2014 under Section 139(1) of the Income Tax Act, 1961
on 30.11.2013.

3. The case of the petitioner was taken up for scrutiny
and the first respondent sought for various details from time to
time during the assessment proceedings. All the details were
provided by the petitioner during the course of assessment
proceedings. Accordingly, the first respondent passed the
assessment order on 31.12.2016 under Section 143(3) read with
Section 92CA of the Income Tax Act, 1961.

4. Although the first respondent in the assessment order
had discussed on certain additions to be made in determining the
book profits under Section 115JB, he did not give effect to the
same in the computations attached to that order. A rectification
petition was filed in this regard. Under these circumstances, a
notice under Section 148 of the Income Tax Act, 1961 was issued
for reopening of assessment for the assessment year 2013-2014
stating that the income chargeable to tax has escaped
assessment.

5. The petitioner responded to the notice and requested
for reasons. The reasons were provided and the petitioner
submitted its objections elaborately. The said objections were
also disposed of by the Assessing Authority and challenging the
said disposal order, the present writ petition is filed by the
petitioner.

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

6. The learned counsel appearing on behalf of the
petitioner mainly raised a contention that the reasons stated
for reopening of assessment amounts to change of opinion.
Secondly, the reasons for reopening has not been provided within
a reasonable time and therefore, the proceedings are bad in law.

7. To substantiate the said grounds raised for assailing
the order impugned, the learned counsel for the petitioner drawn
the attention of this Court with reference to the reasons
furnished to the petitioner-Assessee by the first respondent in
proceedings dated 30.08.2018. The reasons are attacked by the
petitioner and the objections submitted by the petitioner are
relied upon. The reasons for reopening are met with complete
particulars in comparison with the discussions and the
adjudication made by the Assessing Authority, while passing the
original assessment order under Section 143(3) of the Income Tax
Act, 1961.

8. The learned counsel for the petitioner reiterated that
all the issues were adjudicated elaborately and the very same
subject matter and the very same particulars are taken into
consideration for the purpose of reopening of assessment in a
different language and therefore, it is a case of change of
opinion and cannot be fit in with the provisions of Section 147
of the Income Tax Act, 1961.

9. It is contended that the petitioner-Company have
categorically explained the reasons for assessment and the
details submitted during the assessment proceedings under
Section 143(3) of the Income Tax Act, 1961 and references were
also cited. Therefore, there is no reason whatsoever for
reopening of assessment.

10. The learned counsel for the petitioner further
contended that, while disposing of the objections, the Competent
Authority has not considered any of these objections raised with
complete details and blanketly stated that the reopening of
assessment is in accordance with the provisions of Law and
therefore, the said order is not only establishes that the
authorities have not applied their mind, but the objections in
detail submitted by the petitioner had not been considered at
all.

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

11. It is contended that the impugned order disposing of
the objections are passed in a mechanical manner without
furnishing any findings with reference to the objections filed.
Therefore, the order impugned is liable to be set aside.

12. At the outset, it is contended that the assessment
order was initially passed under Section 143(3) of the Income
Tax Act, elaborately considering all the issues and in respect
of the issues queries were raised and the petitioner had also
submitted detailed answers for the queries and accordingly,
final assessment order was passed.

13. Shockingly, the very same particulars and details
adjudicated were taken into consideration for the purpose of
reopening of assessment and therefore, it is the change of
opinion and the initiation itself is in violation of Section 147
of the Income Tax Act.

14. The learned Senior Standing Counsel, appearing on
behalf of the respondents, disputed the contentions of the
learned counsel for the petitioner, by stating that under
Section 147 of the Income Tax Act, if the Assessing Officer has
reason to believe, the same would be sufficient for reopening of
assessment. The materials already considered by the Assessing
Authority may also be a ground to cull out certain new
informations and from and out of such new informations,
reassessment proceedings shall be initiated by the Competent
Authority.

15. In the present case, merely comparing the subjects
which were discussed by the Assessing Authority in the
assessment order, the petitioner cannot make out a ground by
stating that the very same subject has been taken into
consideration for the purpose of reopening of assessment and
therefore, the reopening amounts to change of opinion. Such a
ground deserves no merit consideration as Section 147 of the
Income Tax Act, provide ample powers to the authority to reopen
the assessment on numerous circumstances.

16. The learned Senior Standing Counsel for the
respondents drawn the attention of this Court with reference to
the original assessment order passed for the assessment year
2013-2014 on 31.12.2016. Undoubtedly, the issues are

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

considered, however, the reasons furnished for reopening of
assessment order would show that from and out of the materials,
the Assessing Authority has reason to believe that dis-allowance
of provision for lease equalisation and charges under Section
115JB was made. That was not taken into consideration while
arriving a taxable income under Section 115JB.

17. Further, relying on the reasons furnished for
reopening of assessment contended that on those particulars, the
Assessing Officer has reason to believe that the income
chargeable to tax on escaped assessment. When the Assessing
Officer could able to trace out certain new materials from and
out of the materials submitted by the Assessee during the
original assessment proceedings, such informations are also
sufficient enough for the purpose of reopening of assessment. It
is for the Assessee to participate in the reopening proceedings
and place the records, enabling the authority to complete the
reopening proceedings by following the procedures.

18. Considering the arguments as advanced by the
respective learned counsel appearing on behalf of the parties to
the lis on hand, this Court has to consider the fact that
reopening of assessment in the present case is made within four
years. Admittedly, when it is made within a period of four
years, then the First Proviso to Section 147 of the Income Tax
Act, is not applicable.

19. Section 147 enumerates that “if the Assessing Officer
has reason to believe that any income chargeable to tax has
escaped assessment for any assessment year, he may, subject to
the provisions of Sections 148 to 153, assess or reassess such
income and also any other income chargeable to tax which has
escaped assessment and which comes to his notice subsequently in
the course of the proceedings under this Section, or recompute
the loss or the depreciation allowance or any other allowance,
as the case may be, for the assessment year concerned”.

20. Let us now consider the spirit of the language
employed in the said provision. The term “has reason to believe”
is considered by the Constitutional Courts on many occasions.
The reasons must have live link for the purpose of reopening of
assessment. Therefore, it is not mere reasons to believe and
such reasons must have some nexus for the purpose for which the
reopening proceedings are initiated.

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

21. This apart, the reasons should not be change of
opinion. The change of opinion is also elaborately discussed by
the Courts. If any adjudication is made with reference to a
particular issue and an interpretation is given in a particular
manner or a finding is given and in respect of the same finding,
if another opinion is formulated, the same amounts to change of
opinion. However, the Courts are expected to be cautious, while
forming an opinion whether it is 'change of opinion' or 'reason
to believe'.

22. In many occasions, materials are one and the same,
issues are also one and the same. However, from and out of the
same materials and issues, if the Competent Authority could able
to trace out a new information, material or dimension in
consonance with the provisions of the Act, which was omitted by
the original Assessing Authority and such failure of the
original Assessing Authority resulted in income chargeable to
tax escaped assessment, then it is a ground for reopening of the
assessment. In certain circumstances, undoubtedly, the Courts
are expected to be cautious in view of the fact that the
subjects may be one and the same.

23. The issues discussed by the Assessing Authority as
well as the Original Authority may be one and the same, but the
factual inference and the application of provisions of Income
Tax Act and the interpretation required to be given in such
circumstances, creates a reason to believe for the authority
that the income escaped assessment and reopening of assessment
is initiated.

24. Thus it is not as if the Assessee can simply compare
the issues discussed by the Assessing Authority and the reasons
furnished for reopening of assessment. Within the issue, if
materials are culled out, which is not discussed or adjudicated
by the original assessing authority, then reopening of
assessment is allowable and therefore, mere comparison would
undoubtedly result in denial of an opportunity for the revenue
to bring the tax escaped assessment within the net work. All
these intricacies required to be considered in such cases, where
the materials shown are one and the same both in the original
assessment order as well as in the reasons furnished for
reopening of assessment.

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

25. The other ground raised by the petitioner is that the
Assessing Authority, while disposing of the objections, has not
considered the objections. Though the petitioner has elaborately
submitted the objections with reference to the reasons furnished
for reopening of assessment, the said objections are not
considered and no findings are given in this regard. It is
necessary for this Court to examine this issue. A distinction is
to be drawn in respect of the disposal of an objection by the
Competent Authority and a final order passed in the reassessment
proceedings.

26. Section 147 of the Income Tax Act, contemplates that
“the Assessing Officer has reason to believe that any income
chargeable to tax has escaped assessment, then he is empowered
to assess or reassess such income”. Even during the course of
reassessment proceedings, if the authority would be able to find
out some new informations or materials and such authority is
empowered to assess or reassess the said income also. Two
circumstances are contemplated. The first circumstance is that
after passing the assessment order if the Assessing Officer has
reason to believe that the income chargeable to tax has escaped
assessment for reopening assessment proceedings by issue of
notice under Section 148 of the Income Tax Act. The second
circumstance would be that any other income chargeable to tax
has escaped assessment and which comes to his notice
subsequently in the course of the proceedings under Section 147,
then also the Assessing Officer is empowered to go for
reassessment of such income, which was traced out during the
course of proceedings.

