Reopening assessment without new tangible material is an invalid change of opinion.

Issue

Whether reassessment proceedings initiated under Section 147 after four years from the end of the assessment year are legally valid if they are based on a re-evaluation of the same facts and documents available during the original assessment, without any new tangible material, and without establishing any failure on the part of the assessee to disclose all material facts.

Facts

The assessee, a software developer with a unit in a Special Economic Zone (SEZ), had its claim for exemption under Section 10A accepted in the original assessment.
After four years, the Assessing Officer (AO) initiated reassessment proceedings.
The reason for reopening was an observation from a subsequent assessment year (2014-15), where the AO inferred that export proceeds from the assessee’s subsidiaries were not genuine earnings but a circular flow of loans and investments made by the assessee itself, as the subsidiaries had accumulated losses.
However, during the original assessment, the assessee had submitted exhaustive details, including financial statements of its subsidiaries and export transactions, which the then-AO had examined before allowing the exemption.
The “reasons to believe” recorded for the reopening did not point to any new tangible material that came into the AO’s possession after the original assessment was completed. It also failed to specify what material facts the assessee had failed to disclose.

Decision

The High Court held that the reopening of the assessment was merely a change of opinion on existing facts and was therefore invalid. The impugned reassessment order was set aside.

Key Takeaways

Change of Opinion is Not a Valid Ground: An AO cannot reopen a concluded assessment simply because they have a different view or interpretation of the same facts and materials that were available during the original proceedings.
Conditions for Reopening After 4 Years: To reopen an assessment after the expiry of four years, two conditions must be met:
1. Income must have escaped assessment.
2. This escapement must be due to the assessee’s failure to disclose fully and truly all material facts necessary for the assessment.
New Tangible Material is a Must: The AO must have some fresh, tangible material that was not available on record during the original assessment to form a valid “reason to believe” that income has escaped assessment.

Deduction cannot be denied on mere suspicion if the assessee fulfills all statutory conditions.

Issue

Whether the Assessing Officer can disallow a deduction claimed under Section 10A/10AA by treating the export transaction as a “colorable device,” based on suspicion alone, even when the assessee has furnished all documentary evidence to prove the genuineness of the export and compliance with all stipulated conditions.

Facts

The assessee claimed a deduction under Section 10AA for the export of computer software from its SEZ unit to its foreign subsidiaries.
The AO disallowed the deduction, alleging that the export receipts were not genuine business income but were the assessee’s own funds channelled through its subsidiaries in the guise of export proceeds. The AO termed the arrangement a “colorable device.”
In contrast, the assessee provided all necessary documentary evidence to establish the actual export of software and proved that it had complied with all statutory conditions laid down in Sections 10A and 10AA.
The AO did not bring any cogent evidence on record to support the serious allegation that the transaction was a sham or that the assessee was not entitled to the exemption.

Decision

The Court held that the disallowance made by the AO could not be sustained. The exemption claimed by the assessee was allowed.

Key Takeaways

Onus of Proof: While the initial onus is on the taxpayer to prove that they have met all the conditions to claim a deduction, once this is done with documentary evidence, the onus shifts to the revenue.
Suspicion is Not a Substitute for Proof: An AO cannot deny a statutory deduction based on mere suspicion, conjecture, or inference. A serious allegation like a “colorable device” or sham transaction must be backed by concrete and cogent evidence.
Focus on Statutory Compliance: If a taxpayer has complied with all the conditions stipulated in the relevant sections of the Act (in this case, Sections 10A and 10AA), the benefit of the deduction cannot be arbitrarily denied without disproving the evidence furnished by the taxpayer.

IN THE ITAT MUMBAI BENCH ‘D’

Deputy Commissioner of Income-tax

63 Moons Technologies Ltd.

Sandeep Gosain, Judicial Member
and Girish Agrawal, Accountant Member

IT Appeal Nos. 2110 to 2112 (MUM) of 2025
[Assessment Years 2011-12 to 2013-14 ]

SEPTEMBER 22, 2025

Umashankar Prasad, CIT DR for the Appellant. Sukhsagar Syal, Adv. for the Respondent.

ORDER

Girish Agrawal, Accountant Member.- These three appeals filed by Revenue are against the orders of ld. CIT(A)- 50, Mumbai, vide

Order no. ITBA/APL/S/250/2024-25/1072723393(1), dated 30.01.2025 passed against the assessment order by DCIT CC-8(3), Mumbai, u/s. 143(3) r.w.s 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 18.12.2018 for Assessment Year 2011-12.

ii.

Order no. ITBA/APL/S/250/2024-25/1072723823(1), dated 30.01.2025 passed against the assessment order by DCIT CC-8(3), Mumbai, u/s. 143(3) r.w.s 147 Act, dated 21.06.2019 for Assessment Year 2012-13.

iii.

Order no. ITBA/APL/S/250/2024-25/1072724305(1), dated 30.01.2025 passed against the assessment order by DCIT CC- 8(3), Mumbai, u/s. 143(3) r.w.s 147 Act, dated 21.06.2019 for Assessment Year 2013-14.

2. Grounds taken by the Revenue in ITA No.2110/Mum/2025 are reproduced as under:

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in quashing the reassessment proceedings under Section 147 of the Income Tax Act by concluding that the reopening was based on a mere change of opinion, without duly appreciating the Assessing Officer’s independent reasoning, tangible material indicating possible escapement of income, and the due procedure followed for reopening?

Whether on the facts and under the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance of exemption claimed w/s. 10A/10AA of Rs.94,15,03,969/- without appreciating the facts as brought by the assessing officer in the assessment order?

Whether on the facts and under the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance of exemption claimed u/s. 10A/10AA of Rs.94,15,03,969/- without appreciating the facts as brought by the assessing officer in the assessment order wherein it has been held that the investment of the asssessee in its subsidiary is accumulated investment, which is receiving back by the assessee over a period of time

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deviating from the department’s consistent stand for AY 2014-15, as evidenced by the assessment order for that year, without distinguishing the relevant facts or providing adequate legal justification for the present exemption claim?

2.1. Grounds taken by the Revenue in ITA No.2111/Mum/2025 are reproduced as under:

Whether on the facts and under the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance of exemption claimed w/s.10AA of Rs. 143,82,79,656/- without appreciating the facts as brought by the assessing officer in the assessment order?

Whether on the facts and under the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance of exemption claimed u/s.10AA of Rs.143,82,79,656/- without appreciating the facts as brought by the assessing officer in the assessment order wherein it has been held that the investment of the asssessee in its subsidiary is accumulated investment, which is receiving back by the assessee over a period of time

Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the deduction under Section 35(1)(ii) of the Income Tax Act, 1961, despite the fact that subsequent inquiries by the investigation unit established that the donee trust was not carrying out genuine scientific research, leading to the withdrawal of its recognition?

Whether the Ld. CIT(A) was justified in holding that the retrospective withdrawal of recognition under Section 35(1)(ii) does not affect the allowability of deduction, without considering that the Revenue has demonstrated that the donee trust was engaged in non-genuine activities and that the approval was obtained by misrepresentation?

Whether the Ld. CIT(A) erred in relying on the decisions ofthe Hon’ble ITAT Mumbai in Vora Financial Services Pvt. Ltd. and the Hon’ble Bombay High Court in Ramdas Maneklal Gandhi, without appreciating that those cases did not involve a finding that the donee institution was engaged in fraudulent activities?

whether, in light of the investigation findings, the deduction under section 35(1)(ii) should be denied on the principle that an expenditure incurred in contravention of law or public policy is not allowable under the Income Tax Act, 1961?

2.2. Grounds taken by the Revenue in ITA No.2112/Mum/2025 are reproduced as under:

Whether on the facts and under the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance of exemption claimed u/s.10AA of Rs.41,21,25,539/- without appreciating the facts as brought by the assessing officer in the assessment order wherein it has been held that the investment of the asssessee in its subsidiary is accumulated investment, which is receiving back by the assessee over a period of time

whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deviating from the department’s consistent stand for AY 2014-15, as evidenced by the assessment order for that year, without distinguishing the relevant facts or providing adequate legal justification for the present exemption claim?

3. Common issues are involved in the set of these three appeals filed by the Revenue and therefore are taken up together for adjudication by passing this consolidated order. There is one more issue other than the common issues in AY 2012-13 relating to disallowance made for claim of deduction towards donation u/s.35(1)(ii) which shall be dealt with, if the need so arises since we will first take up jurisdictional issue challenging the reopening of assessments already completed u/s.143(3) r.w.s. 144C(3).

3.1. In all the three appeals, reopening has been initiated beyond the period of four years from the end of the relevant assessment year. For AY 2011-12, case was reopened vide notice u/s. 148, dated 31.03.2018, for AY 2012-13 it was on 28.03.2019 and for AY 2013-14 it was on 27.03.2019. In all the three years, original assessment was completed u/s.143(3) r.w.s. 144C(3) vide their respective assessment orders dated 15.05.2015, 20.05.2016 and 06.02.2017. Thus, provisions contained in the first proviso to section 147 becomes applicable in all the three appeals for the three said assessment years. First proviso to section 147 postulates that Assessing Officer can initiate reassessment proceedings after a period of four years from the end of the relevant assessment year, if he can substantiate the fact that any income chargeable to tax had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

4. Brief facts of the case before we take up the matter for adjudication are that assessee is engaged in the business of development of software technologies and services towards various segment, i.e., exchange business, brokerage and intermediaries services in India as well as outside India. Assessee has incorporated its wholly owned subsidiaries and step down subsidiaries including exchange joint ventures to represent its exchange business globally, since AY 2006-07. The details of these subsidiaries/ step down subsidiary companies is tabulated below:

Sr.No.	Holding co.	Subsidiary company	Stepl company subsidiary	Step 2 company subsidiary
1	63 Moons FT formerly as Financial Technologies (India) Ltd (FTIL)	FT Group know Investment Pvt Ltd Mauritius (FTGIPL)	Bahrain Exchange (BFX)
2	-do-	FT Singapore Pte Ltd (FTSPL)	Singapore Mercantile Exchange Pte Ltd (SMX)	Singapore Merc. Exchange Clearing corporation Pte. Ltd. (SMXCCL)

4.1. According to the assessee, details of these subsidiaries are reported every year in its annual report. These exchanges are independent entity managed by independent Board of Directors and professionals. Out of the above, following exchanges commenced their business operations during the financial year 2010-11 relevant to AY 2011-12 only:-

