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1/11 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.52/2014
BETWEEN : 1. THE COMMISSIONER OF INCOME TAX-III C.R.BUILDING QUEENS ROAD BANGALORE-560 078
THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 12(5), BANGALORE.
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND : M/S. UE DEVELOPMENT INDIA PVT LTD., ‘QUORUM’, #85, 7TH CROSS 4TH BLOCK, KORAMANGALA BANGALORE PAN: AAACU5091N.
…RESPONDENT
(BY SRI K.S.PONNAPPA, ADV. FOR SRI K.ARUN KUMAR, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30.08.2013 PASSED IN ITA NO.284/BANG/2012, FOR THE ASSESSMENT YEAR 2004-2005, ANNEXURE-D, PRAYING
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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TO: 1]. DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. 2]. SET ASIDE THE APPELLATE ORDER DATE: 30/08/2013 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS No.284/BANG/2012 FOR ASSESSMENT YEAR 2004-05, ANNEXURE-D.
THIS APPEAL COMING ON FOR FINAL 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. K.S.Ponnappa, Adv. for Mr. K.Arun Kumar, 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.284/Bang/2012 dated 30.08.2013, relating to the Assessment Year 2004-05.
The appeal has been admitted on 24.02.2015 to consider the following substantial question of law:
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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“Whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that in mirror transactions ALP adjustments cannot be done, i.e., if one transaction is treated as at Arm’s Length, no adjustment can be made on the other related corresponding transaction of the AE without appreciating that this stand is against the provisions of Section 92(3) of the Act?”
Now, Learned Counsel for the Revenue has suggested the additional substantial question of law, which reads as under: “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing claim of assessee with regard profit margin of the assessee and incurring loss by holding that as the Tribunal has already held that the Transfer Pricing Officer cannot take different stand with regard accepting Arm’s Length Price in the hands of assessee and in the hands of Associated Enterprises though it is contrary to section 92[3] of the Act and without affording an opportunity to Transfer Pricing
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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Officer to consider the evidences produced before Tribunal?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under: Regarding both the substantial questions of law:-
“13. Having heard both the parties and having considered the rival contentions, we find that the TPO has accepted the expenditure incurred by the AE to be at arm’s length but has not accepted the income of the assessee to be at arm’s length. Both the assesses are different legal entities with different components of expenditure and income. But when a transaction is entered into with an AE, it has to be at arm’s length from each other. If the transaction is found to be at ALP in the hands of one of the parties, then the other end of the transaction also has to be considered to be at arm’s length. Therefore, when the TPO has accepted the transaction to be at arm’s length in the hands of the AE, then the transaction will have to be accepted to be at arm’s length in the hands of the assessee also. In
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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view of the same, we are of the opinion that the DRP was right in holding that what is true of one end is true of the other end of the transaction but it erred in holding that the remedy is to suitably substitute the ALP determined in the hands of assessee also in the hands of the AE. As rightly pointed out by the learned counsel for the assessee, the DRP can only give directions as regards the determination of ALP in the hands of the assessee before it. It cannot give directions to consider the issue in the hands of an assessee whose case is not before it. It is for the relevant TPO/AO to take action in accordance with law in the light of facts and circumstances of the case before them applying their mind independently and not on the directions of DRP or any other authority in another case. Therefore, the relevant ground of appeal on this issue is allowed.
As regards the margin of the assessee and the reasons for incurring of loss are concerned, we find that the assessee has made elaborate submissions before the TPO as well as the CIT[A]/DRP. According to the learned counsel for the assessee and the material on record, the assessee has incurred loss on the project due to the following reasons:
“xxxxx”
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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However, we find that neither the AO/TPO nor the CIT[A]/DRP has considered the assessee’s contention or the explanation for the loss incurred by the assessee for the relevant assessment year. U/s 92CA of the Act, the TPO has to determine the ALP of the transaction and while doint so, the TPO has to examine the reasons for the margin of the assessee being less than the comparable companies. The TPO is required to determine whether the price fixed by the assessee with its AE is at arm’s length taking into consideration the margin earned by the similar comparable companies in similar circumstances. For determining the same, the TPO is required to examine whether similar market conditions exist in the case of the assessee also. Any abnormal or extraordinary event has to be taken into account and wherever possible suitable and reasonable adjustment to such extraordinary event or circumstance has to be made. The claim of the assessee that the extraordinary cost that the assessee had incurred due to various circumstances enumerated above, have not been considered by the TPO or the AO. According to the learned counsel for the assessee, this expenditure has to be taken into account
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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while arriving at the profit margin of the assessee and also the average margins of the comparable companies or in the alternative, award of the Arbitral Tribunal should also be taken into consideration as the income of the assessee for determination of the ALP adjustment. As neither the AO/TPO nor the first appellate authority have considered these circumstances of the assessee for the loss and also in view of the evidence filed before us such as letter of NHAI stating that the estimated cost was much higher than the contract awarded to the assessee, we are of the opinion that the ALP determined by the TPO/AO was not justified. In such circumstances, the normal course of action would be to remand the issue to the file of the TPO/AO to re-determine the ALP after taking all the above facts into consideration. But, we have already held above that where the TPO has accepted the transaction to be at ALP in the hands of the AE, then he cannot take a different stand in the case of the other party to the transaction i.e., the assessee herein. In view of the same, we do not see any useful purpose being served by remanding the issue to the lower authorities.
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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In the result, the assessee’s appeals are allowed.”
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: 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
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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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.
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
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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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.
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
Date of Judgment 12-07-2018, ITA No.52/2014 The Commissioner of Income Tax-III & Another Vs. M/s. UE Development India Pvt. Ltd.,
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the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
NC.