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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 24TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.344/2016
BETWEEN:
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)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE-560095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. INDIGRA EXPORTS P.LTD., 46, 2ND FLOOR, CC VILLA, EJIPURA MAIN ROAD, VIVEKNAGAR POST, BANGALORE - 560 095. PAN: AAACI 3513M.
…RESPONDENT (By Mr. S. SHARATH, ADV. FOR Mr. CHYTHANYA K.K, ADV)
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT (TP)A NO. 309/BANG/2015 DATED 10/11/2015 ANNEXURE E AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1). BENGALURU.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V.Aravind, Adv. for Appellants-Revenue Mr. S.Sharath, Adv. for Mr. Chythanya K.K. Adv. for Respondent-Assessee
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, Bangalore Bench ‘C’, Bangalore (for short ‘Tribunal’) dated 10.11.2015 passed in I.T(TP)A No.309/Bang/2015 for the A.Y.2010-11.
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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This appeal has been ADMITTED on 11.10.2017 to consider the following substantial questions of law formulated in the appeal memo:
“1. “Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the foreign exchange transactions are to be considered as operating in nature, when the Rule 10 B(2)(d) stipulates that the net profit margin realized by the taxpayer in the international transaction shall alone be computed for comparability analysis under Transaction Net Margin Method?
Whether on the facts and in the circumstances of the case, the Tribunal is right in not upholding the TPOs decision in not allowing the Working Capital Adjustments in the given case based on the facts of the case as any adjustment is provided to increase the comparability and not the profitability of the tax payer?”
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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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.1: “10. Financial results of the assessee showed that its earnings from export on granite slabs to AE were Rs.15,55,02,752/-. In our opinion, given this fact situation, foreign exchange gain/loss could have been considered as non-operational only if the AO could show that gains/loss came out of hedging and transactions which were independent of the business revenue earning transaction of the assessee. The preponderance of probability will always weigh in favour of the assessee when its revenues are only from exports. In such a situation we cannot take a presumption that foreign exchange gain/loss were not having any nexus to the operations of the assessee. Coordinate bench in the case of Triology E-Business Software India P. Ltd v. DCIT
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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[[(2013) 140 ITD 540] had held as under at para 79 of its order. xxxx
Accordingly we are of the opinion that DRP was justified in directing the AO/TPO to consider foreign gain/loss as operational in nature Grounds 5 and 6 of the Revenue stands dismissed.
Regarding substantial question of law No.2:
Assessee has produced before us a chart according to which the average working capital adjustment that was required to be done for working out the average PLI of the comparables was (-) 2.85%. TPO had however added 2.85% to the unadjusted average PLI of the comparables. We are of the opinion that this issue also requires a fresh look by the AO/TPO. If the working capital adjustment was negative, AO/TPO should rework the adjusted PLI of the comparables after reducing the quantum of such adjustment from the average PLI of the comparables.
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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Ordered accordingly. Ground 3 of the assessee is allowed for statistical purpose.”
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
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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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. 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
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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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.” 5. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of
Date of Judgment 24-07-2018 I.T.A.No.344/2016 The Pr.Commissioner of Income Tax & Anr., Vs. M/s.Indigra Exports P.Ltd.,
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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.
Sd/- JUDGE
Sd/-
JUDGE