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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 11TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.286/2013
BETWEEN:
The COMMISSIONER OF INCOME-TAX, CIT(A) C.R. BUILDING, QUEENS ROAD, BANGALORE.
The INCOME-TAX OFFICER, WARD-11(1), RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD, BANGALORE.
…APPELLANTS (By MR. ARAVIND K.V. ADVOCATE)
AND:
M/s. CSR INDIA PVT. LTD., 11TH FLOOR, BLOCK C, IBC KNOWLEDGE PARK, BANNERGHATTA MAIN ROAD, BANGALORE.
…RESPONDENT
(By MR. ANKUR PAI, ADV, FOR K.R.VASUDEVAN, ADV.,)
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 2/11
THIS I.T.A IS FILED UNDER SECTION 260-A of Income Tax Act 1961, PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN ITA NO.1119/BANG/2011 DATED 29-01-2013 ANNEXURE - D AND CONFIRM THE ORDER OF THE DISPUTE RESOLUTION PANEL, BANGALORE CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(1), BANGALORE & ETC.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr.Aravind K.V. Adv. for Appellants-Revenue Mr.Ankur Pai, Adv. for Mr.K.R.Vasudevan Adv for Respondent-Assessee
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Bengaluru Bench ‘A’, Bengaluru, dated 29.01.2013 passed in IT(TP)A No.1119/Bang/2011 ()for A.Y.2007-08.
This appeal has been ADMITTED on 18.12.2013 to consider the following substantial
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 3/11
questions of law as framed by the Revenue in the Memorandum of Appeal:-
“(1) Whether on the facts and in the circumstances and in law the Tribunal was right in super imposing the decisions of the other benches and the decision of the ITAT while rejecting the comparables ( (i) Accel Transmatic Limited, (ii) Avani Cimcon Technologies Limited, (iii) Celestial Labs Limited, (iv) KALS Information Systems Limited and (v) Lucid Software Limited) without appreciating the fact that selection of comparables in a case depends on assessee specific FAR analysis?
(2) Whether on the facts and in the circumstances and in law the Tribunal was justified in fixing the related party transaction filtered at 15% of the total revenue without going into the specific facts in the case of the Tax Payer and without adducing the basis for arriving at such cut-off at 15% and recorded a perverse finding?
(3) Whether on the facts and in the circumstances and in law the Tribunal was right in holding that foreign exchange loss/gain is operating in nature without appreciating the fact
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 4/11
that such loss/gain, though attributable to the operating activity, is not derived from the operating activity and recorded a perverse finding?
(4) Whether on the facts and in the circumstances and in law the Tribunal was correct in directing exclusion of telecommunication expenses (internet charges) from export turnover and total turnover, when the provision does not refer to exclusion of the expenditure reduced from export turnover to reduce the same form total turnover”?
Learned Counsel for the Appellants-Revenue submits that Substantial Question of law No.4 is covered by the Judgment of the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:-
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 5/11
“17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
XXXXXX
In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 6/11
in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. 20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under:
Regarding substantial question of law No.1:- “3.4.1 In conformity with the findings of the coordinate Bench of the Tribunal in the case of Trilogy E-Business, we are of the considered view that (i) Accel Transmatic Ltd (Seg); (ii) Avani Cimcon Technologies Ltd; (iii) Celestial Labs. Ltd., & (iv) KALS Information
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 7/11
Systems Ltd (seg) cannot qualify as comparables in the case of the assessee under consideration. It is ordered accordingly”.
Regarding substantial question of law No.2:-- “3.5.3 Following the Coordinate Bench order of the Tribunal in the case cited supra, we direct the Assessing Officer/TPO to exclude, after due verification, those comparables from the list with the related party transactions or controlled transactions in excess of 15% of the total revenue for the financial year 2006-07. It is to be mentioned here, Geometric Ltd. is also to be removed from the comparable list, since that company was having RPT at 19.98% (going by assessee’s own calculation), however, no argument was raised for its exclusion by the assessee, probably, on account of low margin of Geometric Ltd.”
Regarding substantial question of law No.3: “3.6 The Tribunal in the case of Trilogy E-Business had directed that the foreign exchange gain or loss should be considered as operating revenue or cost while computing the operating margin of the assessee as well as the
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 8/11
comparable. The relevant finding of the Tribunal read as follows: XXXXX 3.6.1 In conformity with the above finding, we direct the AO/TPO to consider the foreign exchange gain or loss as part of the operating cost or revenue, as the case may be, for both the assessee as well for the comparable companies.”
The controversy involved herein is no more res integra in view of the decision of this Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) wherein it has been 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
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 9/11
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 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
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 10/11
filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
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 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.”
In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question of law arises for consideration in the present case.
Date of Judgment 11-07-2018 I.T.A.No 286/2013. The Commissioner of Income-Tax, CIT (A) & Anr.
Vs. M/s. CSR India Pvt. Ltd., 11/11
Hence, the appeal filed by the Appellants-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE