THE COMMISSIONER OF INCOME TAX V. M/S SASKEN COMMUNICATION TECHNOLOGIES LIMITED

ITA/699/2008

AI Insights

The case involves an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal, which had set aside the order of the Commissioner of Income Tax. The Commissioner had invoked Section 263 of the Income Tax Act, directing the Assessing Officer to add back a provision for bad and doubtful debts amounting to Rs.3,20,99,996. The Tribunal, referencing judgments from the Apex Court and the Calcutta High Court, found that the provision for diminution in the value of assets could not be added to the book profit under Section 115JA. The Revenue contended that an amendment to Section 115 JB by the Finance (No.2) Act, 2009, which was retrospective, should apply, and thus the Tribunal's decision was erroneous. However, the court dismissed the appeal, agreeing with the Tribunal's application of the law as it stood before the amendment.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 727146 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-08-2014
• Assessment Year: misc
• Other Referred Cases: Malabar Industrial Co. Ltd. Vs. CIT, Russell Properties (P.) Ltd. Vs. A.Chowdhury, Addl. CIT, Commissioner of Income Tax (Central), Ludhiana Vs. Max India Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHYTHANYA
• Assessee Lawyers: K V ARAVIND
• Keywords: Diminution in value of investment; Erroneous and Prejudicial Order; Income tax appeal; Jurisdiction under section 263; Provision for Bad and Doubtful Debts
• Section: 263; 115JB(2); 260-A

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 4TH DAY OF AUGUST, 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AND THE HON’BLE MRS.JUSTICE RATHNAKALA INCOME TAX APPEAL NO.699 OF 2008 BETWEEN: 1. The Commissioner of Income-Tax, C.R. Building, Queens Road, Bangalore. 2. The Assistant Commissioner of Income-Tax, Circle – 12(2), C.R. Building, Queens Road Bangalore. …APPELLANTS (By Sri K.V. Aravind, Adv.) AND: M/s. Sasken Communication Technologies Limited, No.139/25, Amar Jyothi Layout, Ring Road, Domlur, Bangalore – 560 071. ...RESPONDENT (By Sri. Chythanya K.K., Adv.) This Income Tax Appeal is filed under Section 260-A of I.T. Act, 1961 arising out of Order dated 11-01-2008 passed in ITA No.319/BNG/2007, for the Assessment Year 2003- 04, praying that this Hon'ble Court may be pleased to: - 2 - i. Formulate the substantial questions of law stated therein, ii. Allow the appeal and set aside the order passed by the Income-Tax Appellate Tribunal, Bangalore in ITA No.319/BNG/2007, dated 11-01-2008 confirm the orders of the Appellate Commissioner and Assistant Commissioner, Income Tax, Circle-12(2), Bangalore. This Appeal coming on for Final Hearing this day, N.KUMAR J., delivered the following: J U D G M E N T This appeal is preferred by the Revenue, challenging the order passed by the Tribunal which has held that the learned Commissioner of Income Tax was not justified in invoking the power of Section 263 of the Income Tax Act, 1961, in directing the Assessing Officer to add back the provision for bad and doubtful debts. 2. By virtue of the power conferred under Section 263 of the Act, the Commissioner of Income Tax by order dated 07.03.2007 held that the order passed by the assessing authority is erroneous and prejudicial to the interest of the revenue as he has failed to add back the provisions of Rs.3,20,99,996/- representing the provision for diminution in value of investment as per Clause (c) of the Explanation to Section 115JB(2) of the Act. The said order was challenged by the assessee before the tribunal. The tribunal following - 3 - the judgment of the Apex Court in Malabar Industrial Co. Ltd. Vs. CIT (2000) reported in 243 ITR 83 and also in the judgment of Calcutta High Court in the case of Russell Properties (P.) Ltd. Vs. A.Chowdhury, Addl. CIT [1977] 109 ITR 229, held that the provisions which amounted to diminution in the value of asset cannot be added to the book profit under Section 115JA. A bad, unascertained and doubtful debt claimed by the assessee cannot be treated as unascertained liability. The assessing authority adopted one view. The Commissioner could not have interfered in the order in view of the judgment of the Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) reported in 243 ITR 83. 3. Learned Counsel for the Revenue contends that in view of the amendment to Section 115 JB of the Act, by way of explanation (i) which was brought into the statute book on 01.04.2001 by the Finance (No.2) Act, 2009 even if Clause (c) is not attracted, Clause (i) is attracted and the order of the tribunal is erroneous. He also submits that the assessing authority has not considered the said question from that angle. He therefore submits that the impugned order passed by the tribunal requires to be set aside. - 4 - 4. This appeal was admitted on 26.05.2009 to consider the following substantial question of law: “Whether the Tribunal was right in holding that the jurisdiction exercised u/s.263 of the Act to treat the provision of Rs.3,20,99,996/- declared as diminution in the value of shares / assets to be added back under Clause (c) of the Explanation to Section 115 JB of the Act, cannot be made without even examining the merits and consequently recorded a perverse finding?” 5. The Apex court in the case of Commissioner of Income Tax (Central), Ludhiana Vs. Max India Ltd. reported in [2008] 166 TAXMAN 188 (SC) in para No.2 while dealing with the retrospective operation of amendments and the exercise of powers under Section 263 of the Act, has referred to the case in Malabar Industrial Co. Ltd. Vs. CIT (2000) reported in 243 ITR 83. In para No.2 of the said judgment it has held as under: “2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 this Court has taken the view that the phrase \"prejudicial to the interests of the revenue \" under - 5 - Section 263 has to be read in conjunction with the expression \"erroneous\" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when the Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income- Tax Officer is unsustainable in law. According to the learned Additional Solicitor General on interpretation of the provision of Section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking Section 263 of the Income-Tax Act. In this connection, he has further submitted that in fact 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the Order of the Commissioner was passed there were two views on the word \"profit\" in that section. The problem with Section 80HHC is that it has been amended eleven times. Different views existed on the day - 6 - when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of Section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under Section 263 of the Income Tax Act.“ 6. In view of the aforesaid observations made by the Apex Court, we are of the view that though the amendment is retrospective, in this case, the Revenue cannot have the benefit of the same while proceeding under Section 263 of the Act. Accordingly, without going to the substantial question of law, the appeal is dismissed in view of the judgment of the Apex Court. Sd/- JUDGE Sd/- JUDGE nvj "