M/S Karnataka State Beverages… vs ACIT | Karnataka High Court 2020

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 21ST DAY OF SEPTEMBER 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.102 OF 2012 BETWEEN:

M/S. KARNATAKA STATE BEVERAGES CORPORATION LTD., REP. BY ITS MANAGING DIRECTOR DR. SANDEEP DAVE, IAS NO.78, SEETHALAKSHMI TOWERS MISSION ROAD, BANGALORE-560027. ... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL FOR SRI. M. LAVA, ADV.,)

AND:

THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-11(5), R.P. BHAVAN OPP. RBI, NO.14/3, 5TH FLOOR NRUPATHUNGA ROAD, BANGALORE-560001. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - -

THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 18.01.2012 PASSED IN ITA NO.186/BANG/2011 FOR THE ASSESSMENT YEAR 2004-05, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN.

(I) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.186/BANG/2011 DATED 18-01-2012.

THIS ITA 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 assessee. The subject matter of the appeal pertains to the Assessment year 2004-05. The appeal was admitted by a bench of this Court vide order dated 22.09.2012 on the following substantial question of law: (i) Whether the authorities below are justified in law in holding that the original order passed under Section 143(3) of the Act dated 30.10.2006 is non-est and the appeal is not maintainable on the facts and circumstance of the case?

(ii) Whether the authorities below are justified in law in not adjudicating the ground of disallowance of privilege fee

under Section 43B of the Act, when the disallowance of privilege fee was not subject matter of either the issue in the notice or order passed under Section 263 of the Act on the facts and circumstances of the case?

(iii) Whether the provisions of Section 43B are applicable in respect of payment of privilege fee to the State Government for parting with its right to privilege on the facts and circumstances of the case?

(iv) Whether the learned Assessing Officer is justified in law in disallowing the privilege fee of Rs.3,50,00,000/- on the ground that the amount is paid on 08.11.2004 by invoking the provisions of Section 43B of the Act on the fact and circumstances of the case?

Facts leading to filing of the appeal briefly stated are that the assessee is a Government of Karnataka undertaking incorporated on 02.06.2003

to canalize sale of Indian Made Liquor and Beer in the State. The assessee filed its return of income for the Assessment Year 2004-05 on 01.11.2004 declaring an income of Rs.28,46,907/-. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Act was served on the assessee. The Assessing Officer by an order dated 31.10.2006 disallowed the privilege fee of Rs.3,50,00,000/- under Section 43B of the Act and also disallowed a sum of Rs.55,000/- on account of expenditure incurred in respect of donation made and determined the total income of the assessee at Rs.3,79,01,907/-. The assessee filed an appeal before the Commissioner of Income Tax (Appeals).

During the pendency of the appeal, the assessee was served with a notice under Section 263A of the Act for the Assessment Year 2004-05.

The Commissioner of Income Tax passed an order dated 26.08.2008 and held that the order of assessment passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue and it is necessary for the Assessing Officer to examine the matter in detail with reference to the facts of the case of the assessee. It was further held that leave salary contribution and electricity charges to the tune of Rs.10,17,840/- have been allowed as deduction by the Assessing Officer without examining the basis, on which the deductions had been claimed. The Assessing Officer thereafter, passed an order on 24.12.2009 and apart from adding the privilege fee also added an amount towards salary contribution and electricity charges to the extent of Rs.10,17,840/-. The assessee preferred an appeal. The Commissioner of Income Tax (Appeals) however, by an order dated

03.09.2010 without examining the appeal preferred by the assessee on merits dismissed the same as infructuous. The aforesaid order was affirmed by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short) vide order dated 18.01.2012. In the aforesaid factual background, this appeal has been filed.

Learned Senior counsel for the assessee submitted that Commissioner of Income Tax (Appeals) and the Tribunal ought to have appreciated that the appeal is maintainable in respect of the issues which were not subject matter of notice issued under Section 263 of the Act and ought to have adjudicated the matter in respect of privilege fee in respect of Rs.,3,50,00,000/-. It is also urged that the authorities failed to appreciate the fact that scope of revision under Section 263 of

the Act is limited to the grounds in respect of which notice under Section 263 of the Act is issued. It is therefore, argued that the order passed by the Commissioner of Income Tax (Appeals) as well as the Tribunal be quashed and the matter be remitted to Commissioner of Income Tax (Appeals) for adjudication in respect of the matter which are not the subject matter of notice under Section 263 of the Act. The aforesaid position could not be disputed by learned counsel for the revenue.

We have considered the submissions made by learned counsel for the parties and have perused the record. Taking into account the fact that appeal is maintainable in respect of the subject matter, which does not pertain to grounds under Section 263 of the Act. The Commissioner of Income

Tax (Appeals) therefore, ought to have adjudicated the appeal on merits to the aforesaid extent.

In view of preceding analysis, first substantial question of law is answered in favour of the assessee and against the revenue. It is not necessary for us to answer the remaining substantial questions of law in view of our conclusion to first question of law.

In the result, the orders passed by the Commissioner of Income Tax (Appeals) and the Tribunal are hereby quashed and the matter is remitted to the Commissioner of Income Tax (Appeals) to adjudicate the appeal afresh on merits and in respect of the grounds, which were not the subject matter of notice under Section 263 of the Act.

Accordingly, the appeal is disposed of.

Sd/- JUDGE

Sd/- JUDGE ss

M/S KARNATAKA STATE BEVERAGES CORPORATION LTD vs. THE ASSISTANT COMMISSIONER OF INCOME TAX