Section 148 Notice Quashed by Bombay High Court — Reassessment on Section 10AA Deduction Amounts to Change of Opinion
Background and Overview
The Bombay High Court recently delivered a significant ruling in Genesys International Corporation Ltd. Vs ACIT (Bombay High Court), quashing reassessment proceedings initiated for Assessment Year 2017-18 through a notice under Section 148 of the Income-tax Act, 1961. The Court also struck down the order rejecting the assessee's objections to reopening as well as the draft assessment order that proposed complete denial of deduction under Section 10AA.
The case raises critical questions about the limits of reassessment jurisdiction where the original scrutiny assessment has already examined and accepted a particular claim — and whether the Assessing Officer can revisit such a claim merely by taking a different view of the same facts and material.
Facts of the Case
Genesys International Corporation Ltd. is a company assessed under PAN AAACA4528L. The assessee operates multiple units, including an eligible Special Economic Zone unit, and has been claiming deduction under Section 10AA of the Income-tax Act, 1961 across several assessment years.
For AY 2017-18, the assessee claimed deduction under Section 10AA in its return of income. Since the return filing utility did not permit the deduction to be claimed in a manner consistent with the law laid down by the Supreme Court, the deduction was reported under the column "Any other amount allowable as deduction" while computing profits and gains from business and profession.
The return was selected for scrutiny assessment under Section 143(3). During the course of the original assessment, the Assessing Officer raised specific queries through notices dated 07.06.2019 and 04.09.2019, including a direct query concerning the amount claimed as "any other amount allowable as deduction." In response to these queries, the assessee furnished:
- Computation of income
- Detailed computation of deduction under
Section 10AA - Explanation for claiming the deduction under the said column
These responses were submitted vide letters dated 20.06.2019 and 04.11.2019. After examining all the material placed before him, the Assessing Officer passed an assessment order under Section 143(3) on 20th December 2019, accepting the assessee's claim and allowing deduction under Section 10AA as claimed.
Reassessment Notice Issued
On 30th March 2021, a notice under Section 148 was issued to reopen the assessment for AY 2017-18. The assessee filed a return in response and requested the recorded reasons. Upon receipt, the assessee filed detailed objections on 25th June 2021.
The objections were rejected vide order dated 5th February 2022, and a draft assessment order dated 14th March 2022 was subsequently issued proposing complete disallowance of the deduction under Section 10AA amounting to Rs. 16,13,16,126/-.
The assessee challenged the notice under Section 148, the order rejecting objections, and the draft assessment order before the Bombay High Court by way of a writ petition.
Reasons Recorded for Reopening
The Assessing Officer recorded the following three reasons for reopening the assessment:
Reason 1 — Deduction Claimed Without Setting Off Losses of Other Units
"The assessee company has three units i.e., SEEPZ unit, Bangalore Unit and Genesys Worldeye unit at Seepz. Assessee has not provided unit wise separate account, however from details provided with manual computation of income furnished in compliance with notices, it is seen that the assessee had derived loss from two units i.e., GICL SEEPZ unit and Bangalore unit whereas earning profit from Genesys Worldeye unit. Assessee has claimed 50% of profit of Genesys Worldeye unit i.e., Rs.16,13,16,126/- as deduction/exemption u/s. 10AA without setting off losses derived from other two units against the guidelines issued by CBDT vide circular No. 7 dated 16.07.2013."
Reason 2 — Foreign Exchange Not Brought Into India Within Six Months
"It is noticed from Form 56F that the export proceeds in foreign exchange was not brought into India within a period of 6 months from the end of the previous year or within such further period as allowed by competent authority... Since, export proceeds in foreign exchange was not brought into India hence, deduction u/s. 10AA is not allowable. However, the deduction of Rs.16,13,16,126/- was allowed during assessment proceedings."
Reason 3 — Deduction Not Claimed in Prescribed Schedule of Return
"It is noticed from return of income/revised return of income that the assessee has neither claimed deduction u/s. 10A/10AA in computation of income nor in schedule prescribed for deduction u/s. 10A/10AA. Since, assessee claimed deduction under Section 10AA through manual computation of income which is in compliance to the questionnaire issued by the department hence, in the light of above Apex Court decision, deduction u/s. 10AA is not allowable."
Submissions on Behalf of the Assessee
The learned counsel for the assessee advanced the following arguments: