THE COMMISSIONER OF INCOME TAX V. M/S SIGMA ALDRICH FOREIGN HOLDINGS CO

ITA/770/2008

AI Insights

The case revolves around the appeal by the Commissioner of Income Tax (International Taxation) and the Assistant Commissioner of Income Tax (International Taxation) against M/s. Sigma Aldrich Foreign Holdings Co. The appeal contested the Tribunal's decision which set aside the Commissioner's order revising the revised return of income for the assessment year 2001-02. The assessee, a branch of a foreign company, had initially filed a return which was later revised after discussions with the tax authorities, leading to an agreement on certain tax payments. The Commissioner later sought to revise this revised return under Section 263, which the Tribunal found to be inappropriate given the prior discussions and agreement.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 736295 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 19-08-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHYTHANYA
• Assessee Lawyers: K V ARAVIND
• Keywords: Assessment Year; Income Tax; Non-Resident; Revised return; Transfer pricing; Computer Software Deduction
• Section: 142(1); 143(2); 263; 139(1); 92; 92C(3); 260-A

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 19th day of August, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR AND THE HON’BLE MRS. JUSTICE RATHNAKALA ITA No.770 of 2008 BETWEEN: 1. The Commissioner of Income Tax (International Taxation) Rashtrothana Bhavan Nrupathunga Road Bangalore 2. The Assistant Commissioner of Income Tax (International Taxation) Circle – 19(1) Rashtrothana Bhavan Nrupathunga Road Bangalore …Appellants (By Sri K. V. Aravind, Advocate) AND: M/s. Sigma Aldrich Foreign Holdings Co., 31/1, Seetharampalya Mahadevapura Post 2 Bangalore – 560 048 …Respondent (By Sri Chythanya K. K., for M/s. Raghuraman & Chythanya, Advocates) This ITA filed under Section 260-A of IT Act, 1961 arising out of order dated 11-03-2008 passed in ITA No.388/BNG/2006, for the Assessment year 2001-02 to 2002-03, praying to (i) formulate the substantial questions of law stated therein; (ii) allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA No.388/BNG/2006, dated 11/03/2008 confirm the orders of the Appellate Commissioner and Assistant Commissioner of Income Tax (International Taxation), Circle-19(1), Bangalore. This ITA coming on for hearing this day, N. KUMAR J delivered the following: J U D G M E N T The revenue has preferred this appeal against the order passed by the Tribunal which has set aside the order passed by the Commissioner under Section 263 of the Income Tax Act, 1961 (hereinafter for short referred to as ‘the Act’). 2. The assessment year is 2001-02. The assessee is a branch of a foreign company and is assessed to tax in India in the status of a non-resident. For the assessment year 3 2001-2002 the assessee filed return of income under Section 139(1) of the Act on 31.10.2001. The aforesaid return was revised on 24.10.2002 for claiming deduction towards computer software as revenue expenditure which was omitted in the original return. No notice under Section 143 (2) or 142 (1) was issued for the above returns. When the assessment proceedings for 2001-2002 were pending, the assessee filed return of income for the assessment year 2002-03. In this return, the assessee made adjustment of Rs.2,26,05,461/- as transfer pricing adjustment under Section 92 read with Section 92C (3) of the Act. On account of this adjustment, the assessing authority and the Commissioner of Income Tax (International Taxation) insisted that the assessee shall offer additional income tax on similar basis for all the assessment years beginning with assessment year 1998-99. After having discussions with the assessing officer as well as the Commissioner of Income Tax (International Taxation), the assessee filed revised return for the assessment year 2001-02 offering certain income to tax 4 on voluntary basis in order to buy peace from the Department. The assessment order was passed. 3. In the assessment order, the assessing authority has observed that, in the revised return filed net margin as per TNMM method is taken at 3%. These adjustments for the purpose of transfer pricing are done after discussions. 4. It is thereafter, the Commissioner of Income Tax (International Taxation) issued notice dated 9.3.2004 to the assessee proposing to revise the revised assessment completed on 6.6.2003. The assessee objected to the same by filing a detailed objection. Over-ruling the said objection, the Commissioner proceeded to pass an order revising the revised return. 5. Aggrieved by the said order, the assessee preferred an appeal before the Tribunal. The Tribunal by the impugned order held that, neither at the time of issuing 5 show notice nor at the time of passing an order under Section 263 of the Act concluded that the assessment was erroneous and prejudicial to the interest of the revenue which is a pre requisite for invoking the provisions of Section 263 of the Act. However, the Tribunal held that, the revised return was filed by the assessee after discussion with the Commissioner of Income Tax and, therefore, he could not have initiated proceedings under Section 263 of the Act. Therefore, the order under Section 263 was set aside. Aggrieved by the said order, the revenue is before this Court. 6. Learned counsel for the revenue assailing the impugned order contended that, though the Commissioner was consulted before filing revised return, the proceedings under Section 263 is initiated in respect of matters where he was not consulted and, therefore, on that ground the order cannot be set aside. 6 7. Per contra, the learned counsel for the assessee submitted that, though the assessee was not due in any amount, in order to have good relationship and purchase peace, they offered to pay tax even for a period anterior to the day from which the liability under the Act arose and the percentage was arrived at after such negotiations and when amount was paid, it was not open to the Commissioner to initiate proceedings under Section 263 of the Act and, therefore, he submits the Tribunal was justified in setting aside the said order. 8. At the time of filing of the revised return, the assessee addressed a letter dated 25.3.2003. Reference Nos. 3 and 4 reads as under:- “3) Our meeting with Additional Commercial of Income Tax (International Taxation) on 04-02-2003, 17-02-2003, 19-02-2003, 27-02- 2003, 04-03-2003, 10-03-2003, 12-03-2003 and 18-03-2003. 7 4) Our meeting with the Commissioner of Income Tax (International Taxation) on 20-03- 2003.” 9. The fact that the assessee had a meeting with the Additional Commissioner of Income Tax (International Taxation) on various dates mentioned therein and also had a meeting with the Commissioner of Income Tax (International Taxation) on 20.3.2003 is not disputed. There were discussions and then an agreement was reached and in terms of the agreement revised return was filed and tax was paid. The transactions under Section 263 is a quasi judicial proceedings. When the person who invoked the said provision was a party to the earlier proceedings and on his approval revised return was filed, payments were made, it was not open to him to revise the said assessment under Section 263 of the Act. Obviously that is the reason why either in the notice issued or in the subsequent order, the words “the order passed by the assessing authority is prejudicial and erroneous to the interest of the revenue” is 8 conspicuously missing. If the order is erroneous the Commissioner also would be equally responsible because he was consulted before filing the revised return. Under these circumstances, the Tribunal was justified in setting aside the said order. The substantial question of law is answered in favour of the assessee and against the revenue. There is no merit in this appeal and accordingly it is dismissed. Sd/- JUDGE Sd/- JUDGE ckl/- "