THE COMMISSIONER OF INCOME TAX vs. M/S SAP LABS INDIA PVT LTD

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ITA/339/2010HC KarnatakaKAHC01064939201025 August 2014Bench: N.KUMAR,RATHNAKALA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeals filed by the Revenue were without merit and dismissed them. The Court concurred with the Tribunal's finding that the Commissioner erred in exercising powers under Section 263. The reasoning was twofold: firstly, on the date the Assessing Authority made the reference to the Transfer Pricing Officer, no valid return was pending for consideration, rendering the reference itself bad in law. Secondly, even if the reference were valid, the Transfer Pricing Officer had not found fault with the Assessing Authority's determination of the arm's length price. Therefore, the Commissioner's action in setting aside the order under Section 263 was unjustified, and the Tribunal was correct in interfering with it. The operative direction was the dismissal of both appeals.

What were the facts?

The Revenue (Commissioner of Income Tax and Assistant Commissioner of Income Tax) filed appeals challenging the Income Tax Appellate Tribunal's (ITAT) order. The ITAT had set aside the Commissioner's order passed under Section 263 of the Income Tax Act, 1961. For Assessment Year 2002-03, the assessee, M/s SAP Labs Pvt Ltd, filed its return on October 31, 2002. Notices under Section 148 and Section 92CA were issued on April 1, 2004, and April 12, 2004, respectively, by the Transfer Pricing Officer (TPO) on a reference from the Assessing Authority. The assessee requested its original return be treated as a return in compliance with the Section 148 notice. The TPO passed an order under Section 92CA on January 20, 2005, accepting the pricing. The Commissioner then invoked Section 263, deeming the Assessing Authority's order erroneous and prejudicial to revenue, leading to the ITAT's intervention.

What were the issues?

1. Whether the Commissioner of Income Tax had jurisdiction to invoke Section 263 of the Income Tax Act, 1961, to revise the order passed by the Assessing Authority, when the Transfer Pricing Officer had accepted the arm's length price determination, and two views were possible? (Question of law) 2. Whether the reference made by the Assessing Authority to the Transfer Pricing Officer under Section 92CA of the Income Tax Act, 1961, was valid, considering no valid return was pending at the time of the reference? (Question of mixed law and fact) Assessee's Contentions (implied from the judgment's reasoning): The assessee argued that the Commissioner lacked jurisdiction under Section 263 because the TPO had accepted the arm's length price, and the assessment was not erroneous or prejudicial to the revenue. Furthermore, the reference to the TPO was invalid as no return was pending. Revenue's Contentions (implied from the judgment's reasoning): The Revenue contended that the Commissioner's order under Section 263 was justified as the Assessing Authority's order was erroneous and prejudicial to the interest of the revenue.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 143(1),Section 148,Section 92CA,Section 263,Section 143(2)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 25th DAY OF AUGUST, 2014 PRESENT THE HON' BLE MR. JUSTICE N.KUMAR AND THE HON' BLE MRS. JUSTICE RATHNAKALA Income Tax Appeal No 842 OF 2008 c/w Income Tax Appeal No.339 OF 2010 In Income Tax Appeal No 842 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, ADVOCATE)

AND

M/S SAP LABS PVT LTD 138, EXPORT PROMOTION INDUSTRIAL PARK WHITEFIELD BANGALORE

... RESPONDENT

(BY SRI A. SHANKAR & M.LAVA, ADVOCATES) …

2 This Income Tax Appeal is filed under Section 260-A of Income Tax Act, 1961 praying to formulate the substantial questions of law and to allow the appeal and set aside the Order dated 30-04-2008 passed by the ITAT, Bangalore in ITA No. 799/BNG/2007 and confirm the order passed by the Assistant Commissioner of Income Tax , Circle-12(2), Bangalore.

In Income Tax Appeal No.339 OF 2010 BETWEEN

1.THE COMMISSIONER OF INCOME TAX C R BUILDINGS QUEENS ROAD BANGALORE-560 001.

2.THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12(3) BANGALORE

... APPELLANTS

(BY SRI E.I. SANMATHI, ADVOCATE)

AND

M/S SAP LABS PVT LTD No.138, EXPORT PROMOTION INDUSTRIAL PARK WHITEFIELD BANGALORE-560 009

... RESPONDENT

(BY SRI A. SHANKAR & M.LAVA, ADVOCATES) …

This Income Tax Appeal is filed under Section 260-A of Income Tax Act, 1961 praying to formulate the substantial questions of law and to allow the appeal and set aside the Order dated 22-04-2010 passed by the ITAT, Bangalore in ITA No. 1193/BANG/2009 for the assessment year 2002-03.

These Income Tax Appeals coming on for Hearing this day, N. Kumar J., delivered the following:

JUDGMENT

The revenue has preferred these appeals challenging the order passed by the Tribunal which has set aside the order passed by the Appellate Commissioner under Section 263 of the Income Tax Act (hereinafter referred to as ‘the Act’).

2.

The assessee in ITA No. 842/2008 filed its return of income for the assessment year 2002-03 on 31st October, 2002. The same was processed under Section 143(1) of the Income Tax Act. The assessee received notices dated 1st of April, 2004 under Section 148 of the Act and 12th April 2004 under Section 92CA of the Act from the Transfer Pricing Officer seeking details about the international transactions entered into by the assessee with the

4 group companies on a reference made by the Assessing Authority. At the time of issue of notice under Section 92CA of the Act, no valid return was pending on the basis of which notice under Section 92CA of the Act could have been issued. Since no notice under Section 143(2) of the Act was issued pursuant to filing of the original return, the assessment is deemed to have become final. In reply to the notice issued under Section 148 of the Act, the assessee filed a letter dated 21st April, 2004 requesting the Assessing Authority to treat the return filed on 31-10-2002 as return in compliance with the notice under Section 148 of the Act. In fact the Transfer Pricing Officer on 20.1.2005 passed an order under Section 92CA of the Act accepting the pricing of the Assessing Authority.

However, the Commissioner of Income Tax invoking his power under Section 263 of the Act initiated proceedings and set aside the order of the Assessing Authority on the ground that it is erroneous and prejudicial to the

5 interest of the revenue. It is against that order, the assessee preferred an appeal to the Tribunal.

3.

The Tribunal has held that when two views are possible and when the Transfer Pricing Authority has accepted valuation by the Assessing Authority determining the arm’s length price, the Commissioner had no jurisdiction to interfere with the said order under Section 263 of the Act and moreover on the day the reference was made by the Assessing Authority, there was no return pending for consideration and therefore, the Tribunal has set aside the order of the Commissioner. It is against the said order, the revenue is before this Court.

4.

From the aforesaid facts, it is clear that on the day the reference was made by the Assessing Authority to the Transfer Pricing Authority, there was no return pending for consideration by him and therefore, the very reference was bad. Even

6 otherwise, the said Transfer Pricing Authority did not find fault with the adjudication of determining arms length price by the Assessing Authority. In those circumstances, the Commissioner committed an error in exercising his power under Section 263 of the Act and the Tribunal was justified in interfering with the said order. Therefore, we do not see any merit in appeal No. 842/2008. Accordingly, it is dismissed.

5.

Consequently, the impugned order which is the subject matter of ITA 339/2010 which is a consequential order is also dismissed.

Sd/-

Judge

Sd/-

Judge

Nsu/-

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