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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 19TH DAY OF NOVEMBER, 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.343 OF 2015 BETWEEN:
THE COMMISSIONER OF INCOME-TAX, C.R. BUILDING, QUEENS ROAD,
BENGALURU.
THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1(2)(1),
NO.59, HMT BHAVAN, 6TH FLOOR, BELLARY ROAD, GANGANAGAR, BENGALURU – 560 032.
... APPELLANTS (BY SRI K.V.ARAVIND, ADV.)
AND:
SMT. NEENA KRISHNA MENON, C/O. V.M.G. MENON, TF101, “BENSON HARMONY”, 49/3, BENSON CROSS, “A” ROAD, BENSON TOWN, BENGALURU – 560 052. PAN: AHPPN 4835N ... RESPONDENT (BY SRI BALRAM R. RAO, ADV.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 05/03/2015 PASSED IN ITA NO.578/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010 PRAYING TO I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.578/BANG/2014 DATED 05/03/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(2)(1), BANGALORE.
THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT
This appeal under Section 260-A 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 22.09.2015 on the following substantial question of law: “Whether the Tribunal was correct in holding that the assessee is eligible for deduction of rupees 1 crore u/s. 54EC without appreciating that the Commissioner of income
tax directed the assessing officer to disallowed the deduction to the extent of rupees 50 lakhs holding that the phrase “during any financial year” means during any financial year after the first day of April 2007 and the intention of law was to identify any one of the financial years following 1.4.2007, and did not intend to include therein more than one financial year simultaneously?”
The factual background in which the aforesaid substantial question of law arises for our consideration needs mention.
The assessee is an individual, who had derived income from Capital Gains and other sources. The assessee filed the return of income for the Assessment Year 2009-2010 on 06.07.2009 declaring total income of Rs.1,32,59,530/-. The case was processed under Section 143(1) of the Act and subsequently, the case was selected for scrutiny. Thereafter, notice under Section 143(2) of the Act was issued. The Assessing
Officer by an order dated 22.11.2011 concluded the assessement and accepted the income, which was declared by the assessee. The Commissioner of Income Tax by an order dated 18.03.2014 invoking the powers under Section 263 of the Act interalia held that the assessee is eligible for deduction under Section 54EC of the Act to the extent of Rs.50 lakhs whereas he has claimed deduction to the extent of Rs.1 crore, which is in excess of the limit prescribed under the proviso to Section 54EC of the Act. Thus, the Commissioner of Income-Tax concluded that the Order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. The Order passed by the Assessing Officer was set-aside and the matter was remitted to the Assessing Officer.
Being aggrieved, the assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short). The Tribunal by Order dated 05.03.2015 interalia by taking
note of the amendment made to Section 54EC of the Act with effect from 01.04.2005 as well as Explanatory Memorandum to Finance (No.2) Bill, 2014, interalia held that the legislature itself has accepted the ambiguity in language of the proviso and has amended the law with prospective effect i.e., Assessment Year 2015-16. It was further held that for the Assessment Year prior to Assessment Year 2015-06 on interpretation of the provisions, it was possible for the assessee to claim deduction of Rs.1 crore by investing Rs.50 lakhs in each of the Financial Years but within six months from the date of transfer. Thus, it was held that the view taken by the Assessing Officer was one of the possible view and therefore, the power under Section 263 of the Act in the fact situation could not have been exercised by the Commissioner of Income-Tax. In the result, the Order passed by the Commissioner of Income-Tax was quashed. In the aforesaid factual background, this appeal has been filed.
Learned counsel for the revenue submitted that the Tribunal grossly erred in holding that the assessee is eligible for deduction of Rs.1 crore under Section 54EC of the Act for the Assessment Year under consideration. It is further submitted that the Tribunal committed an error in law in relying on the decision in the case of ‘SHRI VIVEK JAIRAZBHOY V. DCIT’, ITA NO.236/BANG/2012 dated 14.12.2012 without appreciating the fact that the decision, which was relied upon has not reached finality and the appeal is pending.
On the other hand, learned counsel for the assessee submitted that the view taken by the Assessing Officer is one of the possible views and therefore, the Commissioner of Income-Tax has rightly invoked the powers under Section 263 of the Act. It is further submitted that amendment to proviso to Section 54EC of the Act is prospective in nature. In this connection, reference has also been made to paragraph No.28.2 of Circular No.3/2008 as well as Explanatory Note on the
provisions relating to Direct Taxes in Finance Act, 2007 dated 12.03.2008 in support of the submission that Government intended to restrict the investment in a particular financial year and had thus fixed the limit of Rs.50 lakhs as permissible investment in a particular year. It is further submitted that the intention of the Government was not to restrict the maximum amount of exemption permissible under Section 54EC of the Act.
We have considered the submissions made by learned counsel for the parties and have perused the records. Before proceeding further, it is apposite to take note of the relevant extract of Section 263 of the Act, which reads as under:
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 of the Act, 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 COMPANY VS. CIT’, 243 ITR 83 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 the backdrop of the well settled legal position, if the facts of the case in hand are examined, it is axiomatic that the view taken by the Assessing Officer was one of the possible views. Therefore, the
Commissioner of Income-Tax has rightly invoked the powers under Section 263 of the Act.
In view of preceding analysis, the substantial question of law framed by a Bench of this Court is answered against the revenue and in favour of the assessee.
In the result, the appeal fails and is hereby dismissed.
Sd/- JUDGE
Sd/- JUDGE
dn/- CT-HR