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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 21ST DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.482/2017
BETWEEN : 1. THE PR. COMMISSIONER
OF INCOME-TAX
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
THE INCOME-TAX OFFICER
WARD-1[1][2], 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA
BENGALURU-560095.
...APPELLANTS
(BY SRI ARAVIND.K.V., ADV.)
AND : M/s. AROWANA CONSULTING PVT. LTD., No.90/B, SURVEY No.18, 2ND MAIN ELECTRONICS CITY PHASE-1 ROAD BENGALURU-560100 PAN: AADCM 7560P.
…RESPONDENT
(BY SRI NARENDRAKUMAR JAIN, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 11.01.2017, PASSED IN IT[TP]A No.434/BANG/2016,
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FOR THE ASSESSMENT YEAR 2011/2012 VIDE ANNEXURE-D, PRAYING TO: i]. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; ii]. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELATE TRIBUNAL, BENGALURU IN IT[TP]A No.434/BANG/2016 DATED 11.01.2017 VIDE ANNEXURE-D CONFIRMING THE ORDER OF THE DRP AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1[1][2], BENGALURU.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Narendrakumar Jain, Adv. for Respondent – Assessee.
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench ‘C’, Bangalore, in IT[TP]A No.434/Bang/2016 dated 11.01.2017, relating to the Assessment Year 2011-12.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether the Tribunal, on the facts and in the circumstances of the case was right in
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directing to include M/s. Akshay Software Technologies Ltd., without appreciating the fact that the same was excluded by the TPO on lack of information regarding RPT transactions?
Whether the Tribunal, on the facts and in the circumstances of the case, was correct in applying onsite revenue filter without appreciating the fact that the TPO had applied appropriate filter relevant to the assessee?
Whether, the Tribunal, on the facts and in the circumstances of the case was right in directing the Transfer Pricing Officer to exclude Infosys Technologies Ltd., and M/s. Larsen & Tourbo Ltd., as comparable on the basis of functional dissimilarity and has directed to include M/s. Akshay Software Technologies Ltd., as comparable even though the TPO has chosen the comparable in accordance with provisions of the Act?
Whether the Tribunal is justified in directing the assessing officer to recomputed the deduction under section 10A after reducing those expenses that were reduced only from export turnover, to reduce from the total turnover also, without appreciating that there is no provision in
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section 10A to the effect that such expenses should also be reduced from the total turnover, as clause [iv] of the Explanation to section 10A provides that such expenses have to be reduced only from the export turnover?”
Regarding Substantial Question of Law No.4: 3. The issue is covered by the decision 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:- “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
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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 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.
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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 the findings as under: Regarding Substantial Question of Law Nos.1, 2 & 3:
“7. We have considered the rival submissions. We find that we are called upon to decide exclusion of two comparables i.e., M/s. Infosys Tech. Ltd., and M/s. L & Tribunal Infotech Ltd., and inclusion of one company i.e., M/s. Akshay Software Technologies Ltd., We find that the issue regarding exclusion of M/s. Infosys Technology Ltd., is squarely covered in favour of the assessee by the Tribunal order rendered in the case of M/s. Alcatel Lucent India Ltd., [supra]
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and this company is required to be excluded for three reasons.
a] That this company fails upper turnover filter of 10 times
b] That this company is functionally not comparable as held by the Tribunal in this case cited by the ld. AR of the assessee and
c] That as per the finding of the Tribunal in this case, this company has products and substantial brand value.
Hence, we hold that no interference is called for in the order of the DRP regarding exclusion of M/s. Infosys Technologies Ltd.
Regarding exclusion of L & Tribunal Infotech Ltd., we find that this company required to be excluded for two reasons;
a] This company fails upper turnover filter of 10 times
b] This company is functionally not comparable as held by the Tribunal in the case of M/s. Alcatel Lucent India Ltd., [supra]. Respectfully following this Tribunal order, we
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hold that this company i.e., L & Tribunal Infotech Ltd., should also be excluded from the list of final comparables. The TPO is directed accordingly.
Regarding inclusion of M/s. Akshay Software Technologies Ltd., we find that a categorical finding has been given by the DRP that apart from mentioning in his order, the TPO has not given any basis or reason for saying that this company is functionally not comparable. This company has been accepted as a comparable in assessee’s own case for assessment year : 2009- 10 as per the Tribunal order in IT[TP]A No.21/Bang/2014 dated 28.08.2014, copy available on pages 218-244 of the paper book. Hence, on this issue also, we find no reason to interfere in the order of DRP and we approve the same.”
However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. –v- 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
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established by the appellant, 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 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
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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.
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 the assessees may not be satisfied and
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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.
The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsels appearing for the parties, 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.
Sd/- JUDGE
Sd/- JUDGE
NC.