27. The significance of the second circumstance is that
even after furnishing of reasons or at the time of continuance
of reopening proceedings, if the Assessing Authority could able
to find out any other income chargeable to tax, which has
escaped assessment and which comes to his notice, then he can
provide an opportunity to the Assessee and proceed with the
reassessment against such income escaped assessment also.

28. In this context, let us consider the spirit of the
judgment of the Hon'ble Supreme Court of India in the case of
GKN Driveshafts (India) Ltd vs. Income Tax Officer and Others
[(2003) 1 SCC 72], wherein in paragraph-5 of the judgment, the
opportunity in compliance of the principles of natural justice

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

has been considered by the Supreme Court and the following
procedures are directed and the same reads as under:-

“5. We see no justifiable reason to
interfere with the order under challenge.
However, we clarify that when a notice under
Section 148 of the Income Tax Act is issued,
the proper course of action for the noticee
is to file return and if he so desires, to
seek reasons for issuing notices. The
Assessing Officer is bound to furnish
reasons within a reasonable time. On receipt
of reasons, the noticee is entitled to file
objections to issuance of notice and the
assessing officer is bound to dispose of the
same by passing a speaking order. In the
instant case, as the reasons have been
disclosed in these proceedings, the
assessing officer has to dispose of the
objections, if filed, by passing a speaking
order, before proceeding with the assessment
in respect of the abovesaid five assessment
years.”

29. Though the Income Tax Act provides opportunity to an
Assessee, the Supreme Court thought fit that an opportunity to
be provided under the Income Tax Act must be in compliance with
the principles of natural justice. That prompted the Apex Court
to issue a direction in GKN Driveshafts (India) Ltd case (cited
supra). The directions are that when a notice under Section 148
of the Income Tax Act is issued, the Assessee may file a return
if he so desires and to seek reasons for reopening. The Supreme
Court says that the Assessing Officer is bound to furnish the
reasons within the reasonable period of time. The Assessee is
entitled to file objections to the issuance of notice and the
Assessing Officer is bound to dispose of the same by passing a
speaking order.

30. With reference to the directives of the Apex Court of
India, the procedures are to be followed scrupulously as the
judgement became the law of the land under Article 141 of the
Constitution of India. However, the directives are to be read in
consonance with the spirit of Section 147 of the Income Tax Act
in order to understand that the directives issued for the
purpose of compliance of the principles of natural justice.

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

31. The directives of the Apex Court are in between
procedures created by judgment, more specifically, from the
initiation of Section 147 proceedings and the disposal of
objections by the Assessing Officer.

32. The very purport of directions are to ensure that the
Assessee must know the reasons for reopening and he must be
provided with an opportunity to contest the reasons by way of
submitting the objections and such objections must be disposed
of by a Competent Authority by passing a speaking order.

33. The speaking order in the present context means only
with reference to the reasons for reopening of assessment.
Therefore, speaking order would not include the entire issues,
which all are to be adjudicated. After disposing of the reasons
and while passing the order of reassessment, the Assessee would
get further opportunity to participate in the reassessment
proceedings and he is entitled to submit any further documents
available during the course of proceedings of reassessment.
Therefore, the submission of objections for the reasons for
reopening is not the end of the matter and there are further
proceedings and during such proceedings, the Assessee is
entitled to submit further materials if it is in his knowledge
or the documents available and place it before the Competent
Authority for consideration. Therefore, the disposal of
objections by the authority, cannot be equated with the final
order of reassessment or assessment.

34. What is required is whether the requisite condition
contemplated under Section 147 of the Income Tax Act is complied
with or not. Section 147 stipulates that the Assessing Officer
must have reason to believe. If such reason to believe is
satisfied and disposal of objections would indicate that the
reasons furnished are having live link with the initiation of
proceedings. The said nexus as well as the materials or
informations considered for reopening would be sufficient.

35. Thus, the disposal of objections must be read with
reference to the requisite condition contemplated under Section
147 of the Income Tax Act, i.e., “the Assessing Officer has
reason to believe”. If the said requirement is complied with, it
would be sufficient to proceed with the reassessment
proceedings. It is not as if the entire adjudication of issues

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

must be done by the Assessing Officer while disposing of the
objections filed by the petitioner with reference to reasons
furnished within.

