Loading judgment…
No AI summary yet for this case.
1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 5TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A.No.372/2017
BETWEEN : 1. THE Pr. COMMISSIONER OF INCOME-TAX, CIT[A]
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
THE INCOME-TAX OFFICER
WARD-11[1], PRESENT ADDRESS
WARD-1[1][1], 7TH FLLOR
BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. ACUSIS SOFTWARE INDIA PVT. LTD., No.17/2, DOLLARS CHAMBER LALBAGH ROAD, BENGALURU-560029. PAN: AADCA 2415G.
…RESPONDENT
(BY SRI MALLAHARAO.K., ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 19.10.2016 PASSED IN IT[TP]A NO.1105/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010, ANNEXURE-D,
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
2/10
PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT[TP]A No.1105/BANG/2014 DATED 19.10.2016, ANNEXURE-D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1[1][1], BENGALURU AND ETC.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Mallaharao.K, Adv. for 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, Bangalore Bench ‘A’, Bangalore, in IT[TP]A No.1105/Bang/2014 dated 19.10.2016, relating to the Assessment Year 2009-10.
The appeal has been admitted on 07.11.2017 to consider the substantial questions of law formulated in the appeal memorandum.
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
3/10
The admitted 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 is right in directing to include forex gain / loss as operating in nature by following its earlier orders in the case of M/s. SAP Labs India P. Ltd and M/s. Triology E-Bussiness Software India P. Ltd., without ascertaining the nexus with the business activity of the taxpayer?
Whether in the facts and circumstances of the case, the Tribunal is correct in upholding the decision of the Commissioner of Income Tax [Appeal] regarding exclusion of telecommunication expenditure and other expenses incurred in foreign currency from export turnover as well as total turnover while computing deduction under section 10A, without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as clause [iv] of the Explanation 2 to Section 10A provides that
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
4/10
such expenses are to be reduced only from the export turnover?”
Learned Counsel for the Appellants-Revenue does not press substantial question No.2.
Submission is taken on record.
Regarding first substantial question of law:-
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under: “4. Having considered the rival submissions as well as relevant material on record we note that the issue of treatment of foreign exchange fluctuations [gain/loss], accrued on account of export sales has been consistently considered as part of the operating margin for the purpose of determining transfer pricing analysis in a series of decisions by this Tribunal. In the case of SAP LABS India Pvt. Ltd., Vs. ACIT [Supra], the Tribunal held that if the foreign exchange [gain/loss] is accrued to the assessee on export sale, then the same will be considered as
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
5/10
operating in nature. Similarly, the foreign exchange fluctuations on sales turnover of the comparables should also be considered as part of operating margins. The Tribunal in the case of M/s. Trilogy E-Business Software Vs. DCIT supra has again considered and decided this issue in para[B] as under:
“B. As far as foreign exchange gain/loss being considered a not forming part of the operating cost, the reasoning of the revenue is that such loss or gain cannot be said to be one realized from gain/loss of the enterprise and therefore they should be excluded while determining operating cost. On the above issue we find that the Bangalore Bench of ITAT in the case of Sap Labs India [P] Ltd., Vs. ACIT [2011] 44 SOT 156 [Bang.] has taken the view that Foreign Exchange fluctuation gains are required to be directed to accept the claim of the Assessee in this regard. As far as provision for bad debts are concerned, the TPO has accepted that the same would be part of operating expenses provided the same is incurred every year for at least three years and the manner in which provision is made is consistent. The
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
6/10
Assessee in reply to the query of the TPO on the above aspect has not furnished any details. We are of the view that the Assessee should be afforded opportunity to explain its position on the above and the AO is directed to consider the same in accordance with law. As far as fringe Benefit Tax [FBT] is concerned, the same was not considered by the TPO as part of operating cost in the case of comparables and therefore the same should also not be considered as part of operating cost of the Assessee. We hold accordingly and direct the AO to compute the operating cost of the Assessee.”
In view of the above discussion as well as by following the orders of this Tribunal, we direct the AO/TPO to recomputed the operating margin of the assessee by considering the foreign exchange fluctuations [gain/loss] arising from export as operating in nature. Similarly, the foreign exchange fluctuations [gain/loss] on sales shall be considered as part of operating margins of comparables for the purpose of determining arm’s length price.”
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
7/10
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:
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
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
8/10
(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 found to be devoid of merit and the same are liable to be dismissed.
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
9/10
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.”
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.
Date of Judgment 05-07-2018, ITA No.372/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. Acusis Software India Pvt. Ltd.,
10/10
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
NC.