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1/13 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 11TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.246/2013
BETWEEN:
THE COMMISSIONER OF INCOME-TAX CIT(A) C.R. BUILDING, QUEENS ROAD BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(2), RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. BEARING POINT BUSINESS CONSULTING PRIVATE LTD., EMBASSY ICON ANNEX INFANTRY ROAD, BANGALORE-560001.
…RESPONDENT (By Mr. SANDDEP HUILGOL, ADV., FOR Mr. T. SURYANARAYANA, ADV.,)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT, BANGALORE IN ITA No.1124/Bang/2011 DATED 21/12/2012 ANNEXURE-D AND
Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd.,
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CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(2), BANGALORE.
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. Sandeep Huilgol, Adv. for Mr. T. Suryanarayana, 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 ‘B’ (for short ‘Tribunal’) dated 21.12.2017 passed in ITA No.1124/Bang/2011 for the A.Y.2007-08.
This appeal has been ADMITTED on 11.02.2014 to consider the following substantial questions of law as framed by the Revenue in the Memorandum of Appeal:-
Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd.,
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“1. Whether on the facts and in the circumstances of the case and in law the Tribunal was right in super imposing the decisions of the other benches and the decision of the ITAT while rejecting the comparables ( (i) Accel Transmatic Limited, (ii) Avani Cimcon Technologies Limited, (iii) Celestial Labs Limited, (iv) KALS information Systems Limited, (v) Megasoft Limited) without appreciating the fact that selection of comparables in a case depends on assesse specific FAR analysis and recorded a perverse finding?
Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in rejecting the comparables adopted by the Transfer Pricing Officer only on the basis of the order passed by the Tribunal in case of other assessee, despite the finding recorded by the Transfer Pricing Officer regarding functions and profitability of the comparables and the assessee company are similar and recorded a perverse finding?
Whether on the facts and in the circumstances of the case and in law Tribunal was correct in holding that foreign exchange loss/gain is operating in nature when, such
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loss/gain though attributable to the operating activity, is not derived from the operating activity?.
Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in holding that the telecommunication expenses, insurance, broadband, internet expenses and traveling expenses incurred in foreign currency reduced from export turnover has to be reduced from total turnover for computing deduction u/s. 10A of the Act when Explanation to Section 10A of the Act mandates reduction only from export turnover.”
Learned Counsel for the Appellants-Revenue submits that Substantial Question No.4 is covered by the Judgment 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:-
Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd.,
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“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, 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.
XXXXXX
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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.
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 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 appellants-
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Revenue and the Respondent-assessee, has returned findings as under: Regarding substantial question of law Nos.1 and 2: “5.2 We shall now deal with the improper selection of comparables by the TPO for the reasons that they were functionally different as observed by the earlier Bench in the case of Trilogy E-Business. xxxxxx
A. Accel Transmatic Ltd. (Seg): The selection of this company as comparable by the TPO was duly considered by the Tribunal in the case of Trilogy E-Business and reason recorded in its finding is extracted as under: xxxxxx
B.Avani Cimcon Technologies Ltd:
The selection of this company as comparable by the TPO was rejected by the earlier Bench of the Tribunal in Trilogy E-Business for the reasons that – xxxxx
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C. Celestial Labs. Ltd: This company was also selected by the TPO as comparable. However, on due consideration of the issue, the earlier Bench of this Tribunal in Trilogy E-Business had opined that this company cannot be as comparable on the ground that- xxxxx
D. KALS Information System Ltd.(Seg): Incidentally, the selection of this company as comparable by the TPO was rejected by the Tribunal in the case of Trilogy E-Business on the premise that the information obtained by the TPO by issuance of notice u/s 133(6) of the Act was not, however, available in public domain. The reasons recorded, for appreciation of facts, are extracted hereunder: xxxxx
5.2.1. In conformity with the findings of the coordinate bench of the Tribunal in the case of Trilogy E-Business, we are of the considered view that (i) Accel Transmatic Ltd (Seg); (ii) Avani Cimcon Technologies Ltd; (iii) Celestial Labs. Ltd., & (iv) KALS Information Systems Ltd (seg) cannot qualify as comparables in the case of the assessee under consideration. It is ordered accordingly.
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xxxxx
5.2.4. In conformity with the findings of the earlier Bench (supra), we are of the considered view that the TPO was justified in selecting M/s. Megasoft Ltd as comparable. However, the AO/TPO is directed to take segmental margins of 23.11% for comparability.
It is ordered accordingly.”
Regarding substantial question of law No.3: “5.3 The Tribunal in the case of Trilogy E-Business had directed that the foreign exchange gain or loss should be considered as operating revenue or cost while computing the operating margin of the assessee as well as the comparable. The relevant finding of the Tribunal read as follows: xxxxx xxxxx 5.3.1. In conformity with the above finding, we direct the AO/TPO to consider the foreign exchange gain or loss as part of the operating cost or revenue as the case may be. Since the TPO had computed the margin without considering the foreign gain or loss, the assessee
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had tabulated revise margins of comparables after considering the foreign exchange gain or loss as operating in nature. The tabulated revised margin of comparable after considering the foreign exchange gain or loss is made as Annexure A to this order. The Assessing Officer/TPO is directed to verify the correctness of the working/computation of Annexure-A.”
The controversy involved herein is no more res integra in view of the decision of this Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. 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
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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 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
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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.” 6. 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.
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Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE