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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 16th DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.291/2017 BETWEEN:
PR. COMMISSIONER OF INCOME-TAX-7 BMTC COMPLEX, KORAMANGALA, BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), BMTC COMPLEX, KORMANGALA, BANGALORE.
…APPELLANTS (By Mr. JEEVAN J. NEERALGI, ADV.)
AND:
M/S. SAMI LABS 19/1 & 19/2, I MAIN, II PHASE, PEENYA INDL. ESTATE, BANGALORE-58. PAN: AADCS2549E.
…RESPONDENT (RESPONDENT SERVED BUT UNREPRESENTED)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO 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 & SET ASIDE THE APPELLATE ORDER DATED 23-11-2016 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSE’S CASE, IN APPEAL PROCEEDINGS IN
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IT (TP)A NO. 61/BANG/2014 FOR A.Y.2009-10 ANNEXURE-A & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE AND EQUITY & ETC.
THIS I.T.A. COMING ON FOR HEARING THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Jeevan J. Neeralgi, Adv. for Appellants- Revenue
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, Bangalore Bench ‘B’, Bangalore, dated 23.11.2016 passed in IT(TP)A No.61/Bang/2014 (M/s. Sami Labs vs. Dy.Commissioner of Income Tax ) for A.Y.2009-10.
This appeal has been admitted on 17.01.2018 to consider the following substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- “1. Whether, on the facts and in the circumstances of the case, the Tribunal was right
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in law in directing the assessing authority/transfer pricing officer to re-work the operating margins of the assessee by considering the forex gain on export turnover on sales as operating margin by following its earlier order in case of assessee itself even when said order has not reached finality and even when the transfer pricing officer had worked out the operating margins in accordance with provisions of the Act?
Whether, on the facts and circumstances of the case, the Tribunal is right in law in directing the assessing authority/transfer pricing officer to consider claim of assessee for purpose of adjustment on account of low capacity utilization even when the assessee during Transfer Pricing proceedings had failed to demonstrate that industry capacity was better utilized under similar situations compared to its own and further the Tribunal failed to appreciate that adjustments are to be made in the case of the comparables and not entity which is being analyzed by the assessee and moreover, the assessee had not brought out any information in this regard about comparables as per directions of Tribunal?
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Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the AO/TPO to consider the claim of risk adjustment on the basis of details to be furnished by the assessee even when risk level existed between the tested party and the uncontrolled comparables and that it is possible to calculate in terms of numbers, the differences in risk, so that adjustment can be made whereas in the present case, both the pre- requisites are missing?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law directing the AO/TPO to adopt Arm’s Length Price commission of Corporate guarantee at 0.5% by following the decision in the case of Four Soft Pvt. Ltd V/s DCIT even when said decision has not reached finality and without appreciating that the corporate guarantee is a service provided by the assessee-company to its Associated Enterprise (for short AE), the international subsidy, for capital requirement of the latter and by getting the guarantee from the assessee, the AE not only in a position to avail institutional finance, but also relaxation in interest rate chargeable position to avail credit rating of the assessee?.”
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The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:-
Regarding substantial question of law No.1:-
“14. We have heard the learned A.R. as well as learned D.R. and considered the relevant material on record. This issue was also considered by the Tribunal in assessee’s own case for the Assessment Year 2008-09 wherein the Tribunal has held that forex gain receivable from export sale will be part of operating margin of the assessee as well as of the comparable. Accordingly, we direct the TPO/A.O. to rework the operating margins of the assessee by considering the forex gain on export sales as operating margin. Similarly, forex gain or loss of the comparable should also be treated as part of operating margin”.
Regarding substantial question of law No.2:-
“16. We have heard the learned A.R. as well as learned D.R. and considered the relevant material on record. The Tribunal for the Assessment Year 2009-10 has directed the A.O./TPO/A.O. to consider the claim of the
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assessee for the purpose of giving adjustment on account of low capacity utilization. We make it clear that the adjustment is only on account of cost attributable to idle capacity for the year under consideration. Accordingly, the assessee has to provide all the details of capacity utilization of assess as well as comparable for computation of adjustment if any”.
Regarding substantial question of law No.3:-
“18. We have heard the learned A.R. as well as learned D.R. and considered the relevant material on record. The assessee is claiming the risk adjustment because of the majority of the sale to the AE in comparison to the comparables making sales to the third party. The ld. AR of the assessee has submitted that the assessee has furnished all the requisite details.
Risk adjustment is one of the component to be taken into account for FAR analysis. Therefore the TPO/A.O./A.O is directed to consider the claim of risk adjustment on the basis of the details to be furnished by the assessee”.
Regarding substantial question of law No.4:-
“20. We have heard the learned A.R. as well as learned D.R. and considered the relevant
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material on record. The assessee has furnished corporate guarantee of Rs.40,50,89,250 to bankers on behalf of the AEs. Since the assessee has not charged any fees or commission for providing the corporate guarantee the TPO/A.O. has determined the arm’s length fees at 3% and made the adjustment on account of commission for guarantee. It is pertinent to note that this Tribunal in a series of decisions has taken a consistent view that providing corporate guarantee falls in the ambit of international transactions as per section 92B(1) of the Act. The co-ordinate bench of this Tribunal of Hyderabad Bench vide order dt.28.3.2014 in the case of Four Soft Pvt. Ltd. Vs. DCIT in ITA No.1903/Hyd/2011 has taken a view that the guarantee fees for providing corporate guarantee should not be more than 0.5% in paras 24 to 26 as under:
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Accordingly, we modify the impugned order and direct the Assessing Officer/TPO/A.O. to adopt the arm’s length commission of corporate guarantee at 0.5%”.
However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015 delivered on
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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 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
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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
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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 Appellant-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 Srl.