COMMISSIONER OF INCOME TAX vs. TNT INDIA PRIVATE LIMITED

1/8 IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 09TH DAY OF JULY 2018

PRESENT

THE HON'BLE Dr.JUSTICE VINEET KOTHARI

AND

THE HON’BLE Mrs.JUSTICE S.SUJATHA

I.T.A.No.321/2011

BETWEEN:

…APPELLANTS (By Mr. JEEVAN J. NEERALGI, ADV.)

AND:

TNT INDIA PRIVATE LIMITED No.82/1, RICHMOND ROAD BANGALORE-25.

…RESPONDENT (By Mr. TATA KRISHNA, ADV. FOR Mr. K.K. CHYTHANYA, ADV.,)

THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. SET ASIDE THE APPELLATE ORDER DATED 09/03/2011 PASSED BY THE ITAT, ‘A’ BENCH, BANGALORE IN ITA No.1442/Bang/2008 ANNEXURE-A AS SOUGHT FOR IN THIS APPEAL, IN THE INTEREST OF JUSTICE AND EQUITY.

Date of Judgment 09-07-2018 I.T.A.No.321/2011 Commissioner of Income Tax-III & Anr. Vs. TNT India Private Limited

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THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-

JUDGMENT

Mr. Jeevan J. Neeralgi, Adv. for Appellants- Revenue Mr. Tata Krishna, Adv. for Mr. K.K. Chythanya, Adv. for Respondent - Assessee

“(a) Whether tribunal is right in law in holding that arm’s length price adjustment shall be arrived at only after allowing deduction of 5% of the arithmetical mean price arrived at by the

Date of Judgment 09-07-2018 I.T.A.No.321/2011 Commissioner of Income Tax-III & Anr. Vs. TNT India Private Limited

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TPO while the proviso to sub-section 2 of Sec.92C does not allow such deduction but it only lays down the tolerance band of 95% and 105% of the arithmetic mean of the prices determined by the most appropriate method within which the ALP should lie for not requiring ALP adjustment by the TPO? (b) Whether tribunal is right in law in holding that arm’s length price adjustment shall be arrived at only after allowing deduction of 5% of the arithmetical mean price arrived at by the TPO even when no such provision is prescribed under the provisions of I.T. Act?”.

Date of Judgment 09-07-2018 I.T.A.No.321/2011 Commissioner of Income Tax-III & Anr. Vs. TNT India Private Limited

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“ 15. As regards ground no.11, learned counsel for the assessee submitted that both the TPO and also the CIT(A) should have given a standard deduction of 5% as provided under proviso to section 92C(2) before making adjustments of the transfer price. For this preposition, learned counsel for the assessee drew our attention to sec.92C(2) of the IT Act, wherein it is provided that where more than one price is arrived at by the most appropriate method the arm’s length price shall be taken to be the arithmetical mean of such prices, or at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding 5% of such arithmetical mean. He further drew our attention to the Explanatory Memorandum to Finance Bill 2002, wherein it is stated that with a view to allow a degree of flexibility in adopting an arm’s length price, it is proposed to amend the proviso to sub-section(2) of the said section to provide that where the most appropriate method results in more than one price, which differs from the arithmetical mean by an amount not exceeding five percent of such mean then such mean may be taken as the arm’s length price, at the option of the assessee. Thus, according to learned counsel for the assessee, the assessee

Date of Judgment 09-07-2018 I.T.A.No.321/2011 Commissioner of Income Tax-III & Anr. Vs. TNT India Private Limited

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should be given a deduction of 5% before making the adjustments u/s 92C(2) of the IT Act. For this proposition, he placed reliance upon the decision of Delhi Tribunal in the case of Schefenacker Motherson Ltd., Vs ITO & & another reported in 123 TTJ(Del.) 509 and also A Bench decision at Bangalore in the case of SAP Labs India Pvt.Ltd., in ITA No.398(B)/2008, wherein it was held that the second limp of the proviso to sec.92(C)(2) gives an option to the assessee to claim a marginal variance of 5% as standard deduction. 15.1. The learned DR on the other hand, supported the orders of the lower authorities. The proviso to sec.92C(2) provides that the arm’s length price may be accepted with variance of 5% of the arithmetical means, it does not mean that the standard deduction of 5% is to be given before making the adjustment”.

Date of Judgment 09-07-2018 I.T.A.No.321/2011 Commissioner of Income Tax-III & Anr. Vs. TNT India Private Limited

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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 and the relevant portion of the said 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 the other hand, the appeals of the present tenor

Date of Judgment 09-07-2018 I.T.A.No.321/2011 Commissioner of Income Tax-III & Anr. Vs. TNT India Private Limited

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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.

Date of Judgment 09-07-2018 I.T.A.No.321/2011 Commissioner of Income Tax-III & Anr. Vs. TNT India Private Limited

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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.”

Sd/- JUDGE

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JUDGE

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