PR.COMMISSIONER OF INCOME TAX-7 vs. M/S TALLY INDIA PVT LTD

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6TH DAY OF APRIL 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE M.G.S. KAMAL I.T.A. NO.307 OF 2018 BETWEEN: 1. PR. COMMISSIONER OF INCOME-TAX-7

BMTC COMPLEX, KORAMANGALA

BANGALORE. 2. THE DY. COMMISSIONER OF INCOME TAX

CIRCLE-12(4), BANGALORE. ... APPELLANTS (BY SRI. T.N.C. SRIDHAR, ADV., FOR SRI. JEEVAN J. NEERALGI, ADV.,) AND: M/S. TALLY INDIA PVT. LTD NO.331-336, RAHEJA ARCADE 3RD FLOOR, KORMANGALA BENGALURU-560095. ... RESPONDENT (BY SRI. PERCY PARDIWALLA, SR. COUNSEL A/W MS. MANASA ANANTHAN, ADV., FOR SRI. T. SURYANARAYANA, ADV.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 11.10.2017 PASSED IN IT(TP)A NO.1213/BANG/2013 FOR THE ASSESSMENT YEAR 2008-09, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET

2 ASIDE THE APPELLATE ORDER DATED 11.10.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.IT(TP)A NO.1213/BANG/2013 FOR ASSESSMENT YEAR 2008-09, AS SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 19.03.2020 on the following substantial questions of law: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the operation of the provisions of Section 153(3)(ii) presupposes and existing assessment order and the same cannot be applied for making an assessment order for the first time?"

3 (ii) Whether on the facts and in the circumstances of the case, the Tribunal was correct in computing limitation period for giving effect to the directions of the Court in a writ petition, which is by way of other than an appeal or reference under the Act, by resorting to provisions of Section 153(1)(a) of the Act rather than considering the provisions of Section 153(3)(ii) of the Act?". 2. Facts leading to filing of this appeal briefly stated are that the assessee is a private limited company and is engaged in the business of license of software, customization of software, support fees, education and training. The assessee filed its return of income for the Assessment Year 2008-09 on 30.09.2008. The case of the assessee was selected for scrutiny and a notice under Section 143(2) of the Act was issued to the assessee on 08.09.2009. Thereafter, the case was referred to the Transfer Pricing Officer (TPO) for computation of Arms Length Price (ALP) under

4 Section 92C of the Act on 11.01.2011. This court in W.P.No.45313/2011 by an order dated 08.12.2011 restrained the Transfer Pricing Officer from proceeding to pass a draft assessment order for a period upto 07.03.2012 i.e., approximately 3 months. The writ petition was disposed of by a bench of this court vide order dated 07.03.2012 remitted the matter to the Assessing Officer and directed the assessee to appear before the Assessing Officer on 21.03.2012. It was also clarified that all other contentions are kept open. 3. The Transfer Pricing Officer by an order dated 13.06.2012 after affording an opportunity to the assessee passed an draft order of assessment on 05.07.2012 and forwarded the same to the assessee on 11.07.2012. The assessee filed an objection before the Dispute Resolution Panel on 09.08.2012. Thereafter, the Dispute Resolution Panel passed an order on 22.04.2013. The Assessing Officer passed a final order on 31.05.2013. The assessee thereupon preferred an

5 appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short) . The tribunal by an order dated 11.10.2017 inter alia held that draft assessment was completed by the Assessing Officer on 05.07.2012, which was beyond the period of limitation. After considering and excluding all the time period provided under Section 153(1)(a) read along with second proviso and explanation. Accordingly, the draft assessment and consequential assessment dated 31.05.2013 were held to be barred by limitation and were accordingly quashed. In the aforesaid factual backdrop, this appeal has been filed. 4. Learned counsel for the revenue submitted that the tribunal erred in computing the period of limitation for giving effect to directions of the court in a writ petition by resorting to provisions of Section 153(1)(a) of the Act rather than considering Section 153(3)(ii) of the Act. It is further submitted that all the time limits have been adhered to as prescribed in

6 Sections 153, 92CA and 144C of the Act and therefore, the order passed by the tribunal deserves to be quashed. In support of aforesaid submissions, reliance has been placed on decision of this court in 'COMMISSIONER OF INCOME TAX, LTU VS. ASTRA ZENECA PHARMA INDIA LTD.,(2020) 117 TAXMANN.COM 533 (KARNATAKA). 5. On the other hand, learned Senior counsel for the assessee submitted that the draft assessment order ought to have been passed on 06.05.2012, whereas, the same has been passed on 05.07.2012, which is beyond the period of limitation. It is contended that Section 153(2A) of the Act applies if the order of assessment is set aside in entirety by the appellate authority, whereas, Section 153(3)(ii) applies to the case where any direction is issued either by appellate authority, revisional authority or any other authority to decide an issue. It is also pointed out that in the instant case, no direction / finding has been issued by this court in the

