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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 21ST DAY OF APRIL, 2016
PRESENT
THE HON'BLE MR. JUSTICE JAYANT PATEL
AND
THE HON’BLE MRS. JUSTICE B.V.NAGARATHNA
I.T.A. NO.252/2014 c/w I.T.A. NO.253/2014
IN I.T.A. NO.252/2014
BETWEEN:
THE COMMISSIONER OF INCOME-TAX, LTU, JSS TOWERS, BSK III STAGE, BANGALORE.
THE JOINT COMMISSIONER OF INCOME-TAX, LTU, JSS TOWERS, BSK III STAGE, BANGALORE – 560 085.
... APPELLANTS
(BY SRI: K.V.ARAVIND, ADVOCATE)
AND:
M/S. IBM INDIA PVT. LTD., (EARLIER KNOWN AS IBM GLOBAL SERVICES), BANNERGHATTA MAIN ROAD, BANGALORE – 560 029.
... RESPONDENT
(BY SRI: PERCY PARDIWALLA, SENIOR ADVOCATE, FOR SRI. T. SURYANARAYANA, ADVOCATE)
*****
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THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.01.2014 PASSED IN ITA NO.382/BANG/2013, FOR THE ASSESSMENT YEAR 2000- 2001 AND ETC.,
IN I.T.A. NO.253/2014
BETWEEN:
THE COMMISSIONER OF INCOME-TAX, LTU, JSS TOWERS, BSK III STAGE, BANGALORE.
THE JOINT COMMISSIONER OF INCOME-TAX, LTU, JSS TOWERS, BSK III STAGE, BANGALORE – 560 085.
... APPELLANTS
(BY SRI: K.V. ARAVIND, ADVOCATE)
AND:
M/S. IBM INDIA PVT. LTD., (EARLIER KNOWN AS IBM GLOBAL SERVICES), BANNERGHATTA MAIN ROAD, BANGALORE – 560 029.
... RESPONDENT
(BY SRI: PERCY PARDIWALLA, SENIOR ADVOCATE, FOR SRI. T. SURYANARAYANA, ADVOCATE)
*****
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.01.2014 PASSED IN ITA NO.383/BANG/2013, FOR THE ASSESSMENT YEAR 2001- 02 AND ETC.,
THESE APPEALS COMING ON FOR ADMISSION THIS DAY, JAYANT PATEL J., DELIVERED THE FOLLOWING:-
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J U D G M E N T
As in both the appeals, common questions are to be considered with common facts, they are being considered simultaneously.
Admit.
Mr.K.V.Arvind, learned counsel, waives notice for admission on behalf of respondents and appeals are finally heard.
In ITA.No.252/2014, appellant – revenue has preferred the present appeals, by raising the following substantial question of law:- “1. “Whether the Tribunal was correct in dismissing the appeal of the revenue on the issue of adjustment of brought forward losses and unabsorbed depreciation of earlier years while computing the deduction u/s.10A by holding that it did not find any infirmity of the order passed by the appellate Commissioner without appreciating that the relief allowed is a deduction and not an exclusion from the total income which is also clarified by the board’s circular No.7/DV/2013?”
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Whereas, in ITA.No.253/2014, the appellant – revenue has preferred the present appeal, by raising the following substantial questions of law:- “1. “Whether the Tribunal was correct in dismissing the appeal of the revenue on the issue of adjustment of brought forward losses and unabsorbed depreciation of earlier years while computing the deduction u/s.10A by holding that it did not find any infirmity of the order passed by the appellate Commissioner without appreciating that the relief allowed is a deduction and not an exclusion from the total income which is also clarified by the board’s circular No.7/DV/2013?
Whether the Tribunal is the grounds of the revenue on the issue of levy of interest u/s.234D is not maintainable without appreciating that the CIT(A) erred in admitting the ground of appeal in the appeal against the order of giving effect to the order of the ITAT when the CIT(A) himself had dismissed the ground in the appeal against the assessment order?
Whether the Tribunal is correct in holding that the ground of the revenue on the issue of levy of interest u/s.234D is not maintainable without appreciating that there is an inherent
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contradiction as the ITAT has also held that the levy of interest u/s.234D is mandatory and consequential in nature?”
As such, the matters can be considered in light of first question, which is common in both the appeals and in light of second and third questions, which are raised in ITA.No.253/2014.
