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1/14 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 13TH DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.Nos.302-303/2017 & 724/2017
BETWEEN:
ALTIMETRIK INDIA PRIVATE LIMITED (ERSTWHILE SYNOVA INNOVATIVE TECHNOLOGIES PRIVATE LIMITED SINCE MERGED), Sy. No.7P & 93P, ELECTRONIC CITY, PHASE II, BEGUR HOBLI TALUK BANGALORE-560 100. REPRESENTED HEREIN BY ITS A CHANDAN KUMAR PAN: No.AAFCS 4915 A.
…APPELLANT
(By Mr. T. SURYANARAYANA, ADV.)
AND:
ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1)(1), BANGALORE (ERSTWHILE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), BANGALORE) ROOM No.215, 2ND FLOOR BMTC BUILDING, 80 FT ROAD, KORAMANGALA 6TH BLOCK BANGALORE-560 095.
PRINCIPAL COMMISSIONER OF INCOME-TAX BANGALORE, BMTC BUILDING 80 FT ROAD, KORAMANGALA 6TH BLOCK BANGALORE-560 095.
…RESPONDENTS
(By Mr. K.V. ARAVIND, ADV.)
Date of Judgment 13-08-2018 I.T.A.Nos.302-303/2017 & 724/2017 Altimetrik India Private Limited Vs. Assistant Commissioner of Income-tax & Anr.
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THESE I.T.As. ARE FILED UNDER SECTION 260-A OF I.T. ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW. ALLOW THE APPEAL AND SET ASIDE TO THE EXTENT QUESTIONED HEREIN, THE COMMON ORDER PRONOUNCED ON 23/12/2016 BY THE ITAT, BENGALURU BENCH ‘C’, BENGALURU, IN IT(TP)A Nos. 36 & 27/BANG/2011 AND C.O. No.219/BANG/2015 (ANNEUXRE-G) & ETC.,
THESE I.T.As. COMING ON FOR HEARING THIS DAY, Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. T. Suryanarayana, Adv. for Appellant- Assessee Mr. K.V. Aravind, Adv. for Respondents - Revenue
The Appellant-Assessee has 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 ‘C’, Bangalore, dated 23.12.2016 passed in IT(TP)A Nos.36 & 37(Bang)2011 (The Asst.Commissioner of Income Tax vs. M/s.Synova Innovative Technologies Pvt. Ltd.,) for A.Y.2004-05 and A.Y.2005-06 (later on, the name of the Assessee-company was changed to Altimetrik India Private Limited).
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The learned counsel for the Appellant-Assessee has suggested the following substantial questions of law in the Memorandum of appeal filed before this Court:- “Whether on the facts, in the circumstances and on the grounds and contentions urged: 1. The Tribunal was justified in dismissing the cross-objections filed by the Appellant for AY 2004-05 on the basis that there was no reasonable explanation given by the Appellant for condoning the delay in filing the cross-objections and thus gave a perverse finding? 2. The Tribunal was justified in remanding to the 1st Respondent/TPO the issue of inclusion of foreign exchange fluctuations in the operating margins of the Appellant for a fresh decision after examining whether the foreign exchange fluctuation is in respect of turnover of the present year or of an earlier year and in holding that if the gain is arising on account of turnover of an earlier year, it cannot be added in the Appellant’s operating profit? and 3. Without prejudice and in any event, the Tribunal, having remanded the above issue to the 1st Respondent/TPO, ought to have correspondingly directed the 1st Respondent/TPO
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to do a similar examination for the comparables as well?”
Learned counsel for the Appellant-Assessee Mr.T.Suryanarayana has submitted before this Court that the learned Tribunal with regard to limitation in filing the Cross Objections before the learned Tribunal has erred in not condoning the delay in view of the retrospective amendment by Finance Act, 2012 about the 5% Standard Deduction earlier allowed u/s.92C of the Act, removed from the said provision.
The relevant findings of the learned Tribunal in paras 10, 14 and 16 are quoted below for ready reference:- “10. Regarding third issue i.e. 5% standard deduction allowed by ld. CIT (A), it was fairly conceded by the ld. AR of the assessee that this issue has to be decided in favour of the revenue and against the assessee in view of subsequent amendment in the provisions of sec.92C of the IT Act, 1961. Accordingly, we decide this issue in favour of the revenue and
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against the assessee and accordingly, ground no.7 to 9 of the revenue’s appeal are allowed.
The cross objection has been filed by the assessee after a delay of 1760 days. The assessee has filed an application for condonation of delay along with an affidavit in which the assessee has made the following submissions in support of his request for condonation of delay as per para-9 & 10 of the affidavit, as reproduced below; “9. In this regard, your cross objector wishes to submit that the Finance Act 2012, has amended provisions of sec.92C of the Act, by inserting sub-sections 2A and 2B. Newly inserted section 92C (2A) has explained that when the variation between the arithmetical mean referred to in the proviso to sec.92C (2) and the price at which international transaction has actually been undertaken exceeds five percent of the arithmetical mean, then, the assessee shall not be entitled to exercise the option as referred to in the proviso, which amendment has been made with retrospective effect from April 1, 2002. Further, newly added section 92C(B) has limited the powers of the AO
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to assess or reassess or pass an order enhancing the assessment or reducing a refund already made for any assessment year the proceedings of which have been completed before the 1st day of October, 2009.
Pursuant to the amendment in the provisions of section 92C by inserting the new subsections 2A and 2B. Your cross objector was under the mistaken belief that the newly inserted subsection 2B of section 92C shall grandfather the subject case for AY: 2004-05 and hence by virtue of subsections 2B, the newly inserted subsection 2A of section 92C shall not be applicable in the subject case of your cross objector.
However, upon discussion with the Counsel representing the merit mater before your honours. Your cross objector was advised that subsection 2B of section 92C shall not be applicable in the case of your cross objector as the benefit 5% standard deduction was originally not granted by the AO during the assessment proceedings”. In course of hearing before us, ld. AR of the assessee submitted a chart in which it is
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submitted that the Finance Act, 2012 received the assent of the Hon’ble President on 28-05-2012, whereas the assessee was required to file the cross objection on or before 11-02-2011 and therefore, the delay of 472 days up to 28-05-2012 is on account of this period because the provisions of sec.92C has been amended by the Finance Act 2012 as per which earlier provisions regarding standard deduction of 5% were withdrawn or amended. Thereafter, he submitted that the Special Bench decision of the Tribunal in the case of IHG IT Services (Ind.) Pvt. Ltd., Vs ITO (ITAT Del. Spl. Bench) was pronounced on 30-04- 2013 and therefore, the delay of 337 days from 29-05-2012 to 30-04-2013 was on this account because before this decision of the Special Bench of the Tribunal, the provisions were not clear to the assessee. In respect of remaining delay from 951 days from 01-05-2013 to 07-12-2015, it is submitted that the delay is attributable to the inference of provisions of Finance Act 2012 and therefore, the delay should be condoned.
We have considered the rival submissions. We find that as per the grounds raised by the assessee in cross objection, there is no such dispute that standard deduction of 5%
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should be allowed to the assessee. Moreover, even if the explanations of the assessee are accepted that the delay is on account of amendment in the provisions of sec.92C in respect of allow ability of standard deduction of 5%, the same may be accepted up to 30-04- 2013 when the special Bench of this Tribunal pronounced the judgment in the case of IHT IT Services ld. Pvt.Ltd.(Supra) but for the remaining delay of 951 days from 01-05- 2013, there is no valid explanation and this explanation of the assessee that this delay is attributable to the inference of provisions of Finance Act 2012 is having no merit because, when the Special Bench of this Tribunal has explained the provisions and amendments in Finance Act 2012, it cannot be said that the assessee was not aware of the provisions of its implications and hence, in our considered opinion, the delay in filing the cross objection by the assessee cannot be condoned because there is no reasonable explanation of the assessee regarding such huge delay particularly, the delay of 951 days after pronouncement of the Special bench order of the Tribunal on 30-04-2013. Hence, we do not condone the delay and therefore, the cross objection of the assessee
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is liable to be dismissed as un-admitted. We order accordingly”.
Having heard the learned counsels for the parties, we are of the opinion that though the condonation of delay is a discretionary matter and normally it would not give rise to any substantial question of law requiring consideration u/s.260A of the Act, but in the peculiar facts and circumstances of the case, the cross objections came to be filed later on, in view of the retrospective amendment of the law and on the anvil of which the Assessee had conceded vide para- 10 of the Tribunals’ order that it could not get the benefit of 5% Standard Deduction, but in the alternative, the only course upon the Assessee was to urge before the learned Tribunal, the final fact finding body to consider its claim on merits about the determination of ALP, ignoring the said 5% Standard Deduction and therefore, even if the cross objections for A.Y.2004-05 were belatedly filed with a delay of 1760
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days, as noted in para-14 of the Tribunal’s order, the part of which the delay was found to be duly explained by the learned Tribunal that on that account but the later part of 951 days having occurred after the Special Bench decision of the Tribunal rendered on 30.04.2013, whereas the cross objections filed by the Assessee on 07.12.2015, the said later part of 951 days found by the learned Tribunal was not sufficiently explained and therefore, the learned Tribunal chose to not to condone the said delay and reject the cross objections of the Assessee.
We are of the opinion that the Assessee could not be deprived of its opportunity to contend in the alternative on the merits of its claim, if the aspect relating to 5% Standard Deduction was negatived by a retrospective statutory amendment by Finance Act, 2012 and therefore, in the peculiar facts and position of law as amended, the learned Tribunal ought to have
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allowed the Assessee to raise the cross objections in the matter and consider the claim of the Assessee on merits. Therefore, we are inclined to remand the case back to the learned Tribunal for considering the cross objections raised by the Assessee on merits. The said impugned part of the learned Tribunal in para-16 is therefore set aside and the matter is remanded back to the learned Tribunal for considering the matter afresh in accordance with law.
That as far as the other question with regard to the foreign exchange fluctuations being considered as part of operating profits is concerned, we find that the learned Tribunal has already remanded the case back to the first Appellate Authority namely, CIT (Appeals), with certain guidelines.
Para-8 of the said order of the learned Tribunal in this regard is quoted below for ready reference:-
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“ 8. We have considered the rival submissions. Regarding the first issue raised by the revenue as per ground no. 2,3 & 4 i.e. Direction of the ld. CIT(A) to include foreign exchange gain as part of operating revenue, we feel it proper that this matter should go back to the file of the ld. CIT(A) for a fresh decision after examining this aspect as to whether such foreign exchange gain is in respect of turnover of the present year or of an earlier year because in our considered opinion, the foreign exchange gain is no doubt an operating profit of the assessee company if the same is on account of collection of sale proceeds of the assessee company but for the purpose of computing the ALP, such foreign exchange gain cannot be added in operating profit of the assessee company if such gain is arising on account of turnover of an earlier year because for the purpose of computing the ALP, operating profit margin over the turnover has to be worked out and since the turnover of the present year is not inclusive of turnover of earlier year for which the exchange fluctuation gain is arising, such gain also cannot be taken into account for computing the operating profit percentage of the present year
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in order to finalise ALP and since these details are not available on record as to whether the foreign exchange fluctuation gain in the present case is in respect of turnover of the present year or of an earlier year, we restore the matter back to the file of the AO/TPO for fresh decision after examining these aspects. The ld. CIT (A) should pass necessary order as per law on this issue in the light of the above discussion after providing adequate opportunity of being heard to both sides. Ground no.2, 3 & 4 are allowed for statistical purposes.
Learned counsel for the Appellant-Assessee has urged before the Court that since the learned Tribunal has held that the foreign exchange fluctuations with regard to turnover of the particular year only can be taken into account for computing the operating profit margin of that year, the CIT (Appeals) would be bound by such guidelines, whereas on mercantile basis, the foreign exchange fluctuations with regard to turnover made in the previous year can also be taken into
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account for computing operating profit margin of this particular year.
Having heard the learned counsels, we are of the opinion that since the matter stands remanded back to the learned CIT (Appeals) by the Tribunal itself, no substantial question of law arises at this stage and we would refrain to express any opinion on this matter u/s.260A of the Act. We leave it free to the parties to raise their respective contentions before the CIT (Appeals) in pursuance of the remand made by the learned Tribunal.
In view of the aforesaid observations, the appeals are disposed of. No costs.
Sd/- JUDGE
Sd/-
JUDGE Srl.