Dr. D.Y Chandrachud, J.:— Rule, by consent returnable forthwith. With the consent of counsel and at their request the petition is taken up for hearing and final disposal.
2. By two notices dated March 18, 2011, the Assessing Officer has sought to reopen the assessments for the assessment years 2006-07 and 2007-08. These proceedings under article 226 of the Constitution have been instituted in order to question the validity of the action initiated by the Assessing Officer for reopening the assessments. The petitioner filed its return of income-tax for the assessment year 2002-03 and claimed a deduction under section 10A of the Income-tax Act, 1961. During the course of the assessment proceedings, queries were raised by the Assessing Officer, inter alia, on March 7, 2005. The petitioner was called upon to explain how the services rendered by the petitioner while engaged in domain name registrations and web hosting services were covered within the meaning of the expression “website services” under a circular issued by the Central Board of Direct Taxes. The petitioner responded by a letter dated March 14, 2005, clarifying the circumstances in which it provides website services within the meaning of a Central Board of Direct Taxes Circular dated September 26, 2000. The circular was issued, inter alia, in exercise of the powers conferred by clause (b) of item (i) of Explanation 2 to section 10A. By. the circular several information technology enabled products or services came to be specified. The specified services included “website services”.
3. An order of assessment was passed for the assessment year 2002-03 under section 143(3). The Assessing Officer held that the petitioner had not been able to establish that domain name registration and web hosting services fall within the meaning of “website services” mentioned in the notification dated September 26, 2000. The claim of the petitioner for deduction under section 80HHE as well as under section 10A was consequently disallowed.
4. For the assessment year 2003-04, the petitioner once again made a claim for a deduction under section 10A and submitted a detailed explanation to the Income-tax Officer on December 23, 2005, in pursuance of the queries raised on December 20, 2005, in the course of a scrutiny assessment. The Assessing Officer, as in the case of the assessment year 2002-03, declined to allow a deduction under section 10A for the assessment year 2003-04 by his order dated January 9, 2006. The Assessing Officer was of the view that the business of the assessee did not involve any value addition.
5. Both the orders for the assessment years 2002-03 and 2003-04 were carried in appeal. The Commissioner (Appeals), by an order dated March 21, 2006, allowed the appeal filed by the petitioner for the assessment year 2002-03 and after a detailed discussion came to the conclusion that a deduction had to be allowed under section 10A. Following the earlier order for the assessment year 2002-03, the Commissioner (Appeals) for the assessment year 2003-04, allowed the claim of the petitioner for deduction under section 10A by an order dated February 2, 2007. The order of the Commissioner (Appeals) for the assessment year 2002-03 was not called into question by the Revenue. For the assessment year 2003-04, the Revenue preferred an appeal to the Income-tax Appellate Tribunal. However, none of the grounds of appeal related to the entitlement of the petitioner to claim a deduction under section 10A. The appeal was dismissed by the Tribunal by an order dated March 25, 2009.
6. For the assessment years 2004-05 and 2005-06, the petitioner was allowed a deduction under section 10A by orders passed by the Assessing Officer on July 31, 2006, and March 30, 2007. The Assessing Officer granted a deduction under section 10A for the assessment years 2006-07 and 2007-08.
7. For the assessment year 2008-09, the petitioner did not claim any deduction under section 10A having returned a business loss. None the less the Assessing Officer sought to determine as to whether the petitioner would have been entitled to a deduction under section 10A on the ground that a major part of the revenue came from domain registration activity. According to the Assessing Officer, the petitioner would not have been entitled to a deduction under section 10A were it to have any profits from business, on the ground that it did not fulfil the conditions laid down in the section. However, for the year in question the petitioner had declared a loss from business and it had not claimed any deduction under section 10A.
8. By a notice dated March 18, 2011, the Assessing Officer has sought to reopen the assessment for the assessment year 2006-07. A similar notice has been issued on March 18, 2011, for the assessment year 2007-08. The reasons on the basis of which the assessment is sought to be reopened were disclosed to the petitioner by a letter dated April 29, 2011, of the Assessing Officer. Those reasons are as follows:
“On a perusal of the records and details, it is seen the assessee is engaged in domain registration activity. The assessee functions as domain registrar, authorized by a non-profit corporation, ICANN (Internet Corporation for Assigned Names and Numbers). The activity of domain registry does not fall into the category of IT enabled services as IT enabled services, necessitates value addition to call it a IT enabled services. However, in the domain registry activity of the assessee, no value addition is taking place at any point. The assessee, as domain registrar, only acts as a retail agent of a domain registry, which manages the top level domain (TLD) both technically and administerly. Further, domain registration services does not fall under the category of website services. Hence, it is crystal clear that the assessee is not eligible for deduction under section 10A of the Act since it does not qualify the conditions laid down in the said section 10A of the Income-tax Act. It is also pertinent to mention that assessment under section 143(3) has been passed in the assessee's own case for the assessment year 2008-09 and deduction under section 10A was disallowed. As the facts and circumstances of this assessment year is same as that of the assessment year 2008-09, it is evident that the assessee has wrongly claimed deduction under section 10A of the Act for the assessment year 2007-08 also.”
