- 1 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF AUGUST, 2025 BEFORE THE HON'BLE MR. JUSTICE M.NAGAPRASANNA WRIT PETITION NO. 4358 OF 2024 (T-IT) BETWEEN: SCICOM CONTACT CENTRE SERVICE PRIVATE LIMITED NO.24, NENAPU GROUND FLOOR, 14TH CROSS, 2ND B MAIN ROAD, SOUNDARYA LAYOUT HESARGHATTA ROAD BANGALORE-560073 REPRESENTED HEREIN BY ITS DIRECTOR MR. ARIYANAYAKAM LEO SURESH INCORPORATION UNDER SECTION COMPANIES ACT, 1956 …PETITIONER (BY SMT. TANMAYEE RAJKUMAR, ADVOCATE) AND: 1. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 12 (3), 80 FEET ROAD, BMTC BUILDING, KORAMANGALA, BANGALORE-560095 Digitally signed by NAGAVENI Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 2. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 6(1)(1), 80 FEET ROAD, BMTC BUILDING, KORAMANGALA, BANGALORE-560095 3. PRINCIPAL COMMISSIONER OF INCOME TAX-2 80 FEET ROAD, BMTC BUILDING, KORAMANGALA, BANGALORE-560095 …RESPONDENTS (BY SRI. Y.V. RAVI RAJ, ADVOCATE) THIS WP IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO DIRECT THE RESPONDENTS TO FORTHWITH REFUND AN AMOUNT OF RS. 25,00,000/- TOGETHER WITH APPLICABLE INTEREST, FOR THE AY 2006-07 VIDE ANNEXURE-S AND ETC. THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: - 3 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 CORAM: HON'BLE MR. JUSTICE M.NAGAPRASANNA ORAL ORDER The petitioner is before this Court, seeking the following prayer: "a) directing the Respondents to forthwith refund an amount of Rs. 25,00,000/-, together with applicable interest, for the assessment year 2006- 07; vide order Annexure-S. b) directing the Respondents to forthwith refund an amount of Rs. 30,00,000/-, together with applicable interest, for the assessment year 2007- 08; vide order Annexure-S. c) directing the Respondents to forthwith refund an amount of Rs. 24,96,250/-, together with applicable interest, for the assessment year 2008- 09; vide order Annexure-S. d) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, in the interests of justice and equity." 2. Heard Smt. Tanmayee Rajkumar, learned counsel appearing for the petitioner and Sri. Y.V. Ravi Raj, learned counsel appearing for the respondents. 3. The petitioner, a back office company in the name and style of 'Scicom Contact Centre Services Private Limited', is - 4 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 before the Court on the question of the respondent-Revenue not taking steps pursuant to the order of the Tribunal. 4. A little history is, for the assessment years 2006- 07, 2007-08 and 2008-09, returns of income filed by the petitioner comes to be picked up for scrutiny assessment. Upon the assessment proceedings culminating into a final assessment order by the Assessing Officer, the petitioner files appeals before the Income Tax Appellate Tribunal. The Tribunal, by a common order, disposed the appeals on each of the grounds urged in the appeals for each of the assessment years by remitting the matter back to the hands of the Assessing Officer for a fresh decision on all the grounds. 5. In terms of Section 153(5) read with 153(3) and 153(4) of the Income Tax Act, 1961 ('the Act' for short), a fresh assessment ought to have been carried out pursuant to the order of the Tribunal before the end of the financial year. Upto 2018, there was no communication to the assessee of the compliance with the order of the Tribunal by initiating proceedings afresh. In those circumstances, the assessee communicates several letters to the respondent-Revenue to - 5 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 comply with the order of the Tribunal. Seven years pass by, the Revenue did not act upon the order of the Tribunal, which had permitted proceedings to be initiated afresh, in accordance with law. Non-initiation of the proceedings afresh as was directed by the Tribunal would revert to the returned position and therefore, the petitioner is before the Court seeking the aforesaid prayer. 6. Learned counsel appearing for the petitioner taking this Court through the order of the Tribunal which decided on every ground in favour of the assessee, but remitted the matter back to the Assessing Officer to initiate proceedings afresh and take it to its logical conclusion, nothing worth the name towards initiating proceedings, afresh has taken place till date, despite passage of close to 8 years, of passing of the order of the Tribunal. Therefore, the learned counsel submits that proceedings now to be taken is barred by law, in terms of the aforesaid orders. 7. Learned counsel appearing for the respondents- Revenue has not produced any order or any communication - 6 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 sent to the petitioner to demonstrate, that the liberty in terms of the order of Tribunal was even taken forward by the Revenue, as the order permitted initiation of proceedings afresh, which has not taken place till date. 8. Learned counsel appearing for the petitioner would now join issue in contending that, in identical circumstances, the Co-ordinate Bench of this Court in W.P.No.16223/2023 disposed of the petition on 05.02.2024 by directing refund of the tax that was paid to the revenue. 9. Learned counsel appearing for the respondents is not in a position to dispute the position of law as is laid down by Co-ordinate Bench of this Court in the aforesaid writ petition. 10. I have given my anxious consideration to the respective submissions made by the learned counsel and have perused the material on record. 11. The afore-narrated facts, link in the chain of events and the dates, are all a matter of record. The income for the - 7 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 assessment years 2006-07, 2007-08 and 2008-09 would be taken up for scrutiny assessment by initiating proceedings under Section 92CA of the Act. This was called in question before the Tribunal by the petitioner. The Tribunal, answering every ground that is urged, disposes the appeals, reserving liberty to the Revenue to initiate proceedings afresh, bearing in mind the observations made in the course of the order of the Tribunal. Therefore, it becomes necessary to notice the order of the Tribunal: "14. As it is clear from the judgment of Hon'ble Delhi High Court (Supra) that the expression KPO though indicated as ITES provider, however providing a completely different nature of service than any of the BPO service provider. There is no dispute that assessee is providing the service in respect of a contact center which is a BPO in the field of call center and, therefore, if a company selected by the TPO are engaged in providing high end services which involves skills and analog process of the data and information which is considered as aid for clients to whom the service is provided for making their business decisions then such a company will be considered as KPO. Thus a company involves high end services by employing quality resources engaged in the business cannot be compared with a simple BPO service provider in the form of call center. Accordingly in the facts and circumstances of the case, we are of the view that the comparability of the of the companies selected by the TPO requires a proper examination and re-consideration in the light of the judgment of Hon'ble Delhi High Court in the case of Ram Green Solution Pvt Ltd., (Supra). Hence this issue of comparability of the companies selected by the TPO and objected by the assessee is set aside to the - 8 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 record of AO/TPO for re-adjudication in the light of above observation. 15. As regards the exclusion of gain or loss on account of foreign exchange fluctuation, we are of the view that if any gain or loss is arised due to the foreign exchange fluctuation in respect of the sales realization then the same will be part of the profit margin for the purpose of computing comparable prices being arms length price. Accordingly, we direct the AO/TPO to include the gains or loss on account of foreign exchange fluctuation in respect of sale proceeds in the margin of the assessee as well as comparables to maintain parity. 16. Ground No. 4 is regarding the claim of lease rentals. In the computation statement, the assessee has reduced from the income of Rs.14,60,606/- on account of HP lease rentals. The assessee submitted that as per the lease agreement, the assessee has taken computer hardware on lease from Hamlet India Pvt. Ltd. The rent for the first month is Rs.19,87,630/- and further rent of Rs.1,58,365/- per month. Thus, the assessee claimed that the lease rent for the month of July, 2005 is Rs.21,45,995/- though the lease is for a period of 36 months. In the books of accounts, the assessee has amortized the total lease rent payable for lease period and, therefore it equalized the lease rentals for each month. The AO has allowed only the equalized each month lease rentals account by the assessee in the books of account and consequently the additional claim made by the assessee was disallowed by the AO. 17. Before us, the learned AR has referred to the lease schedule and submitted that as per the lease agreement, the assessee was required to pay the lease rentals of Rs.21,45,995/- for the first month and the remaining rent of Rs.1,58,365/- per month for the remaining 35 months. Since the lease rental is a revenue expenditure therefore, the same is allowable. 18. On the other hand, the learned DR has submitted that when the assessee itself has amortized the entire lease rentals payable for the lease period as per the equalized - 9 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 lease for each month when the assessee cannot claim a disproportionate amount for the year under consideration because the lease is for 36 months. He has relied upon the orders for the authorities below. 19. We have considered the rival submission as well as the relevant material on record. Since the assessee has not produced the entire lease agreement before us and only the lease schedule has been filed in the paper book, therefore, we do not have the privilege of going through the terms and conditions of the lease and whether substantially high lease rentals has been paid by the assessee for the first month is part of the lease rentals for using the computer for entire thirty six months or it is for acquiring any other rights. Therefore, in the absence of the complete lease agreement a conclusive finding cannot be given on this issue. It is pertinent to note that if a substantial amount of lease rental is payable in the first month and there is no provision in the lease agreement regarding refund in case of the cancellation of termination of lease agreement prior to the lease term within these payment has to be considered differently in comparison to the case where on cancellation or termination of the lease agreement prior to the expiry of lease term any amount is refundable to the assessee. Accordingly, by considering all the terms and conditions of the lease agreement, this issue is required to be reconsidered and adjudicated. Hence, we set aside this issue to the record of the AO to adjudicate it afresh after considering the terms and conditions of the lease agreement. 20. Ground No.5 is regarding disallowance of software expenditure by treating the same as capital in nature. 21. The AO noted that the assessee has claimed a sum of Rs.1,45,464/- on account of addition of software. The AO treated the said expenditure as capital in nature and allowed depreciation @ 60%. 22. Before us, the learned AR of the assessee has submitted that this expenditure has been incurred by the - 10 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 assessee for application software which is used for the business activity to be carried out more efficiently and smoothly and, therefore, this application itself is not an independent expenditure. The learned AR has relied upon the judgment of Hon'ble Jurisdictional High Court in the case of CIT V. IBM India Ltd, 357 ITR and submitted that the Hon'ble Jurisdictional High Court has held that the software which merely enhance productivity and efficiency has to be treated as revenue expenditure. 