Sr. No.	Name of Exchange	Date
1	Singapore Mercantile Exchange Pte Ltd (SMX)	31-08-2010
2	Global Board of Trade Ltd (GBOT)	15-10-2010
3	Bahrain Financial Exchange BSC (BFX)	07-02-2011

4.2. Further, according to the assessee, these exchanges are regulated by the regulators of respective countries, details of which is tabulated below:

	Overseas Exchange	Regulator
1	Singapore Mercantile Exchange Pte. Ltd., Singapore (SMX), Singapore	Monitory Authority of Singapore
2	Singapore Mercantile Exchange Clearing Corporation Pte. Ltd., Singapore (SMXCCL), Singapore	Monitory Authority Singapore of
3	Bahrain Financial Exchange, Bahrain	Central bank of Bahrain
4	Global Board of Trade Ltd., Mauritius	Financial Services Commission of Mauritius

4.3. Assessee is registered with Software Technology Parts of India (STPI) since 30.03.2005. It claimed exemption u/s.10A since AY 200607 to AY 2011-12 which according to the assessee has been allowed regularly by the Department. Assessee has also set up a unit in Special Economic Zone (SEZ) for which approval was granted vide letter dated 16.08.2010 by the Development Commissioner, SEEPZ-SEZ, which began manufacture of computer software and related services, w.e.f. 17.01.2011. Assessee claimed deduction u/s.10AA in respect of export of computer software for its exchange business out of the said SEZ starting from AY 2011-12.

5. With the above background of factual position, we take up appeal for AY 2011-12 as the lead case to draw the facts relevant to the common issue on the jurisdictional ground on which ld. CIT(A) has granted relief to the assessee against which Revenue is in appeal before the Tribunal. Our observations and findings in this appeal shall apply mutatis mutandis to the other two appeal for AY 2012-13 and 2013-14.

6. For AY 2011-12, original return was filed on 29.11.2011, reporting total income at Rs.57,16,88,452/- after claiming deduction of Rs.89,81,59,063/- u/s. 10A and of Rs.4,33,44,906/- u/s.10AA, totalling to Rs.94,15,03,969/- (Rs.89,81,59,063 + Rs.4,33,44,906). Case of the assessee was taken up for scrutiny assessment u/s.143(3) r.w.s.144C. In the course of original assessment, assessee filed extensive details pertaining to deduction u/s. 10A and 10AA vide its letter dated 05.03.2015 bearing acknowledged stamp of the office of Deputy Commissioner of Income Tax, Central Circle – 8(3), Mumbai with the date stamp of 09.03.2015, placed in paper book at page-29 onwards. Relevant extract of the submission is reproduced below:

“4). During the Assessment Year 2011-12 FTIL has claimed the deduction u/s 10AA of Rs. 4,33,44,906/- Please provide the detailed working for the same and also provide the detailed note whether the condition mentioned in section 10AA were satisfied. Please provide the documentary proof thereof.

The assessee company has claimed the deduction u/s 10AA of Rs. 4,33,44,906/- on the profit generated from the unit located at Gala No. 407/408 Multi-storeyed Building SEEPZ Andheri (E) Mumbai-400 096. The Company had sought registration with SEEPZ which was granted on 16.08.2010. Software technology related services were rendered out of SEEPZ. The assessee had claimed its exemption u/s 10AA. The assessee has complied with various requirements as per section 10AA(4) of IT Act as under :-

Condition 1: assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005. Entrepreneur is a person who has been granted a letter of approval by the Development Commissioner to set a unit in a Special Economic Zone.

The assessee company is entrepreneur and has been granted a letter of approval vide Letter No. SEEPZ SEZ/IA-I/APL/SW-05/2010-11 8813 dated 16.08.2010 by Development Commissioner SEEPZ-SEZ. Copy of the letter is enclosed herewith. Annexure 4-A,

Conditions 2: The Unit in Special Economic Zone who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the Ist day of April, 2006. The assessee has begun the manufacture of computer software and related services after 17.01.2011. Copy of certificate dated 04th March 2011 issued by Superintendent of Custom (P) SEEPZ’s SEZ is enclosed herewith. (Annexure 4-B).

Conditions 3: It is not formed by the splitting up, or reconstruction, of a business already an existence.

This unit is a new unit together and has not been formed by splitting up or reconstruction of any unit which was already in existence. It is evident from the following:-i. Copy of Possession Letter given by MIDC for establishment of unit in SEZ. (Annexure 4-C (i) & (ii.)) ii. Copies of Sample Bills for purchase of New Computers, Plant & Machinery etc Annexure 4-D.iii. Employees were hired during the year itself for this unit. (Copy of sample appointment letters are enclosed herewith). Annexure 4-E.

Conditions 4: It is not formed by the transfer to a new business, of old plant and machinery. However, it can be formed by transfer of old plant or machinery to the extent of 20%.

This unit is a new unit and has not been formed by the transfer to a new business, of old plant and machinery. It is evident from the copies of sample bills of additions to Fixed Assets mentioned earlier in Annexure 4D

Condition 5: The assessee has income from export of articles or thing or from services from such unit. In other words, the assessee has exported goods or provided services out of India from the Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise.

