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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 16TH 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.348 OF 2013 BETWEEN:
THE COMMISSIONER OF INCOME TAX
C.R. BUILDING, QUEENS ROAD
BANGALORE.
THE COMMISSIONER OF INCOME TAX
BANGALORE-III, C.R. BUILDING
QUEENS ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)
AND:
M/S. AZTEC SOFTWARE TECHNOLOGY LTD., (NOW MERGED WITH MIND TREE LTD.,) GLOBAL VILLAGE, RVCE POST MYSORE ROAD, BANGALORE-560059. ... RESPONDENT (BY SRI. CHYTHANYA K.K., ADV.,) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 22.02.2013 PASSED IN ITA NO.411/BANG/2011 FOR THE ASSESSMENT YEAR 2005-06, 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 ORDER OF THE ITAT, BANGALORE IN ITA NO.411/BANG/2011 DATED 22-02-2013 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX, BANGALORE-III, BANGALORE.
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 revenue. The subject matter of the appeal pertains to the Assessment year 2005-06. The appeal was admitted by a bench of this Court vide order dated 11.09.2013 on the following substantial question of law: (i) Whether the Tribunal was correct in holding that the order passed by the Assessing Officer in not excluding the expenditure incurred in foreign currency from export turnover for computing deduction under Section 10A of the Act was not erroneous and prejudicial to the interest of the revenue as the Assessing Officer has taken one possible view without taking
into consideration that the controversy is not settled?
(ii) Whether the Tribunal was correct in holding that the expenditure towards telecommunication charges and expenditure incurred in foreign currency reduced from export turnover has to be reduced from total turnover for computing deduction under Section 10A of the Act in the absence of any provisions in Section 10A of the Act which requires the concerned expenses to be reduced from total turnover also?
Facts leading to filing of the appeal briefly stated are that the assessee is engaged in the business of software development services and exports. The assessee filed the return of income for Assessment Year 2005-06 on 31.10.2005 and declared a total income of Rs.1,27,54,870/-. The assessee claimed deduction under Section 10A of the Act without excluding the expenditure incurred in the foreign currency from export
turnover. The case was selected for scrutiny and a notice dated 10.10.2006 under Section 143(2) of the Act was issued. The Assessing Officer without noticing the fact that assessee claimed deduction under Section 10A of the Act without excluding the expenditure incurred in foreign currency from export turnover granted the deduction as claimed by the assessee. The Commissioner of Income Tax (Appeals) on examination of the records in exercise of powers under Section 263 of the Act noticed that assessee has claimed deduction under Section 10A of the Act without producing the expenses incurred in foreign currency as required under Explanation 2 to Section 10A of the Act and found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. The Commissioner of Income Tax (Appeals) issued a notice to the assessee and after hearing the assessee, by an order dated 31.01.2011 modified the order of assessment by excluding the expenditure incurred in foreign currency
from export turnover for computing deduction under Section 10A of the Act.
The assessee thereupon approached the Tribunal. The Tribunal by an order dated 22.02.2013 inter alia held that there were two views possible and the Assessing Officer has taken one view and therefore, in the facts of the case, the powers under Section 263 of the Act cannot be resorted to. Accordingly, the order passed by the Commissioner of Income Tax (Appeals) was set aside and the appeal of the assessee was allowed.
Learned counsel for the revenue submitted that the Tribunal erred in holding that the order passed by the Assessing Officer in not excluding the expenditure incurred in foreign currency from export turnover for computing deduction under Section 10A of the Act was not erroneous and prejudicial to the interest of the revenue. It is further submitted that the Tribunal erred in
not taking into consideration Explanation 2 to Section 10A of the Act, which contemplates excluding expenses incurred in foreign currency from the export turnover. On the other hand, learned counsel for the assessee has supported the order passed by the Tribunal.
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 the relevant extract of Section 263 of the Act, which reads as under: 263. Revision of orders prejudicial to revenue
(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such
order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Thus, from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment.
The aforesaid provision was considered by the Supreme Court in MALABAR INDUSTRIAL CO. LTD. VS. CIT’, 243 ITR 43 SC and it was held that the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing
Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The principles laid down in the aforesaid decision were reiterated by the Supreme Court in ‘CIT VS. MAX INDIA LTD.,’ 295 ITR 282 (SC) and recently in ‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OF RAJASTHAN AND ORS.’, CIVIL APPEAL NO.2773/2020 DECIDED ON 17.07.2020.
In view of aforesaid enunciation of law, the facts of the case may be seen. The assessee is engaged in the business of computer software development and services. The expenditure incurred in foreign currency on traveling, professional charges and onsite service charges are for development of software at clients site outside India, the assessee has neither rendered any
technical services nor has earned any receipt from rendering technical services. Therefore, there is no need to exclude the expenditure incurred in foreign currency from the export turnover. [SEE: ‘PATANI TELECOM (P) LTD. VS. ITO’, (2008) 22 SOT 26 (Hyd) and ‘CHANCEPOND TECHNOLOGIES (O) LTD., V. ASST. CIT’, (2008) 22 SOT 220 (CHENNAI)]. Thus, the view taken by the Assessing Officer was a plausible view and the view taken by him cannot be said to be erroneous. Therefore, in view of well settled legal position, invocation of powers in the fact situation of the case under Section 263 of the Act could not have been held to be justified. The Tribunal has therefore, rightly set aside the order passed by the Commissioner of Income Tax (Appeals).
In view of preceding analysis, substantial questions of law framed by this court are answered against the revenue and in favour of the assessee.
In the result, the appeal fails and is hereby dismissed.
Sd/- JUDGE
Sd/- JUDGE ss