23. The learned AR has submitted that this expenditure has been incurred for software application. This is an allowable revenue expenditure in view of the decision of Hon'ble Jurisdictional High Court. 24. On the other hand, the learned DR relied upon the orders of the learned authorities below. 25. We have considered the rival submission and considered the relevant material on record. We find that neither the AO nor the DRP has discussed a relevant facts in the impugned orders in respect of the actual nature of the expenditure and whether the expenditure in question is for acquiring the software application or not. There is no quarrel on the point in view of the judgment of Hon'ble jurisdictional Court in the case of CIT Vs. IBM India Ltd., (Supra) if expenditure is incurred for acquiring a software which is used for the business operation of the assessee in enhancement of the productivity or efficiency or for carrying out the business activities more smoothly, the same has to be treated as revenue expenditure. 26. In view of the above facts and circumstances of the case, we direct the AO to allow the claim of the assessee if the expenditure in question is incurred for acquiring a software which is used for enhancement of its efficiency, productivity or efficacy as well as for carrying out the business activity more smoothly. 27. For the asst. year 2007-09, 2008-09, the assessee has raised only one common ground regarding the comparability of the companies selected by the TPO for determining arms length price in respect of BPO service provided by the assessee to its AE. - 11 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 28. We have heard learned DR and considered the relevant material on record. We find that so far as criteria adopted by the TPO in selecting the comparable companies for these two assessment years, the same are identical as applied for the assessment year 2006-07. In view of our finding for assessment year 2006-07 on the comparability of the companies which are engaged in the KPO high end services by employing the skill and analysis activity, the same cannot be compared with the call center service provided by its assessee to AE. Accordingly, this issue of comparability of the company selected by the TPO is set aside to the record of the AO/TPO in the same terms as for the assessment year 2006-07. 29. The learned AR of the assessee has pointed out that for the assessment year 2007-08, 2008-09 the assessee has submitted certain companies which are engaged in the BPO Service for considering the same as comparable with the assessee. These companies were submitted before the DRP however, the TPO has raised the objections on inclusion of these 4 companies on the ground that the assessee has submitted fresh set of comparables with the record which is not available in the public domain as the assessee has obtained record of these 4 companies from the office of the ROC and not from the data available in the public domain. 30. The learned AR has submitted that there is no such condition, the assessee cannot be obtained the record of the comparable companies from the ROC which is also public office and, therefore, the veracity of the record cannot be disputed and even otherwise the TPO can verify the correctness of the record produced by the assessee. Thus the learned AR has contended that these four comparable companies may be included in the list of comparables for the purpose of computing arms length price for all the assessment years. 31. On the other hand, learned DR has objected for inclusion of these four comparable companies and submitted that when these companies were not included in the TP study analysis then in the absence of the financial data in the public domain, these companies cannot be considered for the purpose of computing arms - 12 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 length price. He has relied upon the orders of the authorities below. 32. We have considered the rival submissions as well as relevant material on record. We find that apart from objecting to the companies selected by the TPO, the assessee also furnished fresh set of 4 comparables as under:- 1. Magus Customer Dialog Pvt. Ltd., 2. Optimus Outsourcing Co. Ltd., 3. Microwave Communications Ltd., 4. Stracon Back Office Solutions Ltd., 33. We further note that the TPO objected to the inclusion of these companies on the ground that their financial details are not available in the public domain and the assessee has produced the relevant record by obtaining from the Office of Registrar of companies (ROC). The comparability of these companies having not been examined by the authorities below and the claim of the assessee was rejected out rightly on the ground of non- availability of the details and data in the public domain. It is pertinent to note that when the assessee has produced the relevant record by taking the same from ROC and in case the TPO has any doubt about the genuineness and correctness of the record produced by the assessee then the TPO can verify the same either from the office of the ROC or form the concerned companies by issuing the loss u/s 133(6). Therefore, there is no fatter on the power of the TPO to conduct a proper enquiry and verify the record filed by the assessee. Accordingly in the facts and circumstance of the case when the comparability of these 4 companies has not been examined by the TPO, we set aside this issue to the record of the AO/TPO for conducting a proper examination and verification regarding the comparability of these 4 companies. We may clarify that if any or all of these four companies are found to be comparable for the assessment year 2007-08, 2008-09 then the same also be considered for the purpose of determining the arms length price for the assessment year 2006-07. - 13 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 34. In the result, the appeals filed by the assessee are allowed for statistical purpose." (Emphasis added) The Tribunal reserved liberty to the Revenue to initiate proceedings afresh as observed hereinabove. The order of the Tribunal is dated 25.05.2016. In terms of Section 153 of the Act, the limitation would commence from 31.03.2017 and would end within 9 months from the said date, which would be 31.12.2017. It is apposite to refer to Section 153(3), (4), (5) and (7) of the Act. They read as follows: “153. Time limit for completion of assessment, reassessment and recomputation. Xxx (3) Notwithstanding anything contained in sub- sections (1) and (2), an order of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of nine months from the end of the financial year in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner. (4) Notwithstanding anything contained in sub- sections (1), (2) and (3), where a reference under sub-section (1) of section 92CA is made during the - 14 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 course of the proceeding for the assessment or reassessment, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (2) and (3) shall be extended by twelve months. (5) Where effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 is to be given by the Assessing Officer, wholly or partly, otherwise than by making a fresh assessment or reassessment, such effect shall be given within a period of three months from the end of the month in which order under section 250 or section 254 or section 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner: Provided that where it is not possible for the Assessing Officer to give effect to such order within the aforesaid period, for reasons beyond his control, the Principal Commissioner or Commissioner on receipt of such request in writing from the Assessing Officer, if satisfied, may allow an additional period of six months to give effect to the order. Xxxxx (7) Where effect to any order, finding or direction referred to in sub-section (5) or sub-section (6) is to be given by the Assessing Officer, within the time specified in the said sub-sections, and such order has been received or passed, as the case may be, by the income-tax authority specified therein before the 1st day of June, 2016, the Assessing Officer shall give effect to such order, finding or direction, or assess, reassess or recompute the income of the assessee, on or before the 31st day of March, 2017.” (Emphasis supplied) - 15 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 In terms of Sub-section (3) of Section 153 of the Act, an order of fresh assessment pursuant to an order setting aside or canceling an assessment at any time before the expiry of nine months from the end of the financial year, in which an order under Section 254 of the Act is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case would be. In terms of Sub- section (4) of Section 153 of the Act, a reference made to the Transfer Pricing Officer in terms of Section 92CA of the Act, the time limit for completion of assessment or reassessment would be extended by twelve months. In terms of Sub-section (5) of Section 153 of the Act, an order under the provisions therein, shall be given effect by the Assessing Officer, wholly or partly, otherwise than by making a fresh assessment or reassessment, the period of limitation would be three months from the end of the month in which the order is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, which is extendable to a further period of six months, if the reasons are beyond his control. In terms of Sub-section (7) of Section 153 of the Act, where an effect to any order, finding or direction in terms of - 16 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 Sub-section (5), has to be given by the Assessing Officer within the period specified and such order has been received or passed, as the case may be, by the income-tax authority specified therein before the 01.06.2016, the Assessing Officer shall give effect to such order, finding or direction, or assess, reassess or recompute the income of the assessee, on or before 31.03.2017. This is the purport of the statute. 12. The proceedings were not started afresh. The petitioner then addressed a communication to the Assessing Officer requesting a draft assessment order to be passed in terms of the order passed by Tribunal, for the aforesaid years. Seven years have passed by, no order is passed except an order in the file of the Transfer Pricing Officer under Section 92CA of the Act, that would not survive the rigour of the statute under Section 153(3), (4), (5) and (7) of the Act. 13. In the light of no communication sent to the assessee of any draft assessment order, commencing the proceedings in terms of the order passed by the Tribunal within the limitation i.e., 31.12.2017, any further action now sought to be permitted, would on the face of it, be without jurisdiction. - 17 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 14. In that light, the petition deserves to succeed with the prayers to be answered in favour of the petitioner. 15. For the aforesaid reasons, the following: ORDER (i) Writ Petition is allowed. (ii) The respondent-Revenue is directed to refund an amount of Rs.25,00,000/- together with applicable interest, for the assessment year 2006-07. (iii) The respondent-Revenue is directed to refund an amount of Rs.30,00,000/- together with applicable interest, for the assessment year 2007-08. (iv) The respondent-Revenue is directed to refund an amount of Rs.24,96,250/- together with applicable interest, for the assessment year 2008-09. (v) The respondent-Revenue shall refund the aforesaid amount within an outer limit of twelve (12) weeks from the date of receipt of a copy of the order, along with the applicable interest. - 18 - HC-KAR NC: 2025:KHC:32577 WP No. 4358 of 2024 Ordered accordingly. Sd/- (M.NAGAPRASANNA) JUDGE SJK List No.: 1 Sl No.: 8