Law: Income Tax Act, 1961

Section: 148

Income-tax---Re-assessment-Change of opinion.-Assessee-company carried on business as engineering and technical consultants offering a wide variety of consulting services-Assessee entered into various contracts --­Assessee claimed deduction of certain percentage of gross fees received from consultancy contracts-Deduction allowed by Assessing Officer as claimed by assessee in original assessment-Subsequently case re-opened on the ground that deduction was to be worked out on the basis of net receipts-No ground disclosed in notice for reopening assessment--­Assessee's demand for furnishing ground not complied with--­Assumption of Assessing Officer, that deduction was to be allowed on the basis of net receipts, held, change of opinion-Deduction admissible on the basis of gross receipts. Cloth Traders (P.) Ltd. v. Additional C. I. T. (1979) 118 I T R 243 (S C); C. I. T. (Additional) v. Isthmian India Maritime P. Ltd. (1978) 113 I T R 570 (Mad.) and Madras Auto Service v. I. T. O. (1975) 101 I T R 589 (Mad.) ref. JUDGMENT By this petition, filed under Article 226 of the Constitution of India, the petitioners are challenging the legality of the notice under section 148 of the I. T. Act, 1961 (hereinafter referred to as "the Act"). The notice dated May 3, 1978 was served upon the petitioners by respondent No. 1-the I.T.O. The petitioners are a private limited company carrying on business as engineering and technical consultants offering a wide variety of consultancy services. The petitioners enter into various contracts and claim the benefit under the provisions of section 80-MM of the Act. The benefit of the section is claimed only in respect of the knowhow covered by the clauses in the contract. The petitioners have an Operation Department which prepares, in respect of each consultancy contract, a man-hour budget sheet which allocates man-hours for each activity to be performed under the contract. It is then possible to ascertain the man-hours which will be expended on the specific activities covered by the clauses approved by the Board as being eligible for the benefit of section 80-MM of the Act. Section 80-MM of the Act provides that the assessee hag to file…

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