7 order dated 07.03.2012 passed in W.P.No.45313/2011 and a direction issued to remit the matter and asking the assessee to appear before the Assessing Officer on a particular date does not tantamount to either issuing a direction / finding within the meaning of Section 153(3)(ii) of the Act. In support of aforesaid submissions, reliance has been placed on decisions of the Supreme Court in 'INCOME-TAX OFFICER VS. MURLIDHAR BHAGWAN DAS', (1964) 52 ITR 335 (SC), 'RAJINDER NATH VS. COMMISSIONER OF INCOME-TAX', (1979) 2 TAXMAN 204 (SC) and a decision of the Allahabad High Court in COMMISSIONER OF INCOME TAX, AGRA VS. CHANDRA BHAN BANSAL', (2014) 46 TAXMANN.COM 108 (ALLAHABAD). 6. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of relevant extract of statutory provisions as were

8 invoked at the relevant time viz., Section 153(1)(a) and 1st proviso, 2nd proviso and clause (i) and (ii), Section 2(A), relevant extract of Section 153(3) of the Act, which reads as under: 153. Time limit for completion of assessments and reassessments. (1) No order of assessment shall be made under Section 143 or Section 144 at any time after the expiry of - (a) two years from the end of the assessment year in which the income was first assessable; or Provided that in case the assessment year in which the income was first assessable in the Assessment Year commencing on the 1st day of April, 2004 or any subsequent Assessment Year, the provisions of clause (a) shall have effect as if for the words :two years", the words "twenty-one months" had been substituted. Provided further that in case the assessment year in which the income was first assessable is the assessment Year

9 commencing on the 1st day of April, 2005 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under Sub-Section (1) of Section 92CA - (i) was made before the 1st day of June 2007 but an order under sub-Section (3) of that Section has not been made before such date or (ii) is made on or after the 1st day of June 2007. The provisions of clause(a) shall , notwithstanding anything contained in the first proviso, have effect as if for the words 'two years', the words "thirty -three months" had been substituted. (2A) 1 Notwithstanding anything contained in sub- sections (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971 , and any subsequent assessment year, an order of fresh assessment under section, 146 or in pursuance of an order, under section 250, section 254, section 263 or section 264, setting aside or cancelling an assessment,

10 may be made at any time before the expiry of two years from the end of the financial year in which the order under section 146 cancelling the assessment is passed by the 2 Assessing Officer or the order under section 250 or section 254 is received by the 4 Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the 4 Chief Commissioner or Commissioner. (3) The provisions of sub- sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, 5 subject to the provisions of sub- section (2A),] be completed at any time- (i) […………..] (ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section- 250, 254, 260, 262, 263 or 264 6 or in an order of any court in a proceeding otherwise than

11 by way of appeal or reference under this Act]; Explanation 1 - In computing the period of limitation for the purposes of this section - (i) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under the proviso to Section 129 or (ii) the period during which the assessment proceeding is stayed by a order or injunction of any court, or (iia) the period commencing from the date on which the Assessing Officer intimates the Central Government or the prescribed authority, the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub- clause (iv) or sub-clause(v) or sub-clause (vi) or sub-clause (via) of clause (23C) of Section 10, under clause (i) of the proviso to sub-section (3) of Section 143 and ending with the date on which the copy of the order withdrawing the approval or rescinding the

12 Notification as the case may be, under those clauses is received by the Assessing Officer. Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub- Sections (1), (1A), (1B), (2), , (2A) and (4) available to the Assessing Officer for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. 7. A bench of this court by an order dated 07.03.2012 disposed of the writ petition viz., W.P.No.45313/2011 in the following terms: 3. Having regard to the submission made by both the counsel, there is no option but to accept the writ petition, set aside the impugned order and remit the matter to the 1st respondent-Assessing Officer.

13 4. The petitioner shall take these proceedings as notice to them and shall appear before the 1st respondent on 21st March 2012. The petitioners are not entitled for any fresh notice. 8. The Supreme Court in 'RAJINDER NATH VS. COMMISSIONER OF INCOME-TAX', (1979) 2 TAXMAN 204 (SC) and 'INCOME-TAX OFFICER VS. MURLIDHAR BHAGWAN DAS', (1964) 52 ITR 335 (SC), supra has held that a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for disposal of a particular case. Similarly, a direction must be an expressed direction necessary for disposal of the case before authority of court and must also be a direction which the authority of court is empowered to give while deciding a case before it. Thus, it is evident that the order dated 07.03.2012 passed by learned Single Judge of this court neither contains any finding nor any direction.

14 9. The proceedings were stayed for a period from 08.12.2011 to 07.03.2012 i.e., for a period of 103 days and if period of 103 days is added, and a period of 60 days as prescribed in proviso to Section 153(4) is added, the draft order ought to have been passed by the Assessing Officer upto 06.05.2012, whereas, in the instant case, the draft order has been passed on 05.07.2012 and therefore, the draft order is barred by limitation and no fault can be found with the finding of the tribunal. In view of preceding analysis, the substantial questions of law are answered against the revenue and in favour of the assessee. In the result, we do not find any merit in the appeal, the same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss