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

- 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:

…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.

- 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.

- 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 - 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

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