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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF SEPTEMBER 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE M.I.ARUN
I.T.A. NO.51 OF 2014 BETWEEN:
COMMISSIONER OF INCOME TAX -III
CENTRAL REVENUE BUILDINGS
QUEENS ROAD
BANGALORE – 560 001
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 12(5) BANGALORE. ... APPELLANTS (BY SRI.E.I.SANMATHI, ADV.,)
AND:
M/S YODLEE INFOTECH PVT. LTD. PRESTIGE TECHNOLOGY PARK MERCURY (2B) BLOCK, 1ST FLOOR SARJAPUR MARATHAHALLI RING ROAD BANGALORE – 560 087 ... RESPONDENT
(BY SRI.NAGESHWAR RAO FOR SRI.MALLAHARAO K., ADVS.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 30.08.2013 PASSED IN
IT(T.P)A NO.1538/BANG/2012 FOR THE ASSESSMENT YEAR 2008- 09, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. (II) SET ASIDE THE APEPLLATE ORDER DATED 30.08.2013 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH BANGALORE, IN APPEAL PROCEEDINGS NO.I.T.(T.P) A NO.1538/BANG/2012 FOR ASSESSMENT YEAR 2008-09.
THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
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 matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 15.07.2014 on the following substantial questions of law: (i) Whether on the facts and in the circumstances of the case the Tribunal is right in law in excluding Celestial Labs Ltd., Infosys Technologies Ltd, KALS Information Systems Ltd., Tata Elxsi Ltd. Wipro Ltd and Lucid Software Ltd., by placing reliance on its own order in the case of Trilogy E-
Business Software India Ltd., order of Mumbai Tribunal in the case of Telecordia technologies India P Ltd., and Bangalore Tribunal in the case of 24/7 customer Pvt. Ltd., without appreciating the functional similarity of the assessee company with the above comparables and without going into merits of each of the case?
(ii) Whether on the facts and in the circumstances of the case the Tribunal is right in law in not appreciating that the risk adjustment cannot be made without making assumptions which are not permissible in Transfer Pricing analysis and the risk adjustment cannot be measured accurately?
(iii) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that reimbursement of traveling and technical services charges incurred in foreign currency are to be excluded both from total turnover as well as from export turnover for computation of deduction under Section 10B whereas such exclusion is permitted to
arrive at export turnover only as per the definitions given in Section 10B of the Act and total turnover has not been defined in the Section?
(iv) Whether the Tribunal is correct in law in holding that the deduction under Section 10B should be computed in the above manner following the judgment of jurisdictional High court in the case of CIT VS. Tata Elxsik Ltd. which has not become final since the same has not been accepted by the department and SLPs filed by the revenue on the issue are pending before the Hon’ble Supreme Court?
Facts leading to filing of the appeal briefly stated are that the assessee is a company engaged in the business of providing software development support service to its holding company and associated Enterprise, Yodlee Inc US. The assessee operates as a dedicated software development center for Yodlee Inc. USA and performs software development that supports and supplement its holdings company’s offerings in the
account of aggregation industry. The assessee filed the return of income on 29.09.2008 for Assessment Year 2008-09, by which total income of Rs.4,24,888/- was declared and deduction of Rs.5,05,83,628/- under Section 10B of the Act and Rs.3,05,84,109/- as book profits under Section 115JB of the Act was claimed. The return was processed under Section 143(1) of the Act and was subsequently taken up for scrutiny. As the International transactions of the assessee were in excess of Rs.10 Crores, a reference under Section 92CA(1) of the Act was made to Transfer Pricing Officer on 14.05.2011 in respect of international transactions viz., Provision of Software Development Services and Marketing and Sales Support Services. The Transfer Pricing Officer by an order dated 31.10.2011 made an upward adjustment of Rs.3,44,14,532/- to the international transactions of the assessee wherein Arm’s Length Price (ALP) of the international transactions was determined at Rs.40,34,77,023/- as against revenue of
Rs.36,90,62,491/- charged by the assessee.
The Assessing Officer thereafter issued a draft assessment order under Section 143(3) read with Section 144C of the Act on 23.10.2011, by which income of the assessee was determined at Rs.3,52,21,859/- as against the return income of Rs.4,24,888/- and Rs.3,05,84,109/- under Minimum Alternate Tax (MAT) provisions as computed by the assessee. The assessee filed objections to the Dispute Resolution Panel (DRP) being aggrieved, by the draft assessment order. The Dispute Resolution Panel by an order dated 04.07.2012 rejected the objections filed by the assessee. The assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order dated 30.08.2013 inter alia held that Transfer Pricing Officer ought to have given risk adjustments to the margins of the comparables for bringing them at par with the assessee and remitted the matter to the file of Transfer
Pricing Officer for examining the issue in the light of the decisions referred to in the order. The Tribunal by placing reliance of this court in M/S TATA ELXSI LTD. granted the benefit of deduction under Section 10B of the Act. In the result, the appeal preferred by the assessee was partly allowed. Being aggrieved, the revenue is in appeal before us.
Learned counsel for the revenue at the outset fairly submitted that the substantial questions of law 3 and 4 have been decided against the revenue by a judgment of the Supreme Court in ‘COMMISSIONER OF INCOME TAX-III VS. HCL TECHNOLOGIES LTD.’ 404 ITR 719. It is further submitted that the Tribunal should have adjudicated the case of the assessee independently and should have given findings instead of placing reliance on the decisions. In this connection, our attention has been invited to the order passed by the Tribunal. It is further pointed out that the Tribunal has failed to consider the findings recorded by the Dispute
Resolution Panel. It is urged that in any case, the issue with regard to market risk adjustment ought to have been remitted for consideration afresh in accordance with law. On the other hand, learned counsel for the assessee while inviting the attention of this court to the order passed by the Tribunal submitted that the first substantial question of law does not arise for consideration in the fact situation of the case as the issues have been dealt with on merits by the Tribunal. It is further submitted that the issue with regard to market risk adjustment has rightly been remitted to the Tribunal and substantial questions of law 3 and 4 in fact are concluded against the revenue in view of the decision rendered by the Supreme Court in HCL TECHNOLOGIES LTD. supra. It is also pointed out that no substantial question of law arises for consideration in this appeal.
We have considered the submissions made by learned counsel for the parties and have perused the record. We have carefully gone through the order
passed by the Tribunal. From perusal of paragraphs 12.4.1 to 27.3, it is evident that the issue with regard to functional similarity of the assessee has been examined in detail by the Tribunal. Therefore, we hold that the first substantial question of law framed by a bench of this court in fact, does not arise for consideration in the instant case. So far as second substantial question of law. is concerned, the Tribunal has remitted the issue with regard to market risk adjustment to the Assessing Officer in the light of the decision, which have been cited in the order of the Tribunal. We deem it appropriate to modify the aforesaid directions contained in the order of the Tribunal and direct the Assessing Officer to determine the issue with regard to market risk adjustment afresh in accordance with law. Accordingly, the second substantial question of law is answered. The third and fourth substantial questions of law are against the revenue and are covered by the by decision of the Supreme Court in HCL TECHNOLOGIES LTD. supra.
In view of preceding analysis the appeal is disposed of.
Sd/- JUDGE
Sd/- JUDGE ss