Ltd v. This Appeal Was Admitted On 26.05.2009 To Consider

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATBKD THIS THER DAY OF AUGUST, 2014. PRESENT THR HON’BLE MR.JUSTICE N. KUMAR AND THR HON’BLE MRS..JUSTICK RATHNAKALA INCOME TAX APPEAL NO.699 OF 2008 BRHTIWHR 1.The Commissioner of Income-Tax,|C.R. Building, Queens Road,Bangalore. 2. The Assistant Commissioner of Income-Tax,Circle — 12(2),C.R. Building,Queens Road|Bangalore. .. APPBLLANTS (By Sri K.V. Aravind, Adv.) AND: M/s. Sasken CommunicationTechnologies Limited,No.139/25,|Amar Jyothi Layout,Ring Road, Domlur,Bangalore — 560 O71.RBSPONDENT (By Sri. Chythanya K.K., Adv.) This Income Tax Appeal is filed under Section 260-A ofI.T. Act, 1961 arising out of Order dated 11-01-2008 passed|in ITA No.319/BNG/2007, for the Assessment Year 2003-04, praying that this Hon'ble Court may be pleased to: 1.Formulate the substantial questions of law stated|therein, therein, ll.Allow the appeal and set aside the order passed by theIncome-Tax Appellate Tribunal, Bangalore in ITA’No.319/BNG/2007, dated 11-01-2008 confirm theorders of the Appellate Commissioner and Assistant.Commissioner, Income Tax, Circle-12(2), Bangalore. Income-Tax Appellate Tribunal, Bangalore in ITA’No.319/BNG/2007, dated 11-01-2008 confirm theorders of the Appellate Commissioner and Assistant.Commissioner, Income Tax, Circle-12(2), Bangalore. This Appeal coming on for Final Hearing this day,|N. KUMAR aadelivered the following: | JU DBiGMENT This appeal is preferred by the Revenue, challenging|the order passed by the Tribunal which has held that thelearned Commissioner of Income Tax was not justified in|invoking the power of Section 263 of the Income Tax Act,|1961, in directing the Assessing Officer to add back theprovision for bad and doubtful debts. 2. By virtue of the power conferred under Section 263of the Act, the Commissioner of Income Tax by order dated07.03.2007 held that the order passed by the assessingauthority is erroneous and prejudicial to the interest of the|revenue as he has failed to add back the provisions of Rs.3,20,99,996/- representing the provision for diminutionin value of investment as per Clause (c) of the Explanation tosection 115JB(2) of the Act. The said order was challenged|by the assessee before the tribunal. The tribunal following| the judgment of the Apex Court in.Malabar Industrial Co. Ltd. Vs. CIT (2000) reported in 243 ITR 83and also in thejudgment of Calcutta High Court in the case of— RussellProperties (P.) Ltd. Vs. A.Chowdhury, Addl. CIT [1977]|109 ITR 2239,held that the provisions which amounted todiminution in the value of asset cannot be added to the bookprofit under Section 115JA. A bad, unascertained anddoubtful debt claimed by the assessee cannot be treated as unascertained liability. The assessing authority adopted oneview. The Commissioner could not have interfered in theorder in view of the judgment of the Apex Court in the case|oT Malabar Industrial Co. Ltd. Vs. CIT (2000) reported inQ43 ITR 83S. 3. Learned Counsel for the Revenue contends that in/view of the amendment to Section 115 JB of the Act, by way|of explanation (i) which was brought into the statute book on01.04.2001 by the Finance (No.2) Act, 2009 even if Clause (c)is not attracted, Clause (i) is attracted and the order of the|tribunal is erroneous. He also submits that the assessingauthority has not considered the said question from that|angle. He therefore submits that the impugned order passedby the tribunal requires to be set aside. 4. This appeal was admitted on 26.05.2009 to consider the following substantial question of law: “Whether the Tribunal was right in holding that the jurisdiction exercised u/s.263 of the Actto.treattheprovisionofRs.3,20,99,996/-declared as diminution in the value of shares /assets to be added back under Clause (c) of theExplanation to Section 115 JB of the Act, cannotbe made without even examining the merits andconsequently recorded a perverse finding?” 4. This appeal was admitted on 26.05.2009 to consider the following substantial question of law: “Whether the Tribunal was right in holding that the jurisdiction exercised u/s.263 of the Actto.treattheprovisionofRs.3,20,99,996/-declared as diminution in the value of shares /assets to be added back under Clause (c) of theExplanation to Section 115 JB of the Act, cannotbe made without even examining the merits andconsequently recorded a perverse finding?” oS. The Apex court in the case ofCommissioner ofIncome Tax (Central), Ludhiana Vs. Max India Ltd.|reported in [2008] 166 TAXMAN 188 (SC).in para No.2|while|dealingwiththe retrospective operationoT amendments and the exercise of powers under Section 263|of the Act, has referred to the case in|Malabar IndustrialCo. Ltd. Vs. CIT (2000) reported in 243 ITR 83.In para.No.2 of the said judgment it has held as under: “2. At this stage we may clarify that under para1O of the judgment in the case of MalabarIndustrial Co. Ltd. v. CIT (2000) 243 ITR 83 thisCourt has taken the view that the phrase"prejudicial to the interests of the revenue " under section 263 has to be read in conjunction with theexpression "erroneous" order passed by theAssessing Officer. Every loss of revenue as aconsequence of an order of the Assessing Officercannot be treated as prejudicial to the interest ofthe revenue. For example, when the Income TaxOfficer adopted one of the courses permissible inlaw and it has resulted in loss of revenue; orwhere two views are possible and theIncome-Tax|Officer has taken one view with which theCommissioner does not agree, it cannot be treatedas an erroneous order prejudicial to the interest ofthe revenue, unless the view taken by the Income-Tax Officer is unsustainable in law. According tothe learned Additional Solicitor General oninterpretationOf|the.provisionOf|SectionSOHHC(3) as it then stood the view taken by theAssessing Officer was unsustainable in law andtherefore the Commissioner was right in invokingsection 263 of the Income-Tax Act. In_ thisconnection, he has further submitted that in fact2005 amendment which is clarificatory andretrospective in nature itself indicates that theview taken by the Assessing Officer at therelevant time was unsustainable in law. We findno merit in the said contentions. Firstly, it is notindisputethatwhentheOrderoftheCommissioner was passed there were two viewson the word "profit" in that section. The problemwith Section SOHHC 1s that it has been amendedeleven times. Different views existed on the day when the Commissioner passed the above order.Moreover, the mechanics of the section havebecome so complicated over the years that twoVIEWSLwereinherently possible.Therefore,subsequent amendment in 2005 even thoughretrospective will not attract the provision ofsection 263 particularly when as stated abovewe have to take into account the position of law|as it stood on the date when the Commissioner|passed the order dated March 5, 1997, in|purported exercise of his powers under Section263 of the Income Tax Act. “ 6. In view of the aforesaid observations made by the Apex Court, we are of the view that though the amendment|is retrospective, in this case, the Revenue cannot have the|benefit of the same while proceeding under Section 263 ofthe Act. Accordingly, without going to the substantial|question of law, the appeal is dismissed in view of the|judgment of the Apex Court. Sd/-|JUDGE Sd/-|JUDGE