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1/11 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. No.530/2017
BETWEEN : 1. PR. COMMISSIONER
OF INCOME TAX-6
BMTC COMPLEX
KORAMANGALA
BANGALORE.
DEPUTY COMMISSIONER
OF INCOME TAX
CIRCLE-12[3]
BANGALORE.
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND : M/s. SANDISK INDIA DEVICE DESIGN CENTRE PVT. LTD., SURVEY No.143/1, AMANI BELLANDUR KHANE VILLAGE, PRESTIGE EXCELSIOR PRESTIGE TECH PARK MARATHALLI-SARJAPUR OUTER RING ROAD KADUBEESANAHALLI VARTHUR HOBLI BANGALORE-560103 PAN: AAICS 9204 M.
…RESPONDENT
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 15.02.2017 PASSED IN IT[TP]A No.139/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010, VIDE ANNEXURE-A, 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; AND SET ASIDE THE APPELLATE ORDER DATED 15.02.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS No.IT[TP]A No.139/BANG/2014 FOR THE ASSESSMENT YEAR 2009-2010, VIDE ANNEXURE-A, AS SOUGHT FOR IN THIS APPEAL.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. E.I.Sanmathi, Adv. for Appellants – Revenue.
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 ‘B’, Bangalore, in IT[TP]A No.139/Bang/2014 dated 15.02.2017, relating to the Assessment Year 2009-10.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in directing the assessing officer to exclude the expenses deducted from export turnover and from total turnover also where as there is no such explicit provision of the Act to do so?
Whether, on the facts and in the circumstances of the case, the working capital adjustment can be made on the basis of advance received from AEs in absence of debtors and inventory in the case of assessee for calculating the cost of working capital built in the profit margin?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified by not acknowledging its own orders where the Tribunal has held in stretching RPT % from 15 to 20% in case of Katera Software India Pvt. Ltd.,?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable on the basis of functional dissimilarity by not acknowledging its own decision in Narus Network Pvt. Ltd., where it has held that comparable can’t be
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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excluded the basis of functional different and when it satisfies all the qualitative and quantitative filters applied by the TPO. The Tribunal has used a narrower functionality filter than TPO, but has not tested other comparables against the narrower functionality filter applied by it?”
Regarding Substantial Question of Law No.1: 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
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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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 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
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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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 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 No.2: “8. Regarding ground Nos.4 & 5 in respect of working capital adjustment also, we find no infirmity in the directions of DRP and therefore, on this issue also, we decline to interfere in the order of DRP. Accordingly, ground Nos.4 & 5 are also rejected.”
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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Regarding Substantial Question of Law No.3: “12. Accordingly, we hold that out of total 7 comparables as noted above for which exclusion is requested by the assessee, the remaining 6 comparables are to be excluded but for one comparable i.e., L&T Infotech Ltd., we restore the matter back to the file of AO/TPO to verify the correct RPT percentage of L&T Infotech Ltd., and this comparable will be excluded if it is found that RPT percentage for AY 2009-10 is in excess of 15%. We order accordingly.”
Regarding Substantial Question of Law No.4: “13. Regarding request of assessee for inclusion of one comparable i.e., CG Vak Software & Exports Ltd., we find that in the case of Autodesk India Pvt. Ltd., v. DCIT [supra], the Tribunal restored back the matter to the file of AO/TPO for reconsideration of the same by taking into consideration the correct employee cost. Accordingly, in the present case also, we set aside the orders of authorities below on this issue and restore the matter back to the file of AO/TPO with a direction to reconsider the inclusion of this company i.e., CG Vak Software & Exports Ltd.,
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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after providing adequate opportunity of being heard to the assessee.
In the result, the assessee’s appeal stands allowed for statistical purposes in the terms indicated above.”
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
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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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 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.
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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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 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.
Date of Judgment 13-08-2018, ITA No.530/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd.,
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The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsel appearing 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
NC.