By Sri K v. Aravind, Advocate

IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 19[th]day of August, 2014| PRESENT THE HON’BLE MR. JUSTICE N KUMAR ANTI THE HON’BLE MRS. JUSTICE RATHNAKALA ITA No./70 of 2008 BBRTW BB 1.)The Commissioner ot Income Tax(International Taxation)(International Taxation) Rashtrothana BhavanNrupathunga RoadBangaloreNrupathunga RoadBangalore iaThe Assistant Commissionerot Income Tax|(International Taxation)Circle — 19(1) Rashtrothana Bhavan.Nrupathunga RoadBangalore.. Appellantot Income Tax|(International Taxation)Circle — 19(1) Rashtrothana Bhavan.Nrupathunga RoadBangalore.. Appellant (By Sri K. V. Aravind, Advocate) AND: M/s. Sigma Aldrich Foreign Holdings Co., 31/1, Seetharampalya Mahadevapura Post. o Bangalore — 560 048 ...Respondent (By Sri Chythanya K. K., for M/s. Raghuraman & Chythanya, Advocates) This ITA filed under Section 260-A of IT Act, 1961arising out of order dated 11-03-2008 passed in ITA|No.388/BNG/2006, for the Assessment year 2001-02 to|2002-03, praying to (i) formulate the substantial questions oflaw stated therein; (ii) allow the appeal and set aside the|orderpassedbytheITAT,|BangaloreinITA|No.388/BNG/2006, dated 11/03/2008 confirm the orders of|the Appellate Commissioner and Assistant Commissioner ofIncome Tax (International Taxation), Circle-19(1), Bangalore. This ITA coming on for hearing this day,N, KUMAR Jdelivered the following: JU DBGMENT The revenue has preferred this appeal against the|order passed by the Tribunal which has set aside the orderpassed by the Commissioner under Section 263 of theIncome Tax Act, 1961 (hereinafter for short referred to as‘the Act’). 2. The assessment year is 2001-02. The assessee is a|branch of a foreign company and is assessed to tax in Indiain the status of a non-resident. For the assessment year 2001-2002 the assessee filed return of income under Section139(1) of the Act on 31.10.2001. The aforesaid return wasrevised on 24.10.2002 for claiming deduction towardscomputer software as revenue expenditure which was|omitted in the original return. No notice under Section 143(2) or 142 (1) was issued for the above returns. When theassessment proceedings for 2001-2002 were pending, theassessee filed return of income for the assessment year2002-03. In this return, the assessee made adjustment ofRs.2,26,00,461/- as transfer pricing adjustment undersection 92 read with Section 92C (3) of the Act. On accountof this adjustment, the assessing authority and theCommissioner|oT Income.Tax(InternationalTaxation)insisted that the assessee shall offer additional income taxon similar basis for all the assessment years beginning withassessment year 1998-99. After having discussions with theassessing officer as well as the Commissioner of Income Tax(International Taxation), the assessee filed revised return forthe assessment year 2001-02 offering certain income to tax v on voluntary basis in order to buy peace from _ thDepartment. The assessment order was passed. 3. In the assessment order, the assessing authority|has observed that, in the revised return filed net margin asper TNMM method is taken at 3%. These adjustments forthe purpose of transfer pricing are done after discussions. 4. It is thereafter, the Commissioner of Income Tax.(International Taxation) issued notice dated 9.3.2004 to theassessee proposing to revise the revised assessmentcompleted on 6.6.2003. The assessee objected to the sameby filing a detailed objection. Over-ruling the said objection,the Commissioner proceeded to pass an order revising therevised return. o. Aggrieved by the said order, the assessee preferred|an appeal before the Tribunal. The Tribunal by theimpugned order held that, neither at the time of issuing 3. In the assessment order, the assessing authority|has observed that, in the revised return filed net margin asper TNMM method is taken at 3%. These adjustments forthe purpose of transfer pricing are done after discussions. 4. It is thereafter, the Commissioner of Income Tax.(International Taxation) issued notice dated 9.3.2004 to theassessee proposing to revise the revised assessmentcompleted on 6.6.2003. The assessee objected to the sameby filing a detailed objection. Over-ruling the said objection,the Commissioner proceeded to pass an order revising therevised return. o. Aggrieved by the said order, the assessee preferred|an appeal before the Tribunal. The Tribunal by theimpugned order held that, neither at the time of issuing show notice nor at the time of passing an order underSection 263 of the Act concluded that the assessment waserroneous and prejudicial to the interest of the revenuewhich is a pre requisite for invoking the provisions of Section263 of the Act. However, the Tribunal held that, the revisedreturn was filed by the assessee after discussion with theCommissioner of Income Tax and, therefore, he could nothave initiated proceedings under Section 263 of the Act.Therefore, the order under Section 203 was set aside.Agegrieved by the said order, the revenue is before this Court. 6. Learned counsel for the revenue assailing the}impugned order contended that, though the Commissionerwas consulted before filing revised return, the proceedingsunder Section 263 is initiated in respect of matters where hewas not consulted and, therefore, on that ground the ordercannot be set aside. — /. Per contra, the learned counsel for the assesseesubmitted that, though the assessee was not due in anyamount, in order to have good relationship and purchasepeace, they offered to pay tax even for a period anterior tothe day from which the liability under the Act arose and thepercentage was arrived at aiter such negotiations and whenamount was paid, it was not open to the Commissioner toinitiate proceedings under Section 263 of the Act and,therefore, he submits the Tribunal was justified in settingaside the said order. 8. At the time of filing of the revised return, the|assessee addressed a letter dated 25.3.2003. Reference Nos. 3 and 4 reads as under:- © OurmeetingwithAdditionalCommercial ofIncome Tax (International Taxation)on 04-02-2005, 17-02-2003, 19-02-2005, 27-02-2003, 04-03-2003, 10-03-2003, 12-03-2003 and18-03-2003. w 4)Our meeting with the Commissionerof Income Tax (International Taxation) on 20-03-2003.” 9. The fact that the assessee had a meeting with theAdditional Commissioner of Income Tax (InternationalTaxation) on various dates mentioned therein and also hadameeting with the Commissioner of Income Tax (InternationalTaxation) on 20.3.2003 is not disputed. There werediscussions and then an agreement was reached and interms of the agreement revised return was filed and tax waspaid. The transactions under Section 263 is a quasi judicial|proceedings. When the person who invoked the saidprovision was a party to the earlier proceedings and on hisapproval revised return was filed, payments were made, itwas not open to him to revise the said assessment undersection 263 of the Act. Obviously that is the reason whyeither in the notice issued or in the subsequent order, thewords “the order passed by the assessing authority isprejudicial and erroneous to the interest of the revenue” is 8 conspicuously missing. If the order is erroneous theCommissioner also would be equally responsible because hewas consulted before filing the revised return. Under thesecircumstances, the Tribunal was justified in setting aside thesaid order. The substantial question of law is answered infavour of the assessee and against the revenue. There is nomerit in this appeal and accordingly it is dismissed. cKI/- Sd/-JUDGE Sd/-JUDGE