36. The point to be considered is that even after
disposal of the objections if the Assessing Officer under
Section 147 of the Income Tax Act noticed that any other income
chargeable to tax which has escaped assessment during the course
of proceedings, then also he is empowered to reassess such
income. Thus various circumstances made available for the
Assessing Authority to reopen the assessment, cannot be
interfered with in a routine manner. The authority must be
permitted to complete the reassessment proceedings in all
respects. The Assessee would be getting ample opportunity even
after disposal of the objections and before passing the
reassessment proceedings. Even after reassessment order is
passed, the Assessee would be getting further opportunity of
appeal etc.

37. Thus, mere comparison of subject or issues with
reference to the original assessment order and disposal of
objections, cannot be a ground for the purpose of setting aside
the reopening proceedings. If the reasons furnished for
reopening of assessment provide any new informations or
materials or based on different dimension under the provisions
of the Income Tax Act, which has not been considered by the
original authority, then also reopening of assessment is
permissible.

38. This exactly is the reason why Explanation 2 to sub
clause (c) of Section 147 of the Income Tax Act, contemplates,
where an assessment has been made, but income chargeable to tax
has been underassessed, then also the reassessment is
permissible. Such income has been assessed at too low a rate
under various circumstances as provided under Explanation 2
also. Thus, the comparison alone cannot be a ground or mere
adjudication of an issue cannot be construed as change of
opinion. If such an adjudication is based on reasons to believe,
then the authorities may be allowed to continue the reopening
proceedings for all purposes by following the procedures as
contemplated under law.

39. In respect of the case on hand, the reasons furnished

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

would reveal the following informations/materials for reopening
of assessment:-

(1)Inthisconnection,on
verification of the ITMR file and the
assessment order, it is observed that in the
assessment order an addition to Book profit
amountingtoRs.35,91,44,949/-towards
disallowanceofprovisionforLease
Equalisation charges under Section 115JB was
made. This was not taken into consideration
while arriving a taxable income under Section
115JB. In addition to the above, the
disallowancemadeunderSection14A
disallowance amounting to Rs.1,92,10,640/-
should also be considered for Book profit. The
above omission has resulted in short levy of
tax to the tune of Rs.7,34,95,572/-.

......
..........
....
(2) During the relevant previous year,
the assessee company had entered into forward
contracts in order to safeguard itself from
unfavourable movement in the foreign exchange
rates relating to its export earnings. In the
return of income, the assessee has claimed an
amount of INR 82,06,13,134/- being the mark to
market loss on restatement of outstanding
forward contracts as on 31.03.2013 as a
deduction in computing the income under the
head profits and gains from business or
profession.

Since the above unrealised expenses
being the mark to market loss is not an
allowable expenditure and requires to be
disallowed and brought to tax.

(3) It is seen from Notes forming part
of the Financial Statements for the year ended
31.03.2013, vide Sl. No.25 under other
expenses, an amount of Rs.1,86,03,66,315/- was
shown as expenses towards software. However,
software being an intangible asset requires to
be claimed depreciation at 25%. The entire

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

expenditure should not be claimed an
expenditure. Hence, the excess allowance
requires to be brought to tax. On verification
of break up details of repairs and maintenance
an amount of Rs.20,11,71,783/- was considered
as computer software. The above expenditure
should be restricted to 25% depreciation as
against the 100%. This has resulted in excess
allowance as under.

(4) Long Term Capital Loss was
computed for Rs.148,06,18,752/- and the same
was considered in the computation of total
income. However, the above loss was considered
for carry forward for future set off. In this
connection, it is observed from the
computation of long term capital loss was
computed by adopting the cost of acquisition
at the US Dollar rate as against the Indian
Rupee rate. This has resulted in excess long
term capital loss to be carry forward as
detailed below:-

(5) It is seen from Annexure 3 in
respect of the computation of short term
capital gain it is observed that capital gain
was arrive for Rs.40,62,04,596/-. However, as
amount of Rs.1,86,37,918/- was deducted from
the above short term gain stating that the
amount relates to unrealised capital gains
accounted in the financial statements as on
31.03.2012 and was added back in the
assessment of earlier years. As per income tax
act, short term capital gain in computed based
on the difference between the cost of
acquisition and the cost of sale. Hence the
deduction of earlier year unrealised loss is
not an acceptable deduction”.

