Ita/348/2013 Of The Commissioner Of Income Tax v. M/S Aztec Software Technology Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.348 OF 2013 BETWEEN: 1.THE COMMISSIONER OF INCOME TAX. C.R. BUILDING, QUEENS ROAD BANGALORE. 2 |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 LITD.,(NOW MERGED WITH MIND TREE LTD.,)GLOBAL VILLAGE, RVCE POSTMYSORE 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 [TA|NO.411/BANG/2011 FOR THE ASSESSMENT YEAR 2005-06,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:(1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (1) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THEITAT, 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. THISLIACOMINGONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: DAY, 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 matterof the appeal pertains to 8,1Assessment year 2005-06.The appeal was admitted by a bench of this Court videorder dated 11.09.2013 on the following substantialquestion of law: (I)Whether the Tribunal was correct inholding that the order passed by theAssessing Officer in not excluding theexpenditureincurredIn|foreign.currency from export turnover forcomputing deduction under Section10OA of the Act was not erroneous andprejudicialto.theinterestoftherevenue as the Assessing Officer hastaken one possible view without taking into consideration that the controversyIs not settled? (iI)Whether the Tribunal was correct inholding that the expenditure towardstelecommunicationChargesand|expenaitureincurredIn|foreign.currency reduced from export turnoverhas to be reduced from total turnoverfor computing deduction under Section10A of the Act in the absence of anyprovisions in Section 10A of the Actwhich requires the concerned expensesto be reduced from tota/ turnover also? 2 |Facts leading to filing of the appeal brieflystated are that the assessee is engaged in the Dusinessof software development services and exports. Theassessee filed the return of Income for Assessment Year.2005-06 on 31.10.2005 and declared a total income of|Rs.1,27,54,8/70/-. The assessee claimed deductionunder Section 10OA of the Act without excluding theexpenditure 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 thededuction as claimed by the assessee. The Commissionerof 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|incurredIn|foreignCUFFencyas|requiredUNCdEeExplanation 2 to Section 10A of the Act and found that|the order passed by the Assessing Officer is erroneous:anaprejudicial tOtneinterestofrevenue.TneCommissioner 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 underSection 10A of the Act. from export turnover for computing deduction underSection 10A of the Act. . The Tribunal by an order dated 22.02.2013inter alia held that there were two views possible and the.Assessing Officer has taken one view and therefore, inthe facts of the case, the powers under Section 263 ofthe Act cannot be resorted to. Accordingly, the orderpassed by the Commissioner of Income Tax (Appeals)was set aside and the appeal of the assessee wasallowed. aLearned counsel for the revenue submitted.that the Tribunal erred in holding that the order passed|by the Assessing Officer in not excluding the expenditureincurred in foreign currency from export turnover forcomputing deduction under Section 10A of the Act was)not erroneous and prejudicial to the interest of therevenue. I[t 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. Onthe other hand, learned counsel for the assessee hasSupported the order passed by the Tribunal. 5.We have considered the submissions made|by learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite to takenote of the relevant extract of Section 263 of the Act,which reads as under: 263. Revision of orders prejudicial to| revenulle (1) The Commissioner may call for andexamine the record of any proceeding underthis Act, and if he considers that any orderpassed therein by the Assessing Officer is—erroneous in so far as it is prejudicial to the’interests of the revenue, he, may, after givingthe assessee an opportunity of being heardand after making or causing to be made suchinguiry as he deems necessary, pass such order thereon as the circumstances of thecase Justify, including an order enhancing ormodifying the assessment, or cancelling theassessment.and|directing adfresh|assessment. 6.|Thus, from close scrutiny of Section 263 it isevident that twin conditions are required to be satisfiedfor exercise of revisional jurisdiction under Section 263of the Act firstly, the order of the Assessing Officer iserroneous and secondly, that it is prejudicial to theinterest of the revenue on account of error in the order|of assessment. J «The aforesaid provision was considered bythe Supreme Court in|MALABAR INDUSTRIAL CO.LTD.VS. CIT’, 243 ITR 43 SCand it was held that|the phrase‘prejudicial to the interests of the revenue”has to be read in conjunction with an erroneous orderpassed by the Assessing Officer and every loss ofrevenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest ofrevenue. It was further held that where two views arepossible and the Income Tax Officer has taken one viewwith which the Commissioner does not agree, the orderpassed by the Assessing Officer cannot be treated aserroneous order prejudicial to the interest of therevenue. The principles laid down in the aforesaiddecision 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 APPEALNO.2773/2020 DECIDED ON 17.07.2020. 8.|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,|professionalchargesanaonsiteservicecharges are for development of software at clients siteoutside India, the assessee has neither rendered any 8.|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,|professionalchargesanaonsiteservicecharges are for development of software at clients siteoutside 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 (QO) LTD., V. ASSTCIT’, (2008) 22 SOT 220 (CHENNAI)|.Thus, the viewtaken 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 tne Act could not nave 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 questionsof law framed by this court are answered against therevenue and in favour of the assessee. �4�8,1�61.328 �8,1�/001/2�:/-2.�/45�-.�,161=>� 5-.;-..15�� ����������������������..