The assessee company has exported the computer software and earned income from rendering Computer Software related services abroad. Copies of sample invoices are enclosed herewith. Further copies of SOFTEX form filed with custom department are enclosed herewith. Annexure 4F (i) & (ii).

Condition 6: Whether the consideration in respect of export by the undertaking received in or brought into India,

The assessee has received consideration in respect of export into India. (Copy of statement and Certificate of Foreign Inward Remittance is enclosed herewith). (Annexure 4G.)

Conditions 7: The Tax payer should submit The Report of the Accountant in Form No. 56F along with the return of income.

A copy of Form no 56 F was already submitted along with our letter dated 06/02/2015. We are now submitting Profit & Loss Account, Balance Sheet Income Tax Depreciation Schedule and Computation of Income for 10AA unit. The deduction u/s 10AA was duly claimed in the return of income. (Annexure 4H.)

Thus it has been proved that all the conditions required u/s 10AA(4) have been fulfilled by the assessee. Accordingly the assessee company has rightly claimed the deduction under section 10AA.

5) During the Assessment Year 2011-12 FTIL has claimed the deduction u/s 10A of Rs. 89,81,59,063/- Please provide the detailed working for the same and also provide the detailed note whether the condition mentioned under section 10AA were satisfied for claiming the deduction. Please provide the documentary proof thereof.

The Company had sought registration with STPI and was granted registration on 30.03.2005. All the software technology related services were rendered out of STPL. The assessee had claimed its exemption u/s 10AA. The assessee has complied with the various requirements as prescribed u/s 10AA. The company is eligible for exemption of income u/s 10AA. All the conditions required u/s 10AA(2) have duly been fulfilled by the assessee. It has begun the manufacture of computer software and related services after 01.04.1994 (i.e. after 30.03.2005) in case of STPI. The export unit was not formed by splitting up or the reconstruction of the business. The business activity was also not formed by the transfer to a new business of any machinery or plant previously used for any purpose. The export were made in foreign currency and sales proceeds of computer software exported out of India were received in India in convertible foreign exchange within stipulated period of 6 months from the end of the previous year or such extended period as permitted. A Copy of statement showing the inward remittance with copy of FIRC along with the copy of sample invoices is enclosed herewith. (Annexure 5-A). The assessee has obtained the report in prescribed form in form no. 56F r.w. Rule 16D of IT Rules Copy of Form no 56 F was already submitted along with our letter dated 06/02/2015. We are again submitting herewith a copy of Profit & Loss Account, Balance Sheet, Income Tax Depreciation Schedule and Computation of Income for 10AA unit. (Annexure 5-B.) The deduction u/s 10A was duly claimed in the return of income.

Kindly appreciate that the same deduction has been allowed in earlier years also by your good self and your predecessor-in-office. We submit that as there is no change in the facts and circumstances of the case, accordingly the deduction under section 10 AA should be allowed as claimed by the assessee in the year under consideration also.

6) Provide the NP Ratio of 10AA, 10A and other unit. Also give details of common expenses allocated between all the units and justify the ratio of allocation.

The details showing the Operating Profit Ratio of 10 A, 10 AA and Normal Unit are enclosed herewith as per Annexure No 6-A. Details of allocation of common expenses are enclosed herewith as annexure 6B.

Kindly note, that the profit in STPI & SEZ Units is more than the other units as these units are focused on business of software development which is catering to the international market where the sales prices are much higher than the domestic market. The products are developed according to the need of the customers and designed to use in different environment, different regulatory conditions so the, margins are higher in this case.

There are stiff competitions in the domestic market and as such the margins are under pressure. Further there are other ancillary business services which are having quite low margins. Hence the overall margins in the domestic business are comparatively lower than the international business.

10). Whether in the claiming of Deduction U/s 10A & 10AA, Other Sources Income has been considered? If yes please provide the details of such income.

Kindly refer to the computation of income of 10 A unit submitted to you with this letter in which you will find that the other income being Dividend income of Rs. 9,14,90,774 and profit on sale of investment for Rs. 5,36,766/- has already been reduced from the income while computing the total income for the purpose of claiming deduction under section 10A. Whereas the amount of Rs. 4,92,91,000/- is the amount written off of advance received from debtors and accordingly is business income only.”

6.1. In the same submission, to justify its claim of deduction on the merits, assessee had filed exhaustive evidences to substantiate the same which is reproduced as under:-

Letter of Approval by Development Commissioner SEEPZ-SEZ vide approval letter No. SEEPZ SEZIA-L/APL/SW-05/2010-11 8813 dated 16.08.2010.

ii.

Copy of certificate dated 04th March 2011 issued by Superintendent of Custom (P) SEEPZ’s certifying that assessee has begun the manufacture of computer software and related services after 17.01.2011 which satisfied that assessee has started development of Software in SEZ Unit

iii.

Copy of Possession Letter given by MIDC for establishment of unit in SEZ

iv.

Copies of Sample Bills for purchase of New Computers, Plant & Machinery etc,

Employees were hired during the year itself for this unit.

vi.

The unit is a new unit and has not been formed by the transfer to a new business, of old plant and machinery. Copies of Sample Bills for purchase of New Computers, Plant & Machinery were submitted.

vii.

The assessee company has exported the computer software and earned income from rendering Computer Software related services abroad. Copies of sample invoices along with copies of SOFTEX form filed with custom department.

viii.

