Income Tax Reassessment Proceedings Cannot Be In Nature Of Review: Karnataka HC

The Karnataka High Court has reiterated that reassessment proceedings under the Income Tax Act cannot be in the nature of review.

In that context, the Bench of Justice S Sunil Dutt Yadav observed that, "reassessment proceedings cannot be in the nature of review and accordingly, the material as has come to light in the assessment proceedings for the Assessment Year 2008-2009 cannot be a sufficient ground to resort to reassessment proceedings."

The Court also stressed that it was impermissible to grant review on the grounds of a change of opinion. In that context, it was said that, "revisiting the decision arrived at once again to further reduce the eligible deduction under Section 10A of the I.T. Act would amount to a review on the ground of change of opinion which is impermissible."

Counsel Percy Pardiwalla appeared for the petitioner, while Counsel EI Sanmathi appeared for the respondents.

In this case, the petitioner sought a declaration that proceedings initiated by the Deputy Commissioner of Income Tax (DCIT) under Sections 147 and 148 of the I.T. Act were time-barred and lacked jurisdiction.

The challenge focused on the notice dated 29.03.2012 for the Assessment Year 2005-2006 and the subsequent rejection order dated 13.03.2013. The petitioner's initial assessment for 2005-2006 allowed a deduction under Section 10A, but the Commissioner of Income Tax later deemed it erroneous, leading to a fresh assessment order in 2010 with additional disallowances.

Similar reassessment notices and objections ensued for the Assessment Years 2006-2007 and 2007-2008.

Before the High Court, the petitioner argued that in the assessment order, deductions under Section 10A were computed with exclusions. Specifically, the order excluded expenditures associated with visits by the company's employees and expenses related to software development services provided to clients.

The Court held that the tangible material sought to be relied upon was not complete, and said that, "it cannot be held that the MSAs and SCWs would demonstrate that the declaration made by the assessee leads to a conclusion that there has been escapement of income."

Refusing to revisit the Assessing Officer's decision to further reduce the eligible deduction, the Court observed that, "It is clear that the Assessing Officer excluding the expenditure incurred by the assessee in connection with the provision of technical services outside India and specifically expenditure involved relating to Company’s employees visit to client’s location to provide software development services to the clients have been excluded".

Cause Title: EIT Services India Pvt. Ltd. vs The Deputy Commissioner of Income Tax & Anr.

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