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1/13 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 14TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.444/2017 BETWEEN :
THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095
THE INCOME -TAX OFFICER WARD-11(1), PRESENT ADDRESS, WARD-1 (1) (1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095
... APPELLANTS
(BY SRI.ARAVIND K V, ADV.)
AND:
M/S.ACUSIS SOFTWARE INDIA PVT. LTD. NO.17/2, DOLLARS CHAMBERS, LALBAGH ROAD, BENGALURU - 560 027, PAN:AADCA 2415P
... RESPONDENT
[BY MR. NAGESWAR RAO, MR. MALLAHARAO & MR. PARTH, ADVS.,]
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:09.11.2016 PASSED
Date of Judgment 14-8-2018, ITA No.444 /2017 The Pr. Commissioner of Income –Tax & another Vs. M/s.Acusis Software India Pvt. Ltd.,
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IN IT[TP]A NO. 445/BANG/2011 FOR THE ASSESSMENT YEAR 2005-2006 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 APPELLATE TRIBUNAL, BENGALURU IN IT[TP]A NO.445/BANG/2011 DATED:09.11.2016 VIDE ANNEXURE - D CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(1)(1), 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. Nageswar Rao, Mr. Mallaharao & Mr. Parth, Advs. for Respondent – Assessee.
This Appeal is filed by the Revenue purportedly raising the substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore, in IT [TP]A No.445/Bang/2011 dated 09.11.2016, relating to the Assessment Year 2005-06.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 14-8-2018, ITA No.444 /2017 The Pr. Commissioner of Income –Tax & another Vs. M/s.Acusis Software India Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law holding that the assign authority is not right in including expenditure incurred in foreign currency from export turnover and from total turnover by relying upon the decision of this Hon’ble Court in case of CIT V/s Tata Elsxi even when the assessing authority has rightly included the according to parameters set out in section 10A and the decision relied upon by the Tribunal has not reached finality?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in erred in excluding certain comparable from list of comparable on the ground of functional dissimilarity by following its earlier orders which has not reached finality and when the said companies satisfied qualitative and quantitative filers applied by Transfer Pricing Officer and they are functionally similar to that of assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority/transfer pricing officer to treat foreign gain as part of
Date of Judgment 14-8-2018, ITA No.444 /2017 The Pr. Commissioner of Income –Tax & another Vs. M/s.Acusis Software India Pvt. Ltd.,
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operating profit by relying on its earlier decisions which has not reached finality?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to include certain comparable in list even when the TPO has chosen proper comparable by application of all required tests?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to exclude certain comparable in list even when the TPO has chosen proper comparable by application of all required tests.
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in following its earlier decision in case of 24/7 Customer.com.p.ltd which has not reached finality?”
Learned Counsel for the Appellants-Revenue does not press substantial question of law No.4.
The same is taken on record.
Date of Judgment 14-8-2018, ITA No.444 /2017 The Pr. Commissioner of Income –Tax & another Vs. M/s.Acusis Software India Pvt. Ltd.,
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JThe 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: 10. 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). 11. 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 excluded from the total turnover if the same are
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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. 18. 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.
Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export
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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”.
Regarding Substantial Question of law Nos.2, 5 & 6: “42(i) xxxx xxxx We heard the rival submissions and perused the material on record. This company was considered by the coordinate bench, Mumbai in the case of ACIT V. Maersk Global Service Centre (India) P Ltd [2011] 16 taxmann.com 47 (Mum), wherein it was held that the company cannot be considered as comparable, as it outsources major of its activities. This decision was subsequently followed by the coordinate benches in the case of ITO v Nextlkinx India Pvt Ltd v TS-722-ITAT- 2012(Bang)-TP, Nomura Fin Services (India) (P.) Ltd. v ACIT [2013] 33 taxmann.com 4 (Mum- Trib.) and ACIT v M/s. Hapag Lloyd Global Services Pvt Ltd TS-47-ITAT-2013 (Mum)-TP and respectively following the decisions, we direct that this company cannot be included in the list of
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comparables with that of the assessee company and accordingly, we uphold the decision of the CIT(A) to delete this company from the list of comparables, though on a different reasoning. ii. Nucleus Net Soft and GIS Ltd: It was contended that it is a functionally different company as it is engaged in the development of software products. Thus it was submitted that this company cannot be compared with that of ITES company like that of assessee company. However we find that no material was filed before us establishing this fact. In the circumstances, we remand this issue back to the file of TPO/AO to examine whether the company is engaged in the software development. If it is found so, then to exclude it from the list of comparables. iii. Transworks Information Service Ltd: The appellant pleaded for the inclusion of this company in the list of comparables. There is no dispute about the functional comparability with that of assessee company. The only ground on which the CIT(A) had directed exclusion of this company from the list of comparables is that the company is making very low margins. As held by us in the assessee's own case for the assessment
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year 2004-05, no company can be excluded for the reasons of making high profit and low profit making companies. Therefore the reasoning of the CIT(A) does not stand the test of the law laid down by the special bench in the Quark Systems. In the circumstances, we direct the TPO/AO to include this company in the list of comparables for the purpose of computing ALP. 43. In the result, the appeal filed by the assessee in IT(TP)A No. 442/Bang/2011 is partly allowed for statistical purpose. The appeals filed by revenue in IT(TP)A No. 444/Bang/2011 for assessment year 2004-05 and in IT(TP)A No. 445/Bang/2011 for assessment year 2005-06 are partly allowed for statistical purposes.” Regarding Substantial Question of law No.3:
”40. Ground Nos. 4, 5 and 6: The issue raised in the ground Nos. 4, 5 and 6 is with regard to the direction of the learned CIT(A) to treat the gain on account of foreign exchange fluctuations arising out of exports made as a part of operating profit. This issue is already decided by us in favour of the assessee company in the assessment year 2004-05 in ITA No. 442/Bang/2011. Following the same, we dismiss this ground of appeal.”
Date of Judgment 14-8-2018, ITA No.444 /2017 The Pr. Commissioner of Income –Tax & another Vs. M/s.Acusis Software India Pvt. Ltd.,
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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 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
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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 filed by the Revenue are
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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.”
Having heard the learned counsels appearing for the parties, we are therefore of the opinion
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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
AN/-