The assessee has received consideration in respect of export into India. (Copy of statement and Certificate of Foreign Inward Remittance).

ix.

Copy of Audit Report in Form no 56 F filed electronically, Profit & Loss Account, Balance Sheet, Income Tax Depreciation Schedule and Computation of Income for 10AA unit. The deduction u/s 10AA was duly claimed in the return of income. (the aforesaid facts are noted on page 24 of the CIT(A) order)

The assessee had also filed copies of the annual reports of the regulator of the Bahrain Financial Exchange and Global Board of Trade, which included information related to these exchanges. The details thereof are extracted on page 33 of the order passed by the CIT(A).

xi.

The assessee also made point-by-point detailed submissions on the satisfaction of each of the conditions contained in Section 10A and 10AA of the Act as under:

Establishment of a unit in SEZ;

Unit in SEZ which manufactures computer software;

Such unit is not established by splitting up or reconstruction of a business already in existence;

Software exported outside India;

Export proceeds in the form of foreign currency received in India:

Books of accounts of the unit in SEZ audited and audit report in Form No. 56F submitted.

xii.

The assessee further submitted that its transaction of export to the subsidiaries has been reported in Form 3CEB year after year from the Assessment Year 2009-10 to Assessment Year 2014-15, the same has been examined by the Transfer Pricing Officer and no infirmity has been found therein. Accordingly, it was submitted that the test of sub-section (9), which incorporates the provisions of sub-section (8) and sub-section (10) of Section 80-1A of the Act and requires the transfer between the related parties to be undertaken at the market value of such goods and services, also stood satisfied.

7. It is on the strength of the above submissions made by the assessee in the course of original assessment proceedings that it is contended that the reopening initiated by the ld. Assessing Officer is nothing but mere change of opinion, not permissible u/s. 147 r.w.s. 148. The said original assessment was completed u/s. 143(3) r.w.s. 144C(3) vide order dated 15.05.2015, assessing total income at Rs.108,37,39,010/- wherein claim of deduction u/s. 10A and 10AA was accepted. The said assessment order was rectified u/s. 154 vide order dated 18.06.2015 with total assessed income at Rs.110,07,89,650/- by making an addition towards income from house property.

7.1. Subsequently, ld. Assessing Officer recorded reasons to believe for initiating reopening of the case and for issuing notice u/s. 148. In the reasons to believe so recorded by the ld. Assessing Officer, the basis adopted is reference to proceedings for AY 2014-15 which were completed u/s.143(3) r.w.s.144C(3), vide order dated 27.02.2018. From the perusal of the said reasons to believe placed in the paper book at page 180 to 182, it is noted that during the scrutiny proceedings for AY 2014-15, it was observed that the assessee had made export of software to its four subsidiary companies and realized foreign currency in the form of sale proceeds. On perusal of the financials for F.Y 2012-13, it was found that the total accumulated losses of these subsidiaries were of Rs 870.82 crores. In these companies, the assessee has made investments of Rs 490.9 crores and has also given loans to the extent of Rs 490.03 crores. These facts indicate that the proceeds of the exports are received from the amount of loan and investments made by assessee. These subsidiary companies, having small turnover and also incurring losses over the years have no creditworthiness to pay for software imports. In the assessment for AY 2014-15, it was held that assessee is diverting its funds to these subsidiary companies in the form of investments and loans, which is coming back to assessee in the form of export receipts. During the AY 2011-12, assessee has claimed exemption u/s 10AA of Rs 4,33,44,906/- and exemption u/s 10A of Rs 89,81,59,063/- on the amount of exports made to these subsidiary companies. Thus, on the basis of this information, ld. Assessing Officer had reasons to believe that the income to the extent of Rs 94,15,03,969/- on account of exemption claimed u/s 10A and 10AA has escaped assessment for the AY 2011-12.

7.2. Assessee had raised its detailed objections challenging both, the jurisdiction of initiating reassessment proceedings as well as merits of the case relating to claim made u/s. 10A and 10AA which was disposed off by ld. Assessing Officer vide order dated 22.08.2018. Subsequently, reassessment was completed by passing the impugned order whereby claim of deduction u/s.10A and 10AA amounting to Rs.94,15,03,969/- was disallowed.

8. Before the ld. CIT(A), assessee reiterated its submission made before the ld. Assessing Officer, both in the original assessment proceedings and the reassessment proceedings which has been elaborately reproduced in the first appellate order. Ld. CIT(A) in para-9 noted that reasons for reopening recorded by the ld. Assessing Officer are mainly on the basis that claim of exemption u/s.10A for AY 201415 was disallowed on the finding that software export was made by the assessee mainly to its foreign subsidiaries and these foreign subsidiaries had no independent capacity to pay for their imports. These foreign subsidiaries incurred huge losses and assessee had financed these losses by advancing loans to them. Export receipts received by the assessee, according to the ld. Assessing Officer are nothing but receipts of its own money through round tripping. Thus, genuineness of exports made by the assessee to these foreign subsidiaries was doubted.

8.1. Ld. CIT(A) took note of the factual position in para-8 and 10 and noted that all the details regarding financial statements of the assessee and subsidiaries companies as well as details of exports made to foreign subsidiaries were furnished during the course of assessment proceedings for AY 2011-12. It was only after verification of all these details, in the original assessment that the claim of exemption u/s.10A and 10AA was allowed.

