GENPACT INDIA Vs. ASSTT. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The factual matrix of this writ petition need no elaborate narration as the issue involved is in a narrow compass. Without going into the details of the assessment proceedings in respect of assessment year 2003- 04, suffice it to state that the assessing officer had passed the assessment order determining the income after making certain additions. In the process, deduction to the petitioner was also granted under Section 10A of the Income Tax Act, 1961 (hereinafter referred to as the Act). It was on the basis that the petitioner company is engaged in the business of rendering IT enabled services and it had established undertakings under Software Technology Park Scheme (STPS) in various areas notified under the said scheme to carry out IT enabled services and was accordingly held eligible for the deduction under Section 10A of the Act. However, this assessment was re-opened by issuing notice under Section 148 of the Act on the ground that the computation of aforesaid deduction was wrongly made inasmuch as computation of deduction under Section 10A of the Act was to be done by reducing telecommunication expenses incurred in foreign currency from export turnover. The petitioner challenged the validity and legality of this notice initiating re-assessment proceedings which was not accepted by the assessing officer who re-calculated the deduction by reducing telecommunication expenses incurred in foreign currency from export turnover. As a result, the assessing officer also issued notice of demand directing the petitioner to pay a sum of Rs.17,46,25,334/- (comprising of tax amounting to Rs.8,97,81,662/- and an interest of Rs.8,48,43,672/-). The petitioner challenged this order of the AO by preferring appeal before the CIT(A). Application for stay was also preferred. While the aforesaid stay application as well as appeal before the CIT(A) against the re-assessment order was pending, the return of the assessee for the assessment year 2010-2011 was processed under Section 143(1) of the Act. On passing assessment order under Section 143(1) of the Act, substantial amount of tax became refundable to the petitioner. However, while doing so, the Assessing Officer made the adjustment of Rs.17,98,64,094/- payable for the assessment year 2003-04 against the amount of refund due to the petitioner for the assessment year 2010-2011. The Assessing Officer also adjusted demand of Rs.6,56,14,927/- pertaining to the assessment year 2007-08, with which we are not concerned as the petitioner has accepted and not pressed challenge to the same. In nutshell, in respect of assessment year 2003-04, a demand of Rs.17.98 crores was raised on the petitioner only because the Assessing Officer declined to follow the ITAT order in the petitioner's own case for assessment year 2004-05 with respect to the computation of benefit under Section 10A of the Act.

(2.) The writ petition was filed on the ground that the aforesaid amount of Rs.17,98,64,094/- for the assessment year 2003-04 could not be adjusted against refund of assessment year 2010-2011. It was illegal as this was done without any notice to the petitioner and affording any opportunity of hearing though it is mandatory requirement under Section 245 of the Act.

(3.) It is not in dispute that no such notice under Section 245 of the Act was issued. It was also conceded by learned counsel for the respondent at the time of hearing that the procedure prescribed under Section 245 of the Act, namely, advance intimation and opportunity of hearing, is mandatory. It, therefore, clearly follows that the impugned adjustment was made in violation of the provisions of Section 245 of the Act and this adjustment is liable to be quashed on this ground itself.