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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 1ST DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.354/2016
BETWEEN : 1. THE PR. COMMISSIONER
OF INCOME-TAX
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BANGALORE-560095.
THE DEPUTY COMMISSIONER
OF INCOME-TAX
CIRCLE-3[1][2], 2ND FLOOR
BMTC BUILDING
80 FEET ROAD, KORMANGALA
BANGALORE-560095.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. E4E BUSINESS SOLUTIONS INDIA PVT. LTD., UNIT No.1303-1304, 13TH FLOOR PRESTIGE MERIDAN-II No.30, MG ROAD, BANGALORE PAN: AAACI 6324A.
…RESPONDENT
(BY SRI A.SHANKAR AND SRI M.LAVA, ADVS.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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DATED 04.11.2015 PASSED IN IT[TP]A No.324/BANG/2015, FOR THE ASSESSMENT YEAR 2010-11, ANNEXURE-D, PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT[TP]A No.324/BANG/2015 DATED 04.11.2015, ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3[1][2], BENGALURU; AND ETC.
THIS APPEAL COMING ON FOR HEARING, 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. A.Shankar & Mr. Lava, Advs. 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 ‘A’, Bangalore, in IT[TP]A No.324/Bang/2015 dated 04.11.2015, relating to the Assessment Year 2010-11.
The appeal has been admitted on 06.12.2017 to consider the following substantial questions of law formulated in the appeal memorandum:
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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“1. Whether the Tribunal was correct in directing the TPO to adopt the internal TNMM as the most appropriate method for benchmarking without appreciating the fact that the revenue had and from the associated Enterprises’s from the international market but as the revenue earned from the non-associate Enterprises’s from the domestic market?
Whether the Tribunal is correct in not appreciating the fact that services rendered in two different markets cannot be same or similar and hence internal TNMM was not the most appropriate method for benchmarking the international transaction?
Whether the Tribunal is correct in not appreciating the fact that profit margins are and from transactions with international markets cannot be same or similar to the profit margins earned from transactions with the domestic market since there are differences in the factors that influence the profit margins and hence internal TNMM was not the most appropriate method for benchmarking the international transaction>
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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Whether the Tribunal is correct in not appreciating the fact that factors like geography, functions performed, assetsemployed, respect can, cost of labout, legal provisions between two different markets have a bearing on the profit margins. Hence the profit margin earned from international transactions cannot be compared with profit margins earned from transactions with the domestic market, therefore internal TNMM was not the most appropriate method for benchmarking the international transaction?
Whether the Tribunal was correct in not appreciating the fact that the tax payer has not reported segmental break-up in respect of AE and Non AE’s transaction in the audited financials. It is only before the transfer pricing office that a break-up between AE and Non AE segment has been furnished and it is without any key of a allocation and supporting evidences in respect of expenses across the segments, hence the internal TNMM is not the most appropriate method for benchmarking? ”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law Nos.1 to 5: “7. First we shall adjudicate the Additional grounds. The learned counsel for the assessee submitted that several rulings of the Hon’ble Tribunal, subsequent to the pr finalizing its TP study have accepted internal ALP in case the assessee renders similar services to both Associated Enterprises [AE] and non-AE’s. The counsel relied on the decision in the case of Mylan Labs Ltd., I[TP]A No.179/Bang/2015 and 214/Bang/2015.
7.1 We find that in IT[TP]A No.214/Bang/2015 and IT[TP]A No.179/Bang/15 in the case of M/s Mylan Labs Ltd., at para-10 it has been held as follows;
“xxxxx”
Respectfully following the decision of the Co-ordinate Bench authored by JM in this appeal, we direct the TPO to choose internal comparable in controlled transaction as against an external comparable. Hence, we conclude our decision as follows:”
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the 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
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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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.
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.
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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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.
The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question of law arises for consideration in the present case.
Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd.,
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Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
NC.