8.2. From the reasons to believe recorded for reopening, ld. CIT(A) noted that there is no new tangible material which has been relied upon which got unearthed during the assessment proceedings, completed for AY 2014-15 to indicate that income for AY 2011-12 has escaped assessment. According to him, there is no factual finding that export made to foreign subsidiaries was found bogus to dislodge the claim of exemption made by the assessee. Contention of the assessee that reopening of assessment is nothing but merely a change of opinion on the existing facts was accepted by the ld. CIT(A) in absence of any new tangible material brought on record by the ld. Assessing Officer for the reasons to believe so recorded by him. He thus, held that reasons for reopening are based only on certain assumptions of facts which are already available on record. Thus, placing reliance on the decision of Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. 312/320 ITR 561 (SC) as well as in the case of ITO v. TechSpan India (P.) Ltd 152/404 ITR 10 (SC) and of Hon’ble Jurisdictional High Court of Bombay in the case Hexaware Technologies Ltd. v. Asstt. CIT 225/464 ITR 430 (Bom) concluded that no new tangible material was available with the ld. Assessing Officer and the reopening is merely based on the change of opening on the existing facts and thus, held the reopening u/147 as invalid, allowing the ground raised by the assessee.

9. We have heard both the parties and perused the material on record and gone through the exhaustive paper book filed by the assessee for all the three years taken together, containing 657 pages. Admittedly, factual position is that impugned reassessment proceedings have been initiated after a period of four years from the end of the relevant assessment years and thus, conditions prescribed under the first proviso to section 147 squarely applies in this case. There are two conditions which are to be met as per the first proviso to section 147, first, the original assessment u/s. 143(3) ought to be have been completed and second, that there should be no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Indeed the original assessment in the present case has been completed u/s.143(3) r.w.s. 144C(3). For the second requirement as to failure on the part of the assessee to disclose fully and truly all material facts, from the perusal of the reasons to believe recorded by the ld. Assessing Officer, we note that primarily it is based on the scrutiny assessment completed for AY 2014-15 where from ld. Assessing Officer observed about the financial details of the foreign subsidiaries and step down subsidiaries of the assessee. Ld. Assessing Officer based on the financial position of the subsidiaries/step down subsidiaries raised his concerns on the claim on exemptions u/s. 10A and 10AA which according to him is highly inflated and may not be genuine. How the assessee failed and what is the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment is not discernible from the reasons to believe so recorded. Such a mention is found to be noted only in the second last para which does not advert to any material fact which the assessee has failed to disclose. In this respect, the said para from the reasons to believe recorded by the ld. Assessing Officer is extracted for ready reference:

“In view of the above, I have reasons to believe that the assessee’s income to the tune of Rs. 94,15,03,969/- (4,33,44,906 89,81,59,063) which is chargeable to tax, has escaped assessment for the A.Y. 2011-12 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. Thus, remedial action u/s 147 of the I-T Act, 1961 needs to be taken in this case.”

9.1. From the above, it is noted that ld. Assessing Officer has merely copied and incorporated the language of the first proviso of section 147 for a rhetoric compliance. There is no express reference to any specific fact which the assessee ought to have disclosed but did not, in the course of original assessment proceedings. It is a settled position in law that the failure on the part of the assessee has to be pointed out in the reasons alone. Thus, the test prescribed under the first proviso to section 147 has not been met in the present case as no failure of disclosure of any particular facts has been pointed out in the reasons to believe recorded by the ld. Assessing Officer.

10. In the given set of facts and circumstances, the reopening proceedings are liable to be quashed resulting in the impugned reassessment order as bad in law. Accordingly, we hold so, finding our force from the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Cedric De Souza Faria v. Dy. CIT 227/400 ITR 30 (Bom), wherein it was held that-

“What the proviso to Section 147 postulates is material which was necessary for assessment, which the assessee failed to fully and truly disclose. There is no clear statement in the reasons as to which material the Petitioner failed to disclose. It is not enough that in the reasons supplied, there is one line to the effect that due to failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year, A.Y. 2010-11. This is just copying and incorporating the language of the section to assume jurisdiction. Such mere lip service is not enough.”

…………..

Thus, the validity of the initiation of the assessment proceedings will be determined only by the reasons furnished by the Assessing Officer to the assessee. If the assessment proceedings are to be initiated after a period of four years on the ground that the assessee failed to make full and true disclosure of all necessary facts, then the Assessing Officer must state so in the reasons and the action must be founded on such reason.”

11. Also, it is an undisputed fact that assessee had made a detailed exhaustive submission corroborating its claim with documentary evidences in the course of original assessment proceedings by way of its submission dated 05.03.2015, contents of which is already extracted in the above paragraphs. Ld. Assessing Officer, after considering the said submission accepted the claim of assessee allowing the exemption u/s. 10A and 10AA, while passing the original assessment order u/s.143(3) r.w.s. 144C(3). By initiating the impugned reassessment proceedings, ld. Assessing Officer has resorted to reviewing his own assessment though the same had been examined in the course of original assessment proceedings. In view of settled legal position, ld. Assessing Officer cannot seek to change an opinion already formed, in the garb of the reassessment proceedings. Section 147 permits reassessment and not review as held by Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (supra). According to the Hon’ble Court, the Assessing Officer has power to reopen provided there is tangible material to come to conclusion that there is escapement of income from assessment. In the present set of facts, there is nothing new tangible material which has been brought on record to validate the jurisdiction assumed by the ld. Assessing Officer for invoking the reopening of the case. Absence of such a fresh new tangible material is fatal to the validity of the impugned reassessment proceedings. Reasons to believe recorded by the ld. Assessing Officer does not advert to any fresh tangible material which has come in his possession after the conclusion of the original assessment proceedings. They only make reference to the Assessment Order for AY 2014-15 and notes to account to the financial statement which in no way constitute fresh tangible material as they were always part of the assessment records. This fact is corroborated by the detailed submission made by the assessee vide its letter dated 05.03.2015. Thus, what ld. Assessing Officer has resorted to is based on assessment proceedings on a subsequent year, i.e., AY 2014-15 which does not constitute tangible material for the purpose of reopening for the concluded assessment. Reference to the assessment for the subsequent year of AY 2014-15 where a contrary view had been taken does not empower the Assessing Officer to assume jurisdiction for the purpose of reopening of the assessment in the present case.

11.1. Accordingly finding force from the judicial precedents referred above and those relied upon by the ld. CIT(A), in the given set of facts which are undisputed, we do not find any reason to interfere with the findings so arrived at by ld. CIT(A) in holding the reopening u/s. 147 as invalid. Thus, grounds raised by the Revenue on the jurisdictional issues of reopening of assessment u/s.147 are dismissed.

12. Ld. CIT(A) has also dealt on the merits of the case and thoroughly analysed the factual position based on detailed and elaborate submission made by the assessee, which has been reproduced in the first appellate order.

12.1. Before us, nothing cogent has been brought on record to controvert the factual analysis undertaken by the ld. CIT(A) for the meritorious findings arrived by him. We have perused the material placed in the paper book as well as the analytical findings given by ld. CIT(A), the relevant extracts are reproduced below for ready reference-

20. I have considered the assessment order, submission of the appellant and facts available on record. The appellant company is in the business of development of various software products specially used in electronic exchanges. It has one STPI unit at SEEPZ Andheri, Mumbai, a specifed/notified area for the development of software on which the appellant has been claiming exemption u/s 10A from A.Y 2006-07 onwards. The appellant has another SEZ unit at SEEPZ. The SEZ unit began the manufacturing of computer software and related services after 17.01.2011. On the exports made from these units the appellant has claimed u/s 10AA from A.Y 2011-12 onwards. During the year under consideration, the appellant has exported the software to its foreign subsidiaries from which it has received export receipts of Rs 125,78,10,000/-. The details are as under:

Sr.No	Name of the Subsidiary	Oflue of Exports
1	Bahrain Financial Technologies	5740.10
2	Singapore Stock Exchange Pvt. ltd	8608.17
3	Singapore Merchantile Exchange Clearing Corporation Pvt Ltd.	804.47
4	Global Board of Trade Ltd.	3461.75
5	Total Amount	12578.09

21. The contention of the AO is that all of these subsidiaries companies are incurring huge losses and from their financials it is observed that they do not have the capacity to make payments for any imports. What the appellant has received back in the form of export receipts is nothing but its own money advanced to its subsidiaries. Therefore, in view of the AO, the entire arrangement is nothing but a colorable device for channelizing the appellant’s own money through the subsidiaries in the form of export receipts. Thus, the sole basis of the AO to hold the transaction of foreign exports made to the subsidiaries as non-genuine is that these foreign subsidiaries are incurring huge losses and they do not have their own financial capacity to make payments for imports. On the other hand, the appellant contends that the company is in the business of developing software which is specially used in electronic exchanges. In the course of its regular business activity the appellant has expanded its business by establishing subsidiaries at various foreign exchanges. For the same, the appellant has made investments and has also provided financial assistance to them. The appellant has also exported the customized software as per the specific requirements of these foreign subsidiaries based on various challenges and regulatory frameworks that exist in different countries. It is further contended that the appellant company has complied with all the conditions stipulated in section 10A and 10AA of the I.T. Act. All the documentary evidence of the same were submitted before the AO during the initial assessment proceedings and after scrutinizing the same, the exemption claimed u/s 10A and 10AA was allowed. It is further contended that the appellant has been claiming exemption u/s 10A from AY 2006-07 to AY 2011-12, and exemption u/s 10AA from AY 2011-12 onwards. Merely on the basis of certain assumptions and conjectures, the exemption cannot be disallowed in the subsequent year once the same is allowed in the earlier years. The appellant has also relied on the decision of the Hon’ble Bombay High Court in the case of Western Outdoor Interactive Ltd.

22. It is a fact that the appellant is in the business of developing software used for electronic exchanges and it has two units: one STPI unit and another SEZ unit. The appellant company has various subsidiary companies in various countries such as Dubai, UK, Singapore, and Mauritius. During the assessment proceedings the appellant had furnished the following document in support of exports.

Letter of Approval by Development Commissioner Seepz-SEZ vide approval letter No. SEEPZ SEZ/IA-I/APL/SW-05/2010-11 8813 dated 16.08.2010.

II.

IIL

Copy of Possession Letter given by MIDC for establishment of unit in SEZ,, Copies of Sample Bills for purchase of New Computers, Plant & Machinery and Employees were hired during the year itself for this unit.

IV.

Copies of sample sample Invoices along with copies of SOFTEX form filed with Custom Department which satisfied that the assessee has exported goods or provided services out of India from the Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise.

Copy of Statement reconciling the export sales to Foreign Inward Remittance which satisfied that export sales were realized in foreign currency within the time limit as prescribed by the Reserve Bank of India.

VI.

account Copy of audit report in Form No. 56F along with profit & loss

23. The appellant further submitted that the software were exported through Internet which is covered under the definition of other mode. Further the “Softex form” in which declaration made by appellant company has been accepted by “Appraising Officer of Speez/Special Economic Zone”. In the Softex Form following details are reported.

Name and address of exporter 1.

SEZ Centre within whose Jurisdiction the unit is situated

Import-Export Code

Category of Exporter

Buyer’s Name and Address

Invoice Details

23.2 Section A of Softex Form (For Exports through data communication link) contains the following details

Name of Authorized Datacom service Provider

Type of Software exported

How Export value will be realized: Name of Authorized Dealer and dealer code mentioned with conditions that export sales will be realized within six month from the date of invoice.

The above declaration satisfied the condition that software has been developed in the SEZ unit and exported through internet to buyer.

24. It is seen that the AO has not doubted these documentary evidences which prove that the appellant has manufactured the software and the same were exported to the foreign subsidiaries. Therefore, it is an undisputed fact that the appellant company has exported the customized software as per the requirements of its subsidiaries and received export receipts.

25. It is also a fact that all these transactions with the associated enterprises are coming within the ambit of the provisions of section 92C of the I.T. Act and the same are reported in Form 3CEB and these transactions were already subjected to scrutiny by the transfer pricing officer. The appellant has regularly reported the financial details of its domestic as well as foreign subsidiaries in its notes to accounts.

26. I have also considered the details submitted by the appellant regarding the cost incurred by various International exchanges for customized software. It is observed that in similar instances, huge cost has been incurred by such international exchanges for software. The cost depends on the specific requirements of the companies as per the stock exchange requirements of different countries. Therefore, only on the volume, the transaction cannot be doubted.

27. The AO has not given any finding that in any enquiry conducted in the case of the appellant, it was found that the appellant has not made any such exports to the subsidiaries or such export made to the subsidiaries are inflated only for the purpose of claiming exemption u/s 10A/10AA of the I.T. Act. It is also not a case that the appellant has been found to have violated any provisions of section 10A/10AA of the 1.T. Act for which the appellant is not entitled to claim exemption. Therefore, only due to the fact that the subsidiaries are incurring losses and have no capacity to make payments on their own the transaction cannot be treated as non-genuine. It is nothing but the assumption of the assessing officer which is not backed by any cogent material on record.

28. Further, providing loans, advances and investments to the subsidiaries is a separate activity which is in the commercial interest of the holding company. The appellant has also furnished the details of sources of investments and loans provided to the subsidiaries. It is a well settled legal position laid down by the Hon’ble Supreme Court in the case of S.A. Builders 288 ITR (SC), that the A.O. cannot sit in the armchair of the businessman to decide whether the decision taken by the management of the Assessee are in his best interest or not. There is no logic in the A.O’s contention that the appellant should have exported to other foreign companies instead of subsidiary companies. The appellant is expanding its core business by creating the various foreign subsidiaries. It is the appellant’s business interest to provide customised software as per the business need.

29. In view of the fact that the appellant has furnished all the documentary evidence to establish the export of software to foreign subsidiaries and complied to all the conditions stipulated in the section 10A and 10AA, exemptions already allowed in the earlier years and current year cannot be withdrawn merely on the assumptions. surmises and conjectures. The A.O has not brought any cogent evidence to hold that the appellant is not entitled for the exemptions claimed u/s 10A and 10AA. Therefore, disallowance made by the A.O cannot be sustained. Accordingly, the A.O is directed to allow the exemptions claimed by the appellant u/s 10A and 10AA of the I.T. Act. Appeal on these grounds is thus ALLOWED.”

12.2. Considering the above, we do not find any reason to interfere with the factual findings arrived at by ld. CIT(A) to allow the claim made by the assessee u/s.10A and 10AA. Thus, grounds raised by the Revenue in this respect are dismissed.

13. In the result, appeal of the Revenue is dismissed.

14. Since the issue involved in the other two appeals for AY 2012-13 and 2013-14 are identical to what we have adjudicated upon in appeal for AY 2011-12, our observations and findings in the above paragraphs apply mutatis mutandis to these two years also. Accordingly, these two appeals of Revenue are also dismissed.

15. Further, in appeal for AY 2012-13, there is another issue contested by the Revenue vide ground no.5 to 8 in respect of deduction claimed u/s. 35(1)(ii) which has been allowed by the ld. CIT(A). This issue raised by the Revenue is rendered academic, since the initiation of reopening u/s.147 and the reassessment order passed thereupon itself has been held to be invalid and bad in law in terms of our above observations and findings, hence no separate adjudication is required on this issue.

16. In the result, all the three appeals by the Revenue are dismissed.