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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 23RD DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.683/2015
BETWEEN :
Pr. COMMISSIONER OF INCOME TAX-VI, C.R.BUILDING, QUEENS ROAD, BANGALORE.
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE.
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND :
M/s SAMI LABS LTD. 18/1 & 19/2, FIRST MAIN ROAD, II PHASE, PEENYA INDUSTRIAL AREA, BANGALORE.
…RESPONDENT
(RESPONDENT SERVED.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 08/05/2015 PASSED IN IT(TP)A NO.1197/BANG/2012, FOR THE ASSESSMENT YEAR 2008-2009 ANNEXURE-A. PRAYING TO: 1. 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. 2. SET ASIDE THE
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APPELLATE ORDER DATED 08/05/2015 PASSED BY THE ITAT, 'A' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IT(TP)A NO.1197/BANG/2012 FOR A.Y.2008-09 ANNEXURE-A.
THIS APPEAL COMING ON FOR HEARING, 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 ‘A’, Bangalore in IT[TP]A No.1197/Bang/2012 dated 08.05.2015, relating to the Assessment Year 2008-09.
This Appeal has been admitted on 05.04.2016 to consider the following substantial questions of law as framed by the Revenue in the Memorandum of Appeal.
“1. Whether on the facts and circumstances of the case, the Tribunal is right in directing to include forex gain/loss as operating
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in nature without ascertaining the nexus with the business activity of the taxpayer?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing idle capacity can be worked out only based on machine capacities and utilization of the machines in manufacturing sector, whereas the taxpayer has failed to demonstrate that the industry capacity was better utilized situations than its own?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in giving relief to the assessee on the issue of interest charged to Associated Enterprise when it is clear that interest is not charged at Arms Length Price?”
Regarding Substantial Question Nos.1 & 2: 3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: “25. There also is much strength in the argument of assessee that the margins of the comparables worked out by the AO required to be
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adjusted for discrepancy in stock, excessive R & D expenditure etc., similarly, co-ordinate bench of this Tribunal has held in the case of Triilogy E- Business Software India P. Ltd. v. DCIT (2013) 140 ITD 540, that forex gain relating to export business were part of the operating revenues and had to be considered while working out the ALP of the international transactions undertaken by it. Lower authorities have also not verified the claim of assessee that non-operating expenditures were not excluded while working out the operating expenditure. Similarly its claim that TP adjustment has to be confined to the international transaction with AE is also justified in view of the decision of the co-ordinate bench in the case of Kirloskar Toyota Textiles Machinery P. Ltd. V. ACIT [IT(TP)A No.1401/Bang/2010, dt.14.11.2014]. On the other hand, we find that the working out of idle cost done by assessee was not based on any specific principles. It took a presumption that fixed costs varies with turnover. Reduction in turnover can be due to reduction in prices and need not always be due to reduction in production. Idle capacity can be worked out only based on machine capacities and utilization of the machine in manufacturing sector. Exercises done by the assessee for working out the fixed cost
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attributable to idle capacity at 31% was incorrect. However, if assessee is able to show that there was any idle capacity, then proper adjustment has to be while accepting TNNM adopted by the TPO, we are of the opinion that analysis of the transfer pricing of the international transaction requires a fresh look by the TPO/AO by considering all the averments taken by assessee in detail. We, therefore, set aside the orders of the authorities below and remit the issue with regard to fixing of ALP of the international transaction, back to the file of TPO/AO for consideration afresh in accordance with the directions given above. No doubt, if the study made afresh show that the margin of the assessee on the cost was within +/-5% of the arithmetic mean, the AO shall not make any adjustment. 26. In the result, grounds 12 to 16 of assessee are treated as partly allowed.”
Regarding Substantial Question No.3: “11. We have perused the orders and heard the rival contentions. TPO in his order dt. 30.10.2011, has noted that the interest of Rs.5,57,226/- received by assessee from its subsidiary in Australia was on a loan of Rs.1,46,40,800/-. Equity share capital of
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assessee along with share capital money reserves and surplus by itself came to Rs.74,50,67,577/- as on 31.03.2008 and this was Rs.70,03,98,771/- as on 31.03.2007. Thus, obviously assessee had substantial own funds and even if we presume that the loan which was given to a subsidiary was from a common pool, we cannot say that any loan funds were used for such purpose. When own funds are more than the loans, an assessee can always take an argument that loan funds had gone from own funds. In any case, in the case of M/s Siva Industries & Holdings Ltd., (supra), in which one of us was a party, it was held as under in para 11 of its order:
xxxxxx
We are, therefore, of the opinion that assessee’s receipt of interest which was within +/-5% of libor did not require any ALP adjustment. Addition of Rs.10,77,990/- made on this count stands deleted. Grounds 8 to 10 of assessee are treated as allowed.”
The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A.
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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 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
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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 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
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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.”
In the circumstances, having heard the learned Counsel appearing for the Appellants-Revenue, We are of the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Copy of this order be sent to the Respondent- Assessee.
Sd/- JUDGE
Sd/- JUDGE AN/-