THE PR COMMISSIONER OF INCOME TAX vs. M/S SASKEN TECHNOLOGIES LTD

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ITA/49/2020HC KarnatakaKAHC01001114202018 July 2023Bench: P.S.DINESH KUMAR,T.G. SHIVASHANKARE GOWDA7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The Court held that the ITAT had rightly decided the matter. On the issue of stock compensation, the ITAT correctly noted that the CIT(A) had misconstrued the facts, as the assessee had offered the stock compensation to tax in AY 2014-15, and there was no ground for revision under Section 263. Regarding the treatment of state taxes paid in the USA, foreign remittance without TDS, and lease of the Sasken brand, the ITAT had rightly observed that the AO had taken 'possible views' after due enquiry and application of mind. The Court relied on the Supreme Court's decision in Commissioner of Income Tax Vs. Amitabh Bachchan, which states that the CIT cannot interfere under Section 263 merely because another possible view exists, so long as the AO's view is a 'possible view'. Since the ITAT found that the AO had taken 'possible views' on issues 2, 3, and 4, and misconstrued facts on issue 1, the CIT(A)'s order under Section 263 was not sustainable. The question of law was answered in favour of the assessee and against the Revenue.

What were the facts?

The Revenue (Principal Commissioner of Income-Tax and Joint Commissioner of Income-Tax) filed an appeal before the High Court of Karnataka against an order dated July 19, 2019, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to Assessment Year 2014-2015. The Revenue challenged the ITAT's decision which had set aside an order passed by the Commissioner of Income Tax (Appeals) under Section 263 of the Income Tax Act, 1961. The CIT(A) had directed the Assessing Officer (AO) to re-examine four specific issues: stock compensation expense, treatment of state taxes paid in the USA, foreign remittance without TDS, and lease of the Sasken brand to related parties free of cost. The High Court admitted the appeal to consider a substantial question of law regarding the CIT(A)'s invocation of Section 263.

What were the issues?

1. Whether the Commissioner of Income Tax (Appeals) committed an error of law in invoking the provisions of Section 263 of the Income Tax Act, 1961, in the given facts and circumstances? Assessee's Contentions: - The ITAT correctly held that once the AO has taken a 'possible view' on an issue after due enquiry and application of mind, the CIT(A) cannot invoke Section 263 for reconsideration. - The CIT(A) ought to have pointed out a specific error in the AO's order before directing re-assessment. - On the issue of stock compensation, the CIT(A) misconstrued the facts; the assessee had offered the same to tax in AY 2014-15. - On the issue of state taxes paid in the USA, the AO had applied his mind after due query and detailed reply from the assessee. The CIT(A)'s observation that the AO had not examined the issue vis-à-vis law laid down by other High Courts was not a valid basis for revision under Section 263. - On foreign remittance without TDS and lease of the Sasken brand, the AO had taken 'possible views' after due enquiry. Revenue's Contentions: - The ITAT's order is unsustainable in law because the CIT(A) had rightly directed the AO to re-examine four specific aspects. - The CIT(A), in his order under Section 263, had rightly directed the AO for reconsideration of these issues.

Which sections of the Income-tax Act were involved?

Section 263,Section 142(1)

AI-generated summary — verify with the full judgment below

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NC: 2023:KHC:24927-DB ITA No. 49 of 2020

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF JULY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO.49 OF 2020

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME-TAX CIT (A), 5TH FLOOR BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095 2. THE JOINT COMMISSIONER OF INCOME-TAX SPECIAL RANGE-6 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095 …APPELLANTS

(BY SHRI. E.I. SANMATHI, STANDING COUNSEL)

AND:

M/s. SASKEN TECHNOLOGIES LTD. NO.139/25, RING ROAD DOMLUR BENGALURU-560 071 PAN:AAECS 6424R …RESPONDENT

(BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR Ms. TANMAYEE RAJKUMAR, ADVOCATE)

Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA

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NC: 2023:KHC:24927-DB ITA No. 49 of 2020

THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 19.07.2019 PASSED IN ITA NO.1080/BANG/2019, FOR THE ASSESSMENT YEAR 2014-2015 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1080/BANG/2019 DATED 19.07.2019 FOR ASSESSMENT YEAR 2014-2015 ANNEXURE-C AND CONFIRM THE ORDER OF THE PR. COMMISSIONER CONFIRMING THE ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-6, BENGALURU AND ETC. THIS ITA IS COMING ON FOR FINAL HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal by the Revenue is directed against order dated July 19, 2019 in ITA No.1080/Bang/2019 passed by the ITAT1, Bengaluru, for A.Y2.2014-15 has been admitted to consider the following question of law: “Whether the Commissioner of Income Tax (Appeals), in the fact situation of the case, committed an error of law in invoking the provisions of Section 263 of the Income Tax Act, 1961?”

