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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 31ST DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.274/2018 BETWEEN:
THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 1(1)(1), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095. …APPELLANTS
(By Mr. DILIP, ADV. FOR Mr. K.V.ARAVIND, ADV.,)
AND:
M/S. AMD INDIA PVT. LTD., (FORMERLY KNOWN AS AMD R & D CENTRE INDIA PVT. LTD.,) PLOT NO. 102 & 103, EXPORT PROMOTION INDUSTRIAL PARK, WHITEFIELD BENGALURU NORTH-560 066. PAN:AABCC 3447R.
…RESPONDENT
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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QUESTIONS OF LAW AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 681/BANG/2017 DATED: 26/10/2017 VIDE ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU.
THIS I.T.A. COMING ON FOR ADMISSION THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Dilip. Adv., for Mr. K.V. Aravind Adv. for Appellants- Revenue
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly one substantial question of law arising from the order of the ITAT, ‘C’ Bench, Bangalore, dated 26.10.2017 passed in IT(TP)A No.681/Bang/2017 for the A.Y.2012-13.
The proposed substantial question of law framed in the Memorandum of appeal by the Appellants-Revenue is quoted below for ready reference:-
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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“Whether, on the facts and circumstances of the case, and in law, the Tribunal was right in law holding that extra credit allowed can be considered as an independent international transaction and the same be compared with the internal CUP being average cost of the total funds available to the assessee, directed the TPO to find out the cost of the total funds available to the assessee and same should be adopted as internal CUP for benchmarking of this independent international transaction i.e. allowing extra credit in addition the agreed credit period of 30 days by following Mumbai Tribunal decision in the case of M/s.Goldstar Jewelry Ltd V/s ACIT No.6570/Mum/2012 dated 14/10/2015?”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:- “10. In our considered opinion, to the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest on such agreed debt and therefore, for such credit allowed to AE, it cannot be said that this is an independent
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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international transaction. But when extra credit is allowed beyond the agreed credit period, the same is a subsequent independent event and interest for such extra credit period cannot be factored in the price agreed. Only because the agreed price without considering extra credit period is in excess of the ALP, it cannot be said and held that for such independent subsequent event of allowing extra credit also, the agreed prices takes care and this is not an independent international transaction requiring separate benchmarking. In transfer pricing analysis, the purpose is not to compare profit of the tested party with that of the comparables but the purpose is to compare the prices charged by the tested party with the prices charged by the comparables although when TNMM is adopted as MAM, the process of such price comparison is by comparing profits of tested party with that of the comparables and therefore, if the profit of the tested party is equal or above the profit of comparables, even after taking into account the effect of working capital adjustment and the ALP is less that the price charged by the tested party, it cannot be said that the extra credit allowed is not an independent international transaction and not required to be separately benchmarked. In
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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our considered opinion, the first requirement is this that it has to be first decided that whether it is an independent international transaction or not and if it is found that it is not so, then obviously, no separate benchmarking is required but if it is found that it is an independent international transaction then separate bench making has to be done and TP adjustment is to be made as per law irrespective of whether any TP adjustment is required to be made in respect of main transaction of sale.
Hence, we first decide this aspect as to whether this is an independent international transaction or not. In our considered opinion, in respect of agreed credit period which is 30 days in the present case, there is no independent international transaction because the effect of the credit to that extent is factored in the agreed prices. But for extra credit, the effect of the credit to that extent cannot be factored in the agreed prices because it is not even known at the stage as to how extra credit will be allowed and therefore, that is an independent international transaction and hence, separate bench making has to be done and TP adjustment is to be made as per law. This is worth noting that by allowing
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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extra credit in excess of agreed period of 30 days, profit shifting is there because if credit period is more, prices go up which is not done in the present case since, the prices are determined on the basis of 30 days credit period.
Having decided this aspect, now we decide the rate of interest for such benchmarking. We find that this aspect is covered by the tribunal order rendered in the case of M/s Goldstar Jewellery Ltd. vs. JCIT in ITA No. 6570/Mum/2012 dated 14.01.2015. This was held in this case that extra credit allowed can be considered as an independent international transaction and the same be compared with internal CUP being average cost of the total funds available to the assessee. Respectfully following this tribunal order, we direct the A.O. to find out the cost of the total funds available to the assessee and the same should be adopted as internal CUP for benchmarking of this independent international transaction i.e. allowing extra credit in addition to agreed credit period of 30 days”.
However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015 delivered on
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellants, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. The relevant portion of the said 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
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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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 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
Date of Judgment 31-08-2018 I.T.A.No.274/2018 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. AMD India Pvt Ltd.,
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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.”
Having heard the learned counsel for the appellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
Copy of this order be sent to the Respondent- assessee forthwith.
Sd/- JUDGE
Sd/-
JUDGE TL