PR. COMMISSIONER OF INCOME TAX-5 vs. M/S KARNATAKA STATE INDUSTRIAL

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF JANUARY 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE NATARAJ RANGASWAMY I.T.A. NO.502 OF 2016 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-5

BMTC COMPLEX, KORMANGALA

BANGALORE. 2. THE INCOME TAX OFFICER

WARD-3(1), BENGALURU. ... APPELLANTS (BY SRI. JEEVAN J. NEERALGI, ADV.,) AND: M/S. KARNATAKA STATE INDUSTRIAL CO-OPERATIVE BANK LTD., NO.11, BULL TEMPLE ROAD BASAVANGUDI, BANGALORE-560004 PAN: AAAAT3503G. ... RESPONDENT (BY SMT. R. PRATIBHA, ADV., FOR SRI. S. PARTHASARATHI, ADV.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 14.01.2016 PASSED IN ITA NO.788/BANG/2014 FOR THE ASSESSMENT YEAR 2009-10, PRAYING TO: (i) 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.

2 (ii) SET ASIDE THE APPELLATE ORDER DATED 14.01.2016 PASSED BY THE ITAT, 'A' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS NO.ITA NO.788/BANG/2014. (iii) GRANT SUCH OTHER RELIEF AS DEEMED FIT, 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 2009-10. The appeal was admitted by a bench of this Court vide order dated 24.10.2017 on the following substantial questions of law: "Whether, on the facts and in circumstances of the case, the Tribunal is right in law in dismissing the appeal preferred by Revenue on the ground that the tax effect is less than 10 lakhs by relying on the Board Circular No.21/2015 even when as per para-4 of Board Circular No.21/2015 stipulates that in cases where returned loss is reduced or assessed as

3 income, the tax effect would include notional tax on disputed additions. In this case, the assessing authority had made disallowances with regard to provisions for wage reversion of Rs.9,84,29,827/- and provision for audit fees of Rs.15,37,261/- and the notional tax effect on these two contested issues is more than Rs.10 lakhs and as such appeals were maintainable before tribunal?". 2. Facts leading to filing of this appeal briefly stated are that the assessee is a co-operative society. The assessee filed the return of income for the Assessment Year 2009-10. The Assessing Authority by an order dated 30.12.2011 made disallowances relating to provision of gold theft, wage reversion and audit fees by holding that same are contingent in nature and cannot be allowed as genuine expenditure. The disallowances were made by the Assessing Officer on the expenditure incurred by the assessee on the advertisement, bonus as well as rent. The assessee

4 filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 07.02.2014 partly allowed the appeal. The revenue, thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by an order dated 14.01.2016 dismissed the appeal without adjudicating the same on merits on the ground that the tax effect in the appeal is less than Rs.10 Lakhs and relied on Circular No.21/2015. In the aforesaid factual background, the assessee has filed this appeal. 3. Learned counsel for the revenue while inviting the attention of this court to para 4 of the Circular No.21/2015 submitted that where the returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions and the Assessing Authority had made disallowances with regard to the provisions of wage reversion to the extent of Rs.9,84,29,827/- as well as provision for audit frees of

5 Rs.15,37,261/- and the notional tax effect on aforesaid contested issue was more than Rs.10 Lakhs and therefore, the appeal before the tribunal was maintainable and the same ought to have been adjudicated on merits. The aforesaid aspect of the matter could not be disputed by learned counsel for the assessee. 4. We have considered the submissions made by learned counsel for the parties and have perused the record. From perusal of para 4 of Circular No.21/2015, it is evident that where the returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions and the Assessing Authority had made disallowances with regard to the provisions of wage reversion to the extent of Rs.9,84,29,827/- as well as provision for audit frees of Rs.15,37,261/- and the notional tax effect on aforesaid contested issue was more than Rs.10 Lakhs and therefore, the appeal before the tribunal was

6 maintainable and the same ought to have been adjudicated on merits. For the aforementioned reasons, the substantial question of law is answered in favour of the revenue. However, the aforesaid aspect of the matter has not been appreciated by the tribunal. The impugned order of the tribunal is quashed and the matter is remitted to the tribunal for decision afresh in accordance with law. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss