J Anjaneya Sharma vs. Commissioner of Income Tax-V

1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 12TH DAY OF JULY 2018

PRESENT

THE HON’BLE DR.JUSTICE VINEET KOTHARI

AND

THE HON’BLE MRS.JUSTICE S.SUJATHA

I.T.A. No.508/2013 AND I.T.A. No.329/2014

BETWEEN : M/S. BUSINESS PROCESS OUTSOURCING INDIA PVT. LTD., A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956. HAVINT ITS OFFICE AT – SALARPURIA HALLMARK GROUND FLOOR A-BLOCK, 15/3, 16, KADUBEESANAHALLI OUTER RING ROAD BANGALORE-560087.

...APPELLANT

(BY SRI ANKUR PAI, ADV. FOR SRI K.R. VASUDEVAN, ADV.)

AND : INCOME TAX OFFICER WARD 11 [1], R.P. BHAVAN NRUPATHUNGA ROAD BANGALORE-560001.

…RESPONDENT

(BY SRI K.V.ARAVIND, ADV.)

THESE INCOME TAX APPEALS ARE FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 07.06.2013, PASSED IN ITA NO. 602/BANG/2011 & No.661/BANG/2011,

FOR THE ASSESSMENT YEAR 2004-05, PRAYING TO: 1]. DECIDE THE FOREGOING QUESTION OF LAW AND OR SUCH OTHER

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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QUESTIONS OF LAW AS MAY BE FORMULATED BY THIS HON’BLE HIGH COURT AS DEEMED FIT; 2]. SET ASIDE THE APPELLATE ORDER DATED 07.06.2013 PASSED BY THE ITAT IN ITA No.602/BANG/2011 & 661/BANG/2011 FOR ASSESSMENT YEAR 2004-05.

THESE APPEALS COMING ON FOR FINAL HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:

J U D G M E N T

Mr. Ankur Pai, Adv. for Mr. K.R.Vasudevan, Adv. for Appellant – Assessee. Mr. K.V.Aravind, Adv. for Respondent – Revenue.

These Appeals are filed by the Appellant-Assessee purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench, Bangalore, in I.T.[T.P]A. Nos.602/Bang/2011 and 661/Bang/2011 dated 07.06.2013, relating to the Assessment Year 2004-05.

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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“I. Whether on the facts and in the circumstances of the case and in law, the Tribunal has erred in selecting and excluding comparables in a manner contrary to Rule 10B of the Rules and evidence on record?

II. Whether on the facts and in the circumstances of the case and in law, the Tribunal has erred in including a comparable company having super-normal profit margin by disregarding decisions of coordinate benches of the Income Tax Appellate Tribunal on this issue?

III. Whether on the facts and in the circumstances of the case and in law, the Tribunal has erred in holding that Ace Software Exports Ltd., cannot be taken as a comparable on account of applicability of Section 92A[2] of the Income Tax Act, 1961?

IV. Whether on the facts and in the circumstances of the case and in law, the Tribunal has erred in not striking down the computation of net margin of Allsec Technologies Ltd., in violation of Rule 10B[1][e] of the Rules?”

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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“xxxxx”

Respectfully following the aforesaid decision in the case of 24/7 Customer.Com Pvt. Ltd., [supra], we uphold the action of the TPO in rejecting these two companies as comparables in the case on hand for Assessment Year 2004-05.”

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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Regarding second substantial question of law:-

“5.8.3 We have heard both parties at length and perused and carefully considered the material on record seeking the exclusion of this company, Ultra Marine Pigments Ltd., as a comparable for the reason that it has profits of 63.27% and that it has various segments apart from ITES. The co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd., [supra] has elaborately considered and discussed as to why Ultramarine Pigments Ltd., cannot be excluded as a comparable merely because it has high profits. In para 17.8 of the said order, the Tribunal held as under:

“xxxxx”

We find that, in the cited case as also in the case on hand, the assessee has failed to demonstrate that there was any specific reason for the comparable company’s profits to be abnormal in Assessment Year 2004-05 which could adversely affect its comparability. It is also seen that Ultramarine Pigments Ltd., has a clearly demarcated call centre segment and segmental results are available in the Annual Reports / audited financial statements of the

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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company and we therefore find no merit in the contention of the assessee that this company cannot be a proper comparable merely because the ITES segment constitutes only 16% of its income. We also find that the TPO has allocated the unallocated expenses in the ratio of sales, which also cannot be faulted. Respectfully following the action of decision of the co-ordinate bench of the Tribunal in the case of 24/7 Customer.Com Pvt., Ltd., [supra] as laid out above, we hold that the decision of the learned CIT [Appeals] in excluding Ultramarine Pigments Ltd., as a comparable company on account of super profits is erroneous as it is not in keeping with the principle laid down and the finding of the co-ordinate bench of this Tribunal in the case of Netlinx India Pvt. Ltd., [ITA No.454/Bang/2011] and in the case of 24/7 Customer.Com Pvt. Ltd., [supra] on the issue of ‘Super Profits’. We, therefore, reverse the decision of the learned CIT [Appeals] and direct that Ultramarine Pigments Ltd., be retained as a comparable for the assessee’s case for Assessment Year 2004-05. In view of this find, revenue’s grounds at S.Nos.8 to 10 are allowed.”

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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Regarding third substantial question of law:-

“6.1.2 We have heard both parties and carefully perused and considered the material on record. We find that the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd., in its order in ITA No.227/Bang/2010 dated 09.11.2012 for Assessment Year 2004-05 has held that this company needs to be excluded from the list of comparables. In para 18.2 of its order the Tribunal observed that –

“xxxxx”

Respectfully following the aforesaid decision in the case of 24/7 Customer.Com Pvt. Ltd., [supra], we uphold the action of the TPO in excluding this company from the list of comparables in the assessee’s case for Assessment Year 2004-05.”

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion: 55.

A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed. 57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an ‘Arm’s Length Price’ in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction

Date of Judgment 12-07-2018, ITA Nos.508/2013 & 329/2014 M/s. Business Process Outsourcing India Pvt. Ltd., Vs. Income Tax Officer.

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with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”

Sd/- JUDGE

Sd/- JUDGE

NC.