THE COMMISSIONER OF INCOME TAX vs. M/S KURLON LTD

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ITA/404/2008HC KarnatakaKAHC01022875200808 July 2014Bench: B.MANOHAR,N.KUMAR7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial question of law is answered in favour of the assessee and against the Revenue. The Court found that the Assessing Authority had taken into consideration all the details mentioned in the computation statement, which were taken from the assessee's books of accounts, and had recorded a finding. The Commissioner proceeded on the basis that the figures in the calculation statement had no basis, ignoring that these figures were derived from the books of accounts. In view of this, the Tribunal was justified in setting aside the order passed by the Commissioner and restoring the order of the Assessing Authority. The appeal was dismissed.

What were the facts?

The Revenue, represented by the Commissioner of Income Tax and Assistant Commissioner of Income Tax, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 31/10/2007 passed by the Income Tax Appellate Tribunal (ITAT), Bangalore Bench. The ITAT had set aside an order passed by the Commissioner under Section 263 of the Act. The Assessing Officer had initially restricted the benefit of Sections 80IA(a) and 80HHC of the Act. The Commissioner, initiating revisionary proceedings under Section 263, noted that certain expenses were prorated at different percentages (63.3% and 59.9%) without explanation and that the Assessing Officer had not made sufficient enquiry. The Commissioner remanded the matter to the Assessing Officer. The assessee appealed to the ITAT, which found that the Assessing Officer had considered the relevant details and apportioned expenses correctly, thus holding the Commissioner's order to be erroneous and prejudicial to the Revenue. The ITAT restored the assessment order, leading to the Revenue's appeal to the High Court.

What were the issues?

1. Whether the Tribunal was correct in holding that the order of assessment computing deduction under Section 80IA of the Act was neither erroneous nor prejudicial to the interest of the Revenue as the percentage of expenditure adopted by the assessee from Bhuvaneshwar unit and Bangalore unit was permissible? (Question of law) Assessee's Contention (as inferred from the judgment's affirmation of the Tribunal's findings): The Tribunal was correct in its decision. The Assessing Officer had considered all relevant details from the computation statement, which were derived from the assessee's books of accounts. The expenses were properly apportioned to the Bangalore unit, and the claim under Section 80IA was made correctly. Therefore, the Commissioner's order was not justified. Revenue's Contention: The Revenue argued that the Commissioner's order under Section 263 was correct. The Commissioner had observed that certain expenses were prorated at differential percentages (63.3% and 59.9%) without adequate explanation and that the Assessing Officer had completed the assessment without proper enquiry into the correctness of the assessee's claim.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 263,Section 80IA,Section 80HHC

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 08TH DAY OF JULY 2014

PRESENT

THE HON'BLE MR.JUSTICE N.KUMAR

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

ITA No.404/2008 BETWEEN:

1.

The Commissioner of Income Tax, C.R Building, Queens Road, Bangalore.

2.

The Assistant Commissioner of Income Tax, Circle – 11(5), C.R. Building, Queens Road, Bangalore.

…Appellants

(By Sri.K.V.Aravind, Advocate)

AND:

M/s.Kurlon Ltd., No.47, Dickenson Road, Manipal Centre, North Block, III Floor, Bangalore.

…Respondent

(By Sri.R.B.Krishna, Advocate)

This ITA is filed U/s.260-A of I.T Act, 1961 arising out of order dated

31/10/2007 passed in ITA.No.486/Bang/2006, for the Assessment year 2001- 02, praying that this Hon’ble Court may be pleased 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.486/Bang/2006, dated 31-10-2007 and confirm the order of the Appellate Commissioner and confirming the order passed by the Assistant Commissioner of Income Tax, Circle – 11(5), Bangalore, in the interest of justice and equity.

This appeal 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 under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) challenging the order passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ (for short ‘the

Tribunal’), whereby the Tribunal set aside the order passed by the Commissioner of Income Tax, Bangalore passed in proceedings under Section 263 of the Act.

2.

The Assessing Officer in the assessment order after setting out the facts and amounts under various heads restricted the benefit of provision of Sections 80IA(a) and 80HHC of the Act. The assessee was asked to comment on the proposed disallowance. The assessee did not give any reply. Therefore, the assessment order came to be passed restricting the claim under Section 80HHC. The assessee has no grievance, however, the Commissioner of Income Tax, by virtue of power conferred on him under Section 263 of the Act initiated revisionary proceedings. After hearing both the sides, he was of the view that in the computation statement certain expenses on account of raw material, power and fuel, stores and spares etc., were prorated at 63.3% and other expenses like, rent,

rates and taxes, insurance, advertisement etc., at 59.9%. There is no explanation offered for such differential treatment. The Assessing Officer has completed the assessment without making any enquiry about the correctness of the claim of the assessee. Therefore, set aside the assessment and remanded the matter to the Assessing Officer to reexamine the whole issue afresh and pass orders after giving adequate opportunity to the assessee.

3.

Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal on careful consideration of all the materials came to the conclusion that a perusal of the observations made by the Assessing Officer would indicate that he had, in fact, considered the entire details as found in the computation statement consisting of travelling and conveyance, advertisement, sales promotion, packing, transportation and freight, commission and sales and

penal charges. These were prorated over Bangalore and Bhuvaneswar units. A cursory perusal of the same would indicate that all the relevant expenses have been apportioned to Bangalore unit and the claim under Section 80IA has been made correctly. Therefore, the Tribunal found fault with the order passed by the Commissioner on the ground that the order passed by the Assessing Authority is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, set aside the order passed by the Commissioner and restored the assessment order. Being aggrieved by the said order, the Revenue is before this Court in appeal. 4. This appeal was admitted to consider the following substantial question of law:

Whether the Tribunal was correct in holding that the order of assessment computing deduction under Section 80IA of the Act was neither erroneous nor prejudicial to the interest of the Revenue as percentage of

expenditure adopted by the assessee from Bhuvaneshwar unit and Bangalore unit was permissible? 5. We have heard the learned counsel for both the parties. 6. From the aforesaid facts, it is clear that the Assessing Authority has taken into consideration all the details mentioned in the computation statement which is taken from the books of accounts maintained by the assessee and has recorded the finding.

The Commissioner proceeds on the basis that the figures found in the calculation statement has no basis ignoring that these figures are taken from the books of accounts. In that view of the matter, the Tribunal was justified in setting aside the order passed by the Commissioner and restoring the order of the Assessing Authority.

7.

Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. No merits. The appeal is dismissed.

Sd/-

JUDGE

Sd/-

JUDGE

mpk/-*

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