1 Income Tax Appellate Tribunal 2 Assessment Year

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NC: 2023:KHC:24927-DB ITA No. 49 of 2020

2.

Heard Shri E.I.Sanmathi, learned standing counsel for the Revenue and Shri T.Suryanarayana, learned Senior Advocate for the assessee. 3. Shri Sanmathi, placing reliance on the Commissioner of Income Tax Vs. Amitabh Bachchan3, submitted that impugned order passed by the ITAT is unsustainable in law because the CIT(A)4 has rightly directed the AO5 to re-examine in respect of four aspects namely, i) Stock compensation expense; ii) Treatment of state taxes paid in USA; iii) Foreign remittance without deducting TDS; and iv) Lease of Sasken brand to related parties free of cost. 4. In substance, the argument canvassed by the Revenue is that the CIT(A), in his order passed under Section 263 of the Act6, has rightly directed the AO for reconsideration of the issues.

3 (2016) 240 taxman.com 0221 (SC) 4 Commissioner of Income Tax (Appeals) 5 Assessing Officer 6 Income Tax Act, 1961

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NC: 2023:KHC:24927-DB ITA No. 49 of 2020

5.

Shri Suryanarayana for the assessee has taken us through the order passed under Section 263 by the CIT(A) and the ITAT. He contended that on each aspect, the ITAT has recorded its finding and held that the views taken by the AO were ‘possible’ views and once the ‘possible view’ is taken by the AO, the case could not have been remitted for reconsideration. He submitted that while passing an order under Section 263, the CIT(A) ought to have pointed out a specific error, if any, and thereafter, directed re-assessment. 6. We have carefully considered rival contentions and perused records. 7. In the order passed under Section 263 passed by the CIT(A), the aforementioned four issues are involved. First issue is about the stock compensation. The ITAT has noticed that the assessee had not offered the tax on the stock compensation on the previous year and AY.2014-15, the assessee has offered the same to tax. This aspect was misconstrued by the CIT(A)

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NC: 2023:KHC:24927-DB ITA No. 49 of 2020

to the effect that the assessee was claiming expenditure. The ITAT has rightly analyzed and held that there was no ground for revision under Section 263. 8. The second issue is with regard to payment of state tax paid in USA. The ITAT has noticed that the AO had applied his mind and taken a decision after due query in his notice issued under Section 142(1) to which the assessee had submitted its reply in detail. The ITAT has rightly noticed that the CIT(A)’s view is based on the observations contained in his order. It was argued by Shri Suryanarayana that assessee had placed reliance on the authorities rendered by the Kolkata High Court and Delhi High Court. He pointed out that the CIT(A) has observed that the AO had not examined the issue vis-a-vis the law laid down by other High Courts and the other jurisdictional High Court. In our view, the ITAT has rightly held that such observations cannot be the basis on which revision can be made under Section 263. We are at one with the ITAT’s order.

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NC: 2023:KHC:24927-DB ITA No. 49 of 2020

9.

The third issue is regarding foreign remittance without deducting TDS. The ITAT has recorded that the AO has taken a ‘possible view’ on this aspect after ‘due enquiry and application of mind’. Similarly, with regard to the fourth issue namely, lease of ‘Sasken brand’ to related parties free of cost, the AO has taken a ‘possible view’.

10.

In the authority relied upon by the Revenue, the Apex court has held in para 21 that there can be no doubt that so long as the view taken by the AO is a ‘possible view’, the same ought not be interfered by the CIT under Section 263 of the Act merely on the ground that there could be another possible view in the matter. As noticed hereinabove, the ITAT has recorded that on the first issue, the CIT has misconstrued the facts. On issues No.2, 3 and 4, the AO has taken ‘possible views’. As such, the authority cited by the Revenue inures to the benefit of the assessee. Hence, the following;

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NC: 2023:KHC:24927-DB ITA No. 49 of 2020

ORDER (i) Appeal dismissed; (ii) Question of law is answered in favour of the assessee and against the Revenue.

No costs.

Sd/- JUDGE

Sd/- JUDGE

AV List No.: 1 Sl No.: 38

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