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1/14 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 12TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.369/2014
BETWEEN :
COMMISSIONER OF INCOME TAX-III CENTRAL REVENUE BUILDINGS QUEENS ROAD, BANGALORE-560001
THE INCOME TAX OFFICER WARD 12(2), BANGALORE
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND :
M/s SYSTECH INTEGRATORS INDIA PVT. LTD., OZONE MANAY TECHPARK A BLOCK, 2ND FLOOR NO.56/18 & 55/9 HOSUR MAIN ROAD BANGALORE-560068 PAN: AAICS1151K
…RESPONDENT
(BY SRI S.SHARATH, ADV. FOR SRI CHYTHANYA K.K., ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 14/03/2014 PASSED IN IT(TP)A NO.1283/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
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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HON'BLE COURT AS DEEMED FIT. 2. SET ASIDE THE APPELLATE ORDER DATED: 14/03/2014 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. IT(TP)A NO. 1283/BANG/2012 FOR ASSESSMENT YEAR 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. Mr. S.Sharath, Adv. for Mr. Chythanya K.K., Adv. 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, ‘A’ Bench, Bangalore, in IT [TP] A No.1283/Bang/2012 dated 14.03.2014 relating to the Assessment Year 2008-09.
This Appeal has been admitted on 6.02.2015. The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the functions of the assessee are not comparable to the functions of M/s Celestial
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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Biolabs Ltd, M/s Infosys Technologies Ltd, M/s KALs Information Systems Ltd., M/s Tata Elxsi Ltd., M/s Wipro Ltd and M/s PSI Data Systems Ltd without doing any FAR analysis ? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in selectively not considering the decisions of its co-ordinate benches rendered in other cases wherein the above companies have been considered as fit comparables ? 3. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the reimbursement of communication expense are to be excluded both from total turnover as well as from export turnover for computation of deduction under section 10B whereas such exclusion is permitted to arrive at export turnover only as per the definitions given in section 10A of the I.T.Act and total turnover has not been defined in the section ? 4. Whether the Tribunal is correct in law in holding that the deduction under Section 10B should be computed in the above manner following the judgment of jurisdictional High Court in the case of CIT Vs Tara Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs filed by the Revenue on this
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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issue are pending before the Hon’ble Supreme Court ?”
Regarding Substantial Question Nos.3 & 4 : 3. The issues are 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 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,
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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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.
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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 which could have never been the intention of the legislature. 20. 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
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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 Appellant-Revenue and Respondent-Assessee, has returned a finding as under: Regarding Substantial Question of Law Nos.1 & 2 :
“(1) Avani Cincom Technologies Ltd.
7.5.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Non- furnishing the information obtained under section
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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133(6) of the Act to the assessee has vitiated the selection of this company as a comparable.
7.5.2. As regards the submission of the learned Authorised Representative, we are unable to agree that this company has to be deleted from the list of comparables only because it has been deleted from the set of comparables in the case of Triology E-Business Software India Pvt. Ltd. (supra). No doubt this company has been deleted as a comparable in the case of Triology E-Business Software India Pvt. Ltd. (supra) and this can be a good guidance to decide on the comparability in the case on hand also. This alone, however, will not suffice for the following reasons :- (i) The assessee needs to demonstrate that the FAR analysis and other relevant facts of the Triology case are equally applicable to the facts of the assessee's case also. Unless the facts and the FAR analysis of Triology case is comparable to that of the assessee in the case on hand, comparison between the two is not tenable. (ii) After demonstrating the similarity and the comparability between the assessee and the Triology case, the assessee also needs to demonstrate that the facts applicable to the Assessment Year 2007-08, the year for which the
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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decision in case of Triology E-Business Software India Pvt. Ltd. (supra) was rendered are also applicable to the year under consideration i.e. Assessment Year 2008-09.
7.5.3 It is a well settled principle that the assessee is required to perform FAR analysis for each year and it is quite possible that the FAR analysis can be different for each of the years. That being so, the principle applicable to one particular year cannot be extrapolated automatically and made applicable to subsequent years. To do that, it is necessary to first establish that the facts and attendant factors have remained the same so that the factors of comparability are the same. Viewed in that context, the assessee has not discharged the onus upon it to establish that the decision rendered in the case of Triology E-Business Software India Pvt. Ltd. (supra) can be applied to the facts of the case and that too of an earlier year i.e. Assessment Year 2007-08. The assessee, in our view, has not demonstrated that the facts of Triology E-Business Software India Pvt. Ltd. (supra) are identical to the facts of the case on hand and that the profile of the assessee for the year under consideration is similar to that of the earlier Assessment Year 2007- 08. In view of facts as discussed above, we deem it fit to
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remand the matter back to the file of the Assessing Officer / TPO to examine the comparability of this company afresh by considering the above observations. The TPO is directed to make available to the assessee information obtained under section 133(6) of the Act and to afford the assessee adequate opportunity of being heard and to make its submissions in the matter, which shall be duly considered before passing orders thereon. It is ordered accordingly.
Celestial Biolabs Ltd.
8.5.1 We have heard both parties and carefully perused and considered the material on record including the judicial decisions cited. As discussed earlier, there is merit in the contention of the learned Departmental Representative that the ruling of the co-ordinate bench of this Tribunal in the case of Triology E-Business Software India Pvt. Ltd. (supra), was with respect to the facts relevant to an earlier financial year and there cannot be an assumption that it would continue to be applicable to all other assessees for this year as well. At the same time, we find that the TPO also seems to have selected this company as a comparable, based on the reasoning given in the TPO’s order for the earlier year i.e. F.Y. 2006-07. Evidently, in this view of the
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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matter, the TPO has not conducted any independent FAR analysis for this company for the year under consideration and therefore the selection process adopted by the TPO is defective.
8.5.2 Further, besides relying on the decision of the co-ordinate bench in the case of Triology E- Business Software India Pvt. Ltd. (supra), the assessee has demonstrated that the finding given therein for Assessment Year 2007-08 is applicable for this year also. Further, the assessee has also brought on record substantial evidence by quoting from various portions of the Annual Report that this company is functionally different from the assessee and hence is not comparable to the assessee in the case on hand. We agree with the submissions made by the assessee, that as per the details from the Annual Report of this company, it is functionally different from the assessee. In view of the fact that the financial profile and other parameters of this company have not changed during the year under consideration, which fact has been demonstrated by the assessee, following the decision of the co- ordinate bench of this Tribunal in the case of Triology E-Business Software India Pvt. Ltd. (supra) and Curram Software International (Pvt.) Ltd. (supra), we hold that the company ought to be
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excluded from the list of comparables. It is ordered accordingly.
For the similar reasons, the Tribunal has excluded other comparables also.
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- 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
Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd.
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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. 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
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
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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. Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
ln.