1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 16TH DAY OF SEPTEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.348 OF 2013 BETWEEN: 1. COMMISSIONER OF INCOME TAX C.R. BUILDING, QUEENS ROAD BANGALORE. 2. 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 LTD., (NOW MERGED WITH MIND TREE LTD.,) GLOBAL VILLAGE, RVCE POST MYSORE 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 ITA NO.411/BANG/2011 FOR ASSESSMENT YEAR 2005-06, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. 2 (I) ALLOW APPEAL AND SET ASIDE ORDER OF ITAT, BANGALORE IN ITA NO.411/BANG/2011 DATED 22-02-2013 AND CONFIRM ORDER OF APPELLATE COMMISSIONER CONFIRMING ORDER PASSED BY COMMISSIONER OF INCOME TAX, BANGALORE-III, BANGALORE. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by revenue. subject matter of appeal pertains to Assessment year 2005-06. appeal was admitted by bench of this Court vide order dated 11.09.2013 on following substantial question of law: (i) Whether Tribunal was correct in holding that order passed by Assessing Officer in not excluding expenditure incurred in foreign currency from export turnover for computing deduction under Section 10A of Act was not erroneous and prejudicial to interest of revenue as Assessing Officer has taken one possible view without taking 3 into consideration that controversy is not settled? (ii) Whether Tribunal was correct in holding that expenditure towards telecommunication charges and expenditure incurred in foreign currency reduced from export turnover has to be reduced from total turnover for computing deduction under Section 10A of Act in absence of any provisions in Section 10A of Act which requires concerned expenses to be reduced from total turnover also? 2. Facts leading to filing of appeal briefly stated are that assessee is engaged in business of software development services and exports. assessee filed return of income for Assessment Year 2005-06 on 31.10.2005 and declared total income of Rs.1,27,54,870/-. assessee claimed deduction under Section 10A of Act without excluding expenditure incurred in foreign currency from export 4 turnover. case was selected for scrutiny and notice dated 10.10.2006 under Section 143(2) of Act was issued. Assessing Officer without noticing fact that assessee claimed deduction under Section 10A of Act without excluding expenditure incurred in foreign currency from export turnover granted deduction as claimed by assessee. Commissioner of Income Tax (Appeals) on examination of records in exercise of powers under Section 263 of Act noticed that assessee has claimed deduction under Section 10A of Act without producing expenses incurred in foreign currency as required under Explanation 2 to Section 10A of Act and found that order passed by Assessing Officer is erroneous and prejudicial to interest of revenue. Commissioner of Income Tax (Appeals) issued notice to assessee and after hearing assessee, by order dated 31.01.2011 modified order of assessment by excluding expenditure incurred in foreign currency 5 from export turnover for computing deduction under Section 10A of Act. 3. assessee thereupon approached Tribunal. Tribunal by order dated 22.02.2013 inter alia held that there were two views possible and Assessing Officer has taken one view and therefore, in facts of case, powers under Section 263 of Act cannot be resorted to. Accordingly, order passed by Commissioner of Income Tax (Appeals) was set aside and appeal of assessee was allowed. 4. Learned counsel for revenue submitted that Tribunal erred in holding that order passed by Assessing Officer in not excluding expenditure incurred in foreign currency from export turnover for computing deduction under Section 10A of Act was not erroneous and prejudicial to interest of revenue. It is further submitted that Tribunal erred in 6 not taking into consideration Explanation 2 to Section 10A of Act, which contemplates excluding expenses incurred in foreign currency from export turnover. On other hand, learned counsel for assessee has supported order passed by Tribunal. 5. We have considered submissions made by learned counsel for parties and have perused record. Before proceeding further, it is apposite to take note of relevant extract of Section 263 of Act, which reads as under: 263. Revision of orders prejudicial to revenue (1) Commissioner may call for and examine record of any proceeding under this Act, and if he considers that any order passed therein by Assessing Officer is erroneous in so far as it is prejudicial to interests of revenue, he, may, after giving assessee opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such 7 order thereon as circumstances of case justify, including order enhancing or modifying assessment, or cancelling assessment and directing fresh assessment. 6. Thus, from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of Act firstly, order of Assessing Officer is erroneous and secondly, that it is prejudicial to interest of revenue on account of error in order of assessment. 7. aforesaid provision was considered by Supreme Court in MALABAR INDUSTRIAL CO. LTD. VS. CIT , 243 ITR 43 SC and it was held that phrase prejudicial to interests of revenue has to be read in conjunction with erroneous order passed by Assessing Officer and every loss of revenue as consequence of order of Assessing 8 Officer cannot be treated as prejudicial to interest of revenue. It was further held that where two views are possible and Income Tax Officer has taken one view with which Commissioner does not agree, order passed by Assessing Officer cannot be treated as erroneous order prejudicial to interest of revenue. principles laid down in aforesaid decision were reiterated by 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. 8. In view of aforesaid enunciation of law, facts of case may be seen. assessee is engaged in business of computer software development and services. expenditure incurred in foreign currency on traveling, professional charges and onsite service charges are for development of software at clients site outside India, assessee has neither rendered any 9 technical services nor has earned any receipt from rendering technical services. Therefore, there is no need to exclude expenditure incurred in foreign currency from export turnover. [SEE: PATANI TELECOM (P) LTD. VS. ITO , (2008) 22 SOT 26 (Hyd) and CHANCEPOND TECHNOLOGIES (O) LTD., V. ASST. CIT , (2008) 22 SOT 220 (CHENNAI)]. Thus, view taken by Assessing Officer was plausible view and view taken by him cannot be said to be erroneous. Therefore, in view of well settled legal position, invocation of powers in fact situation of case under Section 263 of Act could not have been held to be justified. Tribunal has therefore, rightly set aside order passed by Commissioner of Income Tax (Appeals). In view of preceding analysis, substantial questions of law framed by this court are answered against revenue and in favour of assessee. 10 In result, appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss Commissioner of Income-tax, Bangalore / Commissioner of Income-tax Bangalore-III, Bangalore v. Aztec Software Technology Ltd. (Now Merged With Mind Tree Ltd.)