$~7
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 16.07.2015
+ W.P.(C) 7948/2013 & CM 16840/2013
HCLTECHNOLOGIES LIMITED .... Petitioner
versus
DEPUTY COMMISSIONER OF INCOME
TAX & ANR ..... Respondents
Advocates who appeared in this case:
For the Petitioners : Mr Ajay Vohra, Sr Advocate with Ms Kavita
Jha and Ms Shraddha
For the Respondent : Mr Rohit Madan with Mr Zoheb Hossain and
Mr Akash Vajpai
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition is directed against the notice under Section 148
of the Income Tax Act, 1961 (hereinafter referred to as `the said Act') ,
which was issued on 28.03.2013 in respect of the assessment year 2006-
07. The petition is also directed against the order dated 21.11.2013,
whereby the objections raised by the petitioner were disposed of by the
Assessing Officer.
W.P.(C) No. 7948/2013 Page 1 of 6
2. The original assessment was completed under Section 143 (3) read
with Section 144C(13) of the said Act on 28.10.2010. The point in issue
is with regard to Software Licence Fee. According to the petitioner it had
claimed the same as revenue expenditure, but in the assessment order,
only a part of the Software Licence Fee was allowed as revenue
expenditure and an amount of Rs 25.36 crores was capitalized and
depreciation was allowed thereon at the rate of 60%. The petitioner was
aggrieved by the fact that the said expenditure was capitalized to the
extent of Rs 25.36 crores and has already filed an appeal before the
Income Tax Appellate Tribunal, which is pending.
3. After four years from the end of the assessment year 2006-07, the
notice under Section 148 was issued on 28.03.2013. When the petitioner
sought the reasons for invocation of the provisions of Section 147 of the
said Act, the same was supplied to the petitioner. The relevant portion of
the reasons is as under:-
"4. During the assessment proceedings your company has
incurred expenses for Software License fee to the tune of
Rs. 31.69 crores, an amount of Rs. 6.33 crores was in the
nature of software license fee paid for the software which
has been used for executing various revenue generating
projects and remaining amount of Rs. 25.36 crores was paid
for the software used in day to day operation of your
W.P.(C) No. 7948/2013 Page 2 of 6
company having no correlation with any specific project.
Accordingly the said amount of Rs. 25.36 crores was being
disallowed as revenue expenses, and the same was being
treated as capital expenditure under the head `Computers'.
As a result depreciation @ 60% was allowed to your
company.
5. Perusal of the records show that your company
incurred an expenditure of Rs. 31.69 crores towards
Software License fee which covers under intangible assets
and hence only 25% of the said expenditure is allowable as
depreciation of intangible assets. Section 32 of the Income
tax Act, 1961 w.e.f. 01.04.1998 provides that know-how,
patents, copyright, trademark, licenses, franchisee or any
other business or commercial rights of similar nature are
intangible assets and depreciation at the rate of 25% is
allowable on these intangible assets.
6. Hence your company has wrongly claimed and
allowed the depreciation on expenses incurred on Software
License fee @ 60% being computer in nature. However, as
discussed above the expenses claimed as Software License
fee is in nature of Intangible assets. Therefore depreciation
allowable is 25% on the above expenses instead of 60%
allowed earlier.
7. On the above facts and circumstances your case was
re-opened u/s 147/ 148 and the undersigned intends to allow
depreciation @ 25% instead of 60% allowed earlier."
4. The petitioner filed its objections on 15.11.2013, which were
rejected by the Assessing Officer on 21.11.2013. Thereafter, the
petitioner filed the present writ petition.
W.P.(C) No. 7948/2013 Page 3 of 6
5. We have heard the learned counsel for the parties. From the
reasons extracted above, it is evident that they do not indicate any failure
on the part of the petitioner to disclose material particulars which are
necessary for the assessment. In fact, there is no such allegation at all.
We may point out that in Haryana Acrylic Manufacturing Co. v. CIT:
308 ITR 38 (Delhi), this court had observed as under:-
"29. In the reasons supplied to the petitioner, there is no
whisper, what to speak of any allegation, that the petitioner
had failed to disclose fully and truly all material facts
necessary for assessment and that because of this failure there
has been an escapement of income chargeable to tax. Merely
having a reason to believe that income had escaped
assessment, is not sufficient to reopen assessments beyond the
four year period indicated above. The escapement of income
from assessment must also be occasioned by the failure on the
part of the assessee to disclose material facts, fully and truly.
This is a necessary condition for overcoming the bar set up by
the proviso to Section 147. If this condition is not satisfied, the
bar would operate and no action under Section 147 could be
taken. We have already mentioned above that the reasons
supplied to the petitioner does not contain any such allegation.
Consequently, one of the conditions precedent for removing
the bar against taking action after the said four year period
remains unfulfilled. In our recent decision in Wel Intertrade
Private Ltd.[2009] 308 ITR 22 (Delhi) we had agreed with the
view taken by the Punjab and Haryana High Court in the case
of Duli Chand Singhania [2004] 269 ITR 192 that, in the
absence of an allegation in the reasons recorded that the
escapement of income had occurred by reason of failure on the
part of the assessee to disclose fully and truly all material facts
necessary for his assessment, any action taken by the
Assessing officer under Section 147 beyond the four year
W.P.(C) No. 7948/2013 Page 4 of 6
period would be wholly without jurisdiction. Reiterating our
view-point, we hold that the notice dated 29.03.2004 under
Section 148 based on the recorded reasons as supplied to the
petitioner as well as the consequent order dated 02.03.2005 are
without jurisdiction as no action under Section 147 could be
taken beyond the four year period in the circumstances
narrated above."
6. From the above decision, it is evident that the escapement of
income from assessment must necessarily be occasioned by failure on the
part of the assessee to disclose material facts, fully and truly. It is clear
that this is a necessary condition for overcoming the bar set up by the first
proviso to Section 147. If this condition is not satisfied, the bar would
operate and no action under Section 147 could be taken.
7. In the facts of the present case, we find that the petitioner had
clearly claimed Software Licence Fee of Rs 31.69 crores as revenue
expenditure. That had been disallowed in part and an amount of Rs 25.36
crores was capitalized and depreciation was allowed at the rate of 60%.
The assessment was done under Section 143 (3) read with Section 144C
(13) of the said Act. The draft assessment order had made the aforesaid
capitalization, which was disputed by the petitioner and, therefore, the
matter went before the Dispute Resolution Panel, which confirmed the
draft assessment order and thereafter the final assessment order was
W.P.(C) No. 7948/2013 Page 5 of 6
passed on 28.10.2010. We have already indicated above that insofar as
the part disallowance as revenue expenditure is concerned, the petitioner
has filed an appeal which is pending before the Income Tax Appellate
Tribunal. Insofar as we are concerned, we find that the petitioner had
made a full and true disclosure of the material facts and, in any event,
there is no allegation in the purported reasons that the petitioner did not
make a full and true disclosure of the material facts at the time of the
original assessment. That being the position, following the decision in
Haryana Acrylic Manufacturing Co. (supra) and several other decisions
of this Court in the same vein, we find that the invocation of the re-
assessment proceedings is not sustainable in law.
8. Consequently, the impugned notice dated 28.03.2013 issued under
Section 148 as also the order disposing the objections dated 21.11.2013
are set aside. The writ petition is allowed. There shall be no order as to
costs.
BADAR DURREZ AHMED, J
JULY 16, 2015 RAJIV SHAKDHER, J
SR
W.P.(C) No. 7948/2013 Page 6 of 6
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