9. The petitioner submitted its objections to the reopening of the assessment by its letter dated May 30, 2011. Three submissions were urged:
(i) the proposed reassessment is based on a change of opinion;
(ii) the Assessing Officer had no reason to believe contrary to the decision of the Commissioner (Appeals); and
(iii) a deduction could not have been denied in subsequent years without first withdrawing it in the initial year.
10. The Assessing Officer has passed’ an order on June 16, 2011, rejecting the objections for the following reasons:
“As far as the assessee's arguments with regard to whether there is a change in the opinion is concerned, the same is not acceptable for the reasons that the nature of domain registration was examined at the time of passing assessment order for the assessment year 2008-09 and new facts that the activity of domain registry does not falls into the category IT enabled services come to the notice of the Assessing Officer. IT enabled services necessitates value addition to call it a IT enabled services. However, in domain registry activity of the assessee, no value addition is taking place at any point. The assessee, as domain registrar, only acts as a retail agent of a domain registry. Hence, the assessee is held to be not eligible for deduction under section 10A of the Act.
Further, the assessee's contention that the deduction under section 10A was allowed in earlier years, hence the reopening of the case is bad in law. In this regard, the hon'ble Income-tax Appellate Tribunal, Chennai “B” Special Bench, in the case of Asst. CIT v. Mahindra Holidays and Resorts (India) Ltd., [2010] 3 ITR (Trib) 600 (Chennai); 40 DTR 1 held that the view taken in a particular assessment year cannot bind the Assessing Officer for subsequent assessment years. The hon'ble Supreme Court in the case of Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, [2010] 320 ITR 561(SC) held that the Assessing Officer has power to reopen the case provided that there is tangible material to come to the conclusion that there is escapement of income from assessment. In the instant case, during the assessment proceedings for the assessment year 2008-09, the issue of domain registry is examined and found to be not eligible for exemption under section 10A of the Act as discussed above. Accordingly/the exemption was disallowed for the assessment year 2008-09.”
11. Learned counsel appearing on behalf of the petitioner submitted that (i) the assessments for the assessment years 2006-07 and 2007-08 are sought to be reopened on the basis of a mere change of opinion, something that is impermissible in view of the judgment of the Supreme Court in Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, [2010] 320 ITR 561(SC); (ii) the fact that the Assessing Officer had taken a different view for the assessment year 2007-09 was not indicative of the fact that there was no change of opinion; (iii) as a matter of fact the assessments are sought to be reopened without any further or new facts or fresh materials; (iv). the petitioner had been allowed a deduction under section 10A after detailed consideration both by the Assessing Officer and in appeal by the Commissioner (Appeals) for the assessment years 2002-03 and 2003-04. Even if the principles of res judicata do not apply to different assessment years, the law mandates a degree of uniformity; and (v) section 10A contemplates a continuous deduction for a period of 10 years and unless the deduction which was allowed in the very first year were to be reopened or reversed, there would be no justification for reopening assessment for subsequent years.
12. On the other hand, it has been urged on behalf of the respondents that the reasons which have been indicated in the communication dated April 29, 2011, are sufficient to reopen the assessments which in this case is within a period of four years of the end of the relevant assessment year. Learned counsel also dwelt on the order passed by the Assessing Officer rejecting the objections of the assessee.
13. Section 10A(1) contemplates a deduction from the profits and gains derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software. The expression “computer software” is defined by clause (i) of Explanation 2 to mean (a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or (b) any customized electronic data or any product or service of similar nature, as may be notified by the Board which is transmitted or exported from India to any place outside India by any means. The Central Board of Direct Taxes has issued a notification on September 26, 2000, specifying fifteen technology enabled products or services for the purposes of clause (b) of item (i) of Explanation 2 to section 10A. Amongst them is “website services”. The point to be noted at this stage is that section 10A provides for a deduction over a period of ten consecutive years. The issue as to whether the petitioner conducts a website service was considered in a significant amount of detail by the Assessing Officer when he disallowed the deduction for the assessment year 2002-03. The view of the Assessing Officer was that the activities of domain name registration and web hosting services were not covered under the head of website services. These activities, according to the Assessing Officer, did not constitute ‘software export’ and he was of the view that the income generated from the sale of domain name registrations and web hosting would not qualify for deduction under section 10A. The Assessing Officer followed the same view for the assessment year 2003-04. The assessee carried the matter in appeal. The Commissioner (Appeals) held that the assessee was entitled to the benefit of the deduction since the service of domain name registration as well as web hosting constitutes an integral part of “website services” within the meaning of the notification dated September 26, 2000, issued by the Central Board of Direct Taxes. The order of the Commissioner (Appeals) for the assessment year 2002-03 was followed while allowing the appeal of the assessee for the assessment year 2003-04. The Revenue accepted the order for the assessment year 2002-03 and no appeal was filed to the Tribunal. The assessee thus availed of a deduction for the first year, namely, the assessment year 2002-03. For the assessment year 2003-04, there was an appeal of the Revenue before the Tribunal but significantly the grounds of appeal would indicate that there was no appeal on the entitlement of the assessee to avail of a deduction under section 10A. Consequently, both for the assessment years 2002-03 and 2003-04 the orders passed by the Commissioner (Appeals) granting to the assessee the benefit of the deduction under section 10A attained finality. Following this position, the assessee was allowed a deduction under section 10A for the assessment years 2004-05, 2005-06, 2006-07 and 2007-08.
14. During the course of the assessment year 2008-09, the assessee did not as a matter of fact claim a deduction under section 10A having returned a business loss. None the less the Assessing Officer purported to comment on whether the assessee would have been entitled to a deduction under section 10A had such a claim been made. The Assessing Officer held that if the assessee were to make a claim under section 10A, such a claim would not be sustainable and would have been rejected. There was no occasion for the Assessing Officer, during the course of the assessment for the assessment year 2008-09 to comment on whether the assessee would have been entitled to claim a deduction under section 10A when no deduction was claimed in the first place. No question of a disallowance can arise where there is no claim. A disallowance can arise only when there is a claim. Be that as it may, it is partly on the basis of the order of assessment for the assessment year 2008-09 that the assessments for the assessment years 2006-07 and 2007-08 are now sought to be reopened.
15. The reasons which have been furnished by the Assessing Officer for reopening the assessment are that’ (i) the activities of a domain registry do not fall into the category of IT enabled services which necessitate a value addition. According to the Assessing Officer, no value addition takes place in the activity of a domain registry engaged in by the assessee; (ii) the assessee as a domain registrar acts as a retail agent of a domain registry; (iii) domain registration services do not fall under the category of website services; and (iv) in the case of the assessee, during the course of the assessment year 2008-09 a deduction under section 10A has been disallowed.
16. The challenge of the assessee is that the reasons constitute a mere change in opinion. On the basis of the record, as it stands, that challenge has substance and would have to be accepted. As the narration of the facts would indicate the Assessing Officer had disallowed a deduction under section 10A for the assessment years 2002-03 and 2003-04. That view was reversed by the Commissioner (Appeals). Hence, for those years and for the succeeding years, the assessee was granted a deduction under section 10A. The reasons which have been furnished to the assessee do not contain any new or tangible material or a reference to any new facts which have come on record which were not present to the mind of the Assessing Officer when the earlier assessments were finalised. The power of the Assessing Officer to reopen an assessment under section 148 is even within a period of four years conditioned by the requirement that there must be reason to believe that income has escaped assessment. The Assessing Officer cannot in the guise of formulating a reason to believe exercise a jurisdiction to review an earlier determination. The power to reopen an assessment is not a power to review an assessment already made, but a power to reopen where, there is reason to believe that income has escaped assessment. Consequently, unless the Assessing Officer has tangible material before him on the basis of which he comes to that conclusion, the reopening of an assessment cannot be permitted merely on the ground that there is a change in the view of the Assessing Officer and he subsequently believes that the earlier view was incorrect. If that were to be permitted, the Assessing Officer, would exercise the power to reopen assessments arbitrarily. That, the law does not countenance.
17. In Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, [2010] 320 ITR 561 (SC), the Supreme Court has made the following observations (page 564),:
“On, going through the changes, quoted above, made to section 147-of the Act, we find that, prior to the Direct Tax Laws (Amendment), Act,. 1987, reopening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing. Officer to make a back assessment, but in section 147 of the Act (with effect from April 1, 1989), they are given a go by and only one condition has. remained, viz., that there the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-April 1, 1989, power to reopen is. much wider. However, one needs to give a schematic interpretation to the words ‘reason to, believe’ failing which, we are, afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of ‘mere change of opinion’, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reasssess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of ‘change of opinion’ is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of ‘change of opinion’ as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has power to reopen, provided there is ‘tangible material’ to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”
18. The order passed by the Assessing Officer on the objections of the assessee adverts to two considerations. First, the Assessing Officer notes that IT enabled services necessitate a value addition, something which, according to him, the activity of a domain registry does not fulfil. This reason, is a mere change of opinion. As a matter of fact, in the assessment order for the assessment year 2003-04, the Assessing Officer had taken the same view holding that the business of the assessee in itself is a mere purchase and sale, the only value addition being the manual service of the assessee. This view was reversed in appeal by the Commissioner (Appeals). The second consideration which has weighed with the Assessing Officer is that a decision taken in a particular year cannot bind the Assessing Officer for subsequent years. Now, it is true that each assessment year constitutes a separate unit in itself and the principles of res judicata as such are inapplicable. Equally, though the principles of res judicata do not strictly apply, as in the case of different assessment years, there is some value to be placed on the need for uniformity even in tax adjudication. Moreover, in the present case, the deduction is not a matter relating to independent assessment years in the strict sense of the term. Section 10A contemplates a deduction in respect of ten succeeding assessment years. A Division Bench of the Gujarat High Court; while considering the deduction under section 80J held in Saurashtra Cement and Chemical Industries Ltd. v. CIT, [1980] 123 ITR 669(Guj) as follows (page 675):
“No doubt, the relief of tax holiday under section 80 can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the Income-tax Officer cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted.”
19. This view of the Gujarat High Court has been followed by this court in CIT v. Paul Brothers, [1995] 216 ITR 548(Bom).
20. In Siemens Information System Ltd. v. Asst. CIT, [2007] 295 ITR 333(Bom) an assessment was sought to be reopened under section 148 on the basis of a view taken in an assessment for a subsequent assessment year. Holding that the assessment was sought to be reopened on the basis of a mere change of opinion, the Division Bench observed as follows (page 344):
“In the instant case, the second Assessing Officer for the assessment year 2003-04 on the same set of facts has taken a view which is different from the view taken by the previous Assessing Officer for the assessment year 2001-02, on the interpretation of the same provisions of law. It is possible in the absence of finality to a question of law, that an Assessing Officer on the same set of facts could take a different view. Would that attract the provisions of section 148 of the Income-tax Act because the second Assessing Officer holds a different view on the interpretation of the provisions. The accounting system is the same. The returns have been filed in the manner prescribed by the form. On these facts because the second Assessing Officer differs with the opinion of the earlier Assessing Officer on the interpretation of the provision without any other additional material, is he entitled to assume jurisdiction to issue a notice under section 148. In our opinion, such a belief would amount to a mere change of opinion. The remedy in case like this would be to invoke or resort to the other applicable provisions of the Act. If the Income-tax Officer does not possess the power of review, he cannot achieve that object by initiating a proceeding for reassessment or by way of rectification of mistake. A mere change of opinion on an interpretation of a provision by itself without anything more, cannot give rise to reason to believe. The power of reopening an assessment has been conferred by the Legislature not with the object of enabling the Income-tax Officer to reopen the full declaration made against the Revenue in respect of questions raised that arose directly for consideration in the earlier proceedings. If that were not the legal position, it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods.”
21. We are in respectful agreement with that view of the Division Bench.
22. For these reasons, we are of the view that the Assessing Officer has sought to reopen the assessment for the assessment years 2006-07 and 2007-08 purely on the basis of a change of opinion. There is justification in the grievance of the assessee that by relying on the assessment order for the assessment year 2008-09 the Revenue has put into place a contrived attempt to reopen the assessment for the assessment year 2008-09. The issue as to whether the assessee was entitled to a deduction under section 10A did not fall for determination at all the assessee not having made a claim for deduction under section 10A in the first place during the assessment year 2008-09. The Assessing Officer proceeded to hold that if the assessee were to claim a deduction during that year, then such a deduction would have been unsustainable. These observations in the order for the assessment year 2008-09 have now been pressed into service to sustain the reopening of assessment for the assessment years 2006-07 and 2007-08. That clearly is impermissible in the facts of this case which are clearly indicative of a mere change of opinion without the existence of any tangible material to reopen the assessment. For these reasons, we allow the petition and set aside the notices dated March 18, 2011, issued by the Assessing Officer purporting to reopen assessments for the assessment years 2006-07 and 2007-08.
23. Rule is made absolute in the aforesaid terms. There shall be no order as to costs.