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

40. The Assessee also submitted elaborate objections for
all the reasons furnished. For disposing of the objections dated
16.10.2018, the Assessing Authority considered the objections as
raised by the petitioner. The Assessing Authority considered the
objections on issue basis and made findings in paragraphs 5.1,
5.3 and 6.2, extracted as under:-

“5.1 The Assessee's objection is

carefully considered, however, it is not
accepted for the reason that the relevant
issue was not specifically considered by the
Assessing Officer. The Assessing Officer
nowhere left the traces for verification of
the issue, therefore, it does not tantamount
to change of opinion and to review of the
assessment already completed. The Assessee
has to truly and fully disclose the
information whereas in this case Assessee
failed to furnish the information required
on the above issue. It is duty cast on the
Assessee to disclose fully and truly all
material facts necessary for the purpose of
assessment, it is not relevant that had the
Assessing Officer been diligent. He could
have got all necessary information for the
purpose of assessment. In this case
Assessing Officer has not formed opinion on
this issue. Therefore, reopening of
assessment is in accordance with the
provisions of Section 147 of the IT Act
1961.

5.3 From the above it is clear that
the reassessment is permissible when
Assessing Officer did not form opinion on
any issue during first assessment and if any
reason to believe is formed for escapement
of income chargeable to tax that itself is
sufficient enough to initiate reassessment
proceedings. In view of the above
discussion, your objection that reassessment
proceedings were based on mere change of
opinion and not based on any reason to
believe and therefore the reassessment
proceedings are invalid is rejected.

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

6.1. The Assessee's objection is
carefully considered, however, it is not
accepted for the reason that in the said
case (Sahkari Khand Udyog Mandal Limited vs.
ACIT) certain direction was issued by the
Hon'ble High Court of Gujarat to the
concerned Chief Commissioner. With due
respect it may considered that the said
decision is not binding in the assessment
under consideration as the said decision is
not of jurisdictional High Court. Hence
Assessee's contention is not entertainable”.

41. The learned counsel for the petitioner referred some
of the judgments and so also the learned Senior Standing Counsel
for the Income Tax Department also referred few judgments.
Absolutely, there is no dispute regarding the proposition of law
relied on by both the respective counsel regarding the judgments
cited. The principles in this regard are settled and the
judgments relied on by both the parties to the lis, are
considered by this Court. Therefore recording of those judgments
repeatedly by this Court may not be required for the purpose of
considering the facts and circumstances established in the
present case on hand. The reasons furnished and disposal of
reasons would play a pivotal role in arriving a decision.

42. Considering the reasons furnished, the objections
submitted by the petitioner and the disposal of the objections
by the Competent Authority, this Court is of an opinion that the
intricacies involved in the issues require an elaborate
adjudication and admittedly, the petitioner is falling under the
large tax payer unit and certain intricacies in deeper manner
requires more adjudication with reference to the issues raised.
Such an elaborate adjudication cannot be done with reference to
the issues as the Assessee has to avail the opportunities to be
provided, while proceeding with the reassessment proceedings and
it is for the Assessee to participate in the reopening
proceedings and avail the opportunities to be provided for the
purpose of completion of reopening proceedings.

43. This being the factum and the principles to the
followed, this Court has no hesitation in arriving a conclusion
that the Assessing Officer in the present case has established

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

that he has reason to believe for reopening of assessment and
there is no infirmity, as such, in reopening of the assessment
under Section 147/148 of the Income Tax Act. The petitioner has
to cooperate for the early completion of the reopening
proceedings.

44. Accordingly, the writ petition stands dismissed.
However, there shall be no order as to costs. Consequently,
connected miscellaneous petition is also dismissed.

Sd/-

Assistant Registrar (CS-VI)

// True Copy //

Sub Assistant Registrar

Svn

To

1.Assistant Commissioner of Income Tax,
 Large Taxpayer Unit-1,
 7th Floor, Room No.712,
 121, Nungambakkam High Road,
 Chennai-600 034.

2.Joint Commissioner of Income Tax,
 Large Taxpayer Unit,
 7th Floor, Room No.711,
 121, Nungambakkam High Road,
 Chennai-600 034.

+1cc to Mr.N.V.Balaji, Advocate SR.No.39591
+1cc to Mr.A.P.Srinivas, Advocate SR.No.39516

WP.No.29023 of 2018

PCH(CO)
RVM(27/08/2021)

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