We have heard Mr.K.V.Arvind, learned counsel for appellant- revenue and Mr.Percy Pardiwalla, senior counsel along with Mr.T.Suryanarayana, learned counsel for respondent.
As such, on the first question, which is common in both the appeals, the contention was raised by learned counsel for appellant – revenue that the first issue could be said to have been covered by the decision of this Court in case of CIT vs. Yokogova India Ltd. reported in
(2012) 341 ITR (385) Kar. (Yokogova), and therefore, when the issue is already covered by the decision of this Court, the Tribunal has dismissed the appeal of the revenue. He submitted that the appellant – revenue has carried the matters before the apex court and therefore, in
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the event this court is inclined to observe that since the issue is already covered by the decision of this Court in case of Yokogova (supra), no substantial question of law would arise for consideration, this Court may further observe that in the event the apex court takes any different view, appellant – revenue may be at liberty to take appropriate proceedings in accordance with law.
Whereas, learned senior counsel appearing for respondent – assessee contended that as such, the issue did not arise for consideration even before the Tribunal more particularly because at the level of CIT (Appeals), it was found that the Assessing Officer while giving effect to the earlier decision of the Tribunal, could not exceed his jurisdiction beyond the order of the Tribunal and therefore, the question of carrying forward the loss under Section 10A of the Income Tax Act, 1961 [hereinafter, referred to as “the Act”], and the adjustment thereof against the income of the earlier assessment year could not have been reopened by the Assessing Officer more particularly, when earlier appeal of the revenue was already dismissed and the Assessing Officer was giving effect to the order of the CIT (Appeals) read with the order of the Tribunal in the
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earlier proceedings. He therefore, submitted that as such, the decision of this Court in case of Yokogova (supra), cannot be applied to the facts of the present case since the litigation had ended up to the level of Tribunal and the Assessing Officer was giving effect to the order of the CIT (Appeals) read with the order of the Tribunal. Learned counsel submitted that this court may not make any observation that in the event the revenue succeeds in the proceedings before the apex court against the decision of this court in case of Yokogova (supra), the revenue may be at liberty to take appropriate proceedings in accordance with law.
In normal circumstances we would have left it to the revenue to take appropriate proceedings in the event the apex court takes a different view against the decision of this court in case of Yokogova (supra). However, the same would arise for consideration in the event the aspect of carry forward of loss under Section 10A as well as depreciation and the adjustment against the income of the respective assessment year, was at large to be considered. The peculiar circumstances in the case are that in the earlier round of litigation, the question
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of entitlement was considered and further, the computation thereof was indirectly deemed as concluded. The order of the CIT (Appeals) can be considered in light of the aforesaid observations, which is extracted as under:- “4. It is seen from the records that the AO in his order dated 24.05.2011 giving effect to the order of the ITAT has set off losses prior to allowing the claim of relief under section 10A. He has apparently considered the principles of the ITAT order for AY 2001-02, applied the same to the earlier year i.e. AY 2000-01 and thereafter arrived at the losses of AY 2000-01 to be carried forward (i.e. nil).
It is the appellant’s claim that the determination of brought forward losses for AY 2000-01 at nil, by applying the observations of the Hon’ble ITAT made in the context of AY 2001-02, is an erroneous and forced application of the observations to a period for which it was never intended. It is also contended that the AO’s conclusion that the ITAT has directed that losses are to be set off prior to allowing relief u/s 10A of the Act is not fully correct. No blanket assertions had been made by the Hon’ble ITAT in this matter. Instead, the observations were made in the context of brought forward losses of the
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units which claimed relief u/s 10A. Since the losses arising in the appellant’s case were from domestic units, the ITAT’s observation obviously did not relate to it and the same, therefore, could not be used to set off domestic losses against 10A profits.
In my appellate order for AY 2000-01 on the AO’s order giving effect to the ITAT order for that year, it has been held that the carry forward loss determination at “nil” is incorrect. Such “nil” loss had arisen when the AO set off losses from domestic units against the profit from 10A exempt units. This was not the direction of the ITAT in its order no.555/Bang/2005 for AY 2001-02 and in any case the same was not to be stretched to a different year. It was also inconsistent with the decision of the Hon’ble Karnataka High Court in the appellant’s own case (ITA No.356/2010) where it was held that relief u/s 10A has to be given effect first and only then can the brought forward losses be set off. Since the AO has given effect to the ITAT’s order wrongly in AY 2000-01, and in violation of judicial precedents, the same has been directed to be modified. Accordingly, in the present appeal for AY 2001-02 the AO is directed to restore the position that prevailed
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after effect was given to the order of CIT (A). These grounds, therefore, succeed.”
