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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 9th DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.65/2012
Between:
Commissioner of Income, Tax –III, Central Revenue Buildings Queens Road, Bangalore – 560 001.
The Assistant Commissioner of Income tax, Circle -12(3), Bangalore.
…Appellants (By Mr. E.I. Sanmathi, Advocate)
And:
M/s. SAP Labs India Pvt. Ltd., No.138, Export Promotion Indl. Park, While Field, Bangalore – 66.
…Respondent
(By Mr. P. Dinesh, Advocate - Absent)
This I.T.A. is filed under Section 260-A of Income Tax Act 1961, praying to decide the foregoing question of law
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit; set aside the common appellate order dated 09/11/2011 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore, in M.P.No.102/ Bang/2010 preferred by Assessee against judgment passed in ITA Nos.398 and 418/bang/2008 for Assessment Year:2003-04 as sought for in this appeal; and to grant such other relief as deemed fit, in the interest of justice and equity.
This I.T.A. coming on for Hearing, this day Dr. Vineet Kothari J. delivered the following:-
J U D G M E N T
Mr. E.I. Sanmathi, Adv. for Appellants – Revenue Mr. P. Dinesh, Adv. for Respondent – Assessee - Absent
The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bangalore Bench “A”, Annexure A dated 09/11/2011 in M.P.No.102/Bang/2010 (ITA No.398 & 418/Bang/2008) for AY 2003-04. 2. The Revenue has suggested the following substantial questions of law for our consideration in this appeal:-
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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“1. Whether the Hon’ble TRIBUNAL was right in law in holding that arithmetic mean of the price determined by the assessing authority and the assessee should be arrived at and then adjustment of 5% can be given? 2. Whether the provision of Sec.92C(2) of the I.T.Act, 1961 can be so interpreted that the arithmetic mean of the prices determined by the assessing authority and by the assessee can be arrived at to decide the Arm’s Length price? 3. Whether the Hon’ble TRIBUNAL was justified in holding that the amended provisions to Sec.92C(2) is not applicable in the relevant asst. year? 4.
Whether Tribunal erred in entertaining the miscellaneous petition even when the original order of the tribunal was under scrutiny before this Hon’ble Court and all the issues raised by assessee in miscellaneous petition were subject matter in ITA No.23 and 24 of 2011 and ITA No.10 of 2011?
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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Whether the Tribunal erred in allowing miscellaneous petition on merits even though the same amounted to reviewing its own order which is not permitted under the provisions of I.T. Act?”
The appeal was admitted by the Co-ordinate Bench of this Court on 30-11-2011 with the following two Substantial Questions of law:- 1. Whether on the facts and circumstances of the case and the law the finding of the Income Tax Appellate Tribunal that all the companies which have earned profit at less than 6% should be excluded for consideration of comparable companies, is contrary to the provisions of Sec. 8E for determination of income under special cases?
Whether the finding of the Income Tax Appellate Tribunal that payment of compensation of Rs.105 lakhs paid by the appellant is a capital expenditure is justified having regard to the facts and circumstances of the law?
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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The learned counsel appearing for the appellant – Revenue, Mr. E.I. Sanmathi submitted that he does not want to press the fifth substantial question of law raised by him in the present appeal. 5. In so far as the substantial question Nos.1 to 4 raised by the Revenue and also the first substantial question of law framed by the Co-ordinate Bench of this Court are concerned, the learned counsel for the Revenue submitted that the learned ITAT in its Order dated 09/11/2011 on M.P.No.102/Bang/2010 has given the findings, the relevant portion of which is quoted below for ready reference:- “10.2. We have heard the rival submissions and perused the material on record.
When there are two prices determined by the most appropriate method, the first step is to take the arithmetical mean of such prices as ALM. However, the assessee has the option to adjust the above ALM by + 5%. Here, the two different prices are –
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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By the A.O.
- 20.57 By the assessee - 8.80
The adjustment of 5% is done on assessee’s computation to arrive at 13.80%. The relevant finding of the Tribunal at para.98 of the impugned order reads as follows:-
“Assessing Authority will further find out the operating profits of assessee’s rate of 13.80% and the operating profits at the arithmetic mean rate of 20.57% on the basis of the revised revenue and cost computed in paragraph above. The differential amount shall be the addition to be made in term of the ALP adjustment. This amount will be corresponding to the differential operating margin of 6.77%.”
However, the arithmetical mean of two prices has not been done. Only after arriving at the arithmetical mean of two prices, the adjustment of 5% can be done. For this purpose, this issue is restored to the file of the
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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AO, who shall in turn, may refer the matter to the TPO.”
However, this Court in a recent judgment in I.T.A.No.536/2015 c/w. I.T.A.No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) rendered on 25-06-2018, has held that in these type of cases, unless an ex-facie perversity in the findings of the 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
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs 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
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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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.”
Date of Judgment 09-07-2018 I.T.A.No.65/2012 Commissioner of Income-Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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In so far as the second substantial question of law framed by this Court is concerned, we are of the considered opinion that the findings of facts recorded by the learned Tribunal are based on cogent material and relevant evidence and therefore, in our opinion, they do not give rise to any substantial question of law. 8. Having heard the learned counsel for the appellant – Revenue, this Court is satisfied that no substantial question of law would arise in the present case and the appeal filed by the Revenue is therefore, liable to be dismissed. Accordingly, it is dismissed. No costs. The Copy of this judgment may be sent to the Respondent – Assessee forthwith.
Sd/- JUDGE
Sd/- JUDGE BMV*