The aforesaid shows that CIT (Appeals) rightly found that when the matters were with regard to giving effect to the order as per the earlier litigation, the impugned order of Assessing Officer is in violation of judicial precedent and therefore, Assessing Officer was directed to restore the position that prevailed after effect was given to the order of CIT (Appeals).
The aforesaid further shows the question in light of the entitlement under Section 10A to the assessee was already considered and concluded in the earlier round of litigation. The Assessing Officer while giving effect to the order of the higher forum could not reopen an issue when the proceeding could be said to be concluded or rather deemed to have been concluded in respect of the very same assessment years.
Under these peculiar facts and circumstances, we find that when the matters pertain to giving effect to the order passed by the higher forum, irrespective of the consequence of the proceedings before the apex court
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against the decision of this court in case of Yokogova (supra), the issue which already stood concluded should not be allowed to be reopened. In any case, the Assessing Officer while giving effect to the order of the CIT (Appeals), or the appellate Tribunal, is bound by the decision of the higher forum and could not directly or indirectly upset the decision or the computation thereof which was not interfered with by the higher forum. Hence, we do not find any substantial question of law as sought to be canvassed by question No.1 would arise for consideration.
On question No.2 for levy of interest under Section 234D, there is considerable force in the submission of learned counsel appearing for the appellant to the extent that the Tribunal has not properly considered the said aspect.
The contention of the learned counsel for appellant – revenue is that Section 234D was made operative with retrospective effect from 01/06/2003 and therefore, the question may arise for levying of interest whereas, learned senior counsel appearing for the
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respondent – assessee contended that liability to pay interest by the assessee on the amount of refund is from the date of refund till the date of regular assessment. He submitted that since separate treatment is given to the contingency which may arise on account of the order passed by the CIT (Appeals), Tribunal, or this Court, by virtue of sub-section (2) and Section 234D, coupled with the aspect that the word “regular assessment”, is defined under Section 2(40) of the Act, the liability to pay interest by the assessee cannot be stretched in the same manner until the assessment is finalized by the higher forum, may be at the level of CIT (Appeals), Tribunal or this court.
As such, if we see the reasoning of the Tribunal from the aforesaid aspect, the same is as under:-
“8.4. With regard to the second ground raised for the AY 2001-02, the same is not maintainable as levying of interest u/s 234D of the Act is mandatory and consequential in nature.”
In our view, the aforesaid reasoning so recorded by the Tribunal could not be said to be satisfactory when the issue on the aspects of levying of interest under
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Section 234D was required to be considered not only in light of the provisions of Section 234D(1) as well as sub- section (2), coupled with the further contention of the respondent – assessee that the matters pertain to Assessment Year 2001-02 and even if the retrospective effect is given from 2003 to the provisions of Section 234D, it would not apply to the facts of the present case.
In view of the above, we find that it would be appropriate to remand the matter to the Tribunal for considering the question of levy of interest under Section 234D of the Act, after considering the matters in light of the observations made in the present order, and also, after giving opportunity of hearing to both sides, taking into consideration the facts and circumstances.
We may record that we have refrained from making any further observation on the liability to pay interest under Section 234D of the Act since the question at large is yet to be considered by the Tribunal, keeping in view the facts and circumstances and any observation made by this Court may prejudice the rights of either side.
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In view of the aforesaid observations and discussions, the impugned order of the Tribunal is set aside only on the point of levy of interest under Section 234D of the Act, with the further direction that the Tribunal shall examine the said question in light of the observations made by this Court, after giving opportunity of hearing to both sides and after considering the facts and circumstances, an appropriate order shall be passed by the Tribunal, preferably within a period of six months from the date of receipt of the certified copy of this order from this Court. 20. It is made clear that on question No.1 appeal is not admitted. 21. The appeals are allowed only to the aforesaid extent.
No order as to costs.
Sd/- JUDGE
Sd/-
JUDGE *mvs/