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1/16 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 2ND DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.443/2017
BETWEEN:
The Pr. Commissioner of Income -tax CIT (A) 5th Floor, BMTC Building 80 Feet Road, Kormangala Bengaluru-560 095
The Income -Tax Officer Ward-11(1), Present Address Ward-1(1)(1) 2nd Floor, BMTC Building 80 Feet Road, Kormangala Bengaluru-560 095
…Appellants (By Mr. Aravind K.V, Advocate)
AND:
M/s Acusis Software India Pvt. Ltd., No.17/2, Dollars Chambers Lalbagh Road Bengaluru-560 027 PAN:AADCA 2415P
...Respondent
(By Mr. Nageshwar Rao, Advocate for Mallaharao.K, Advocate)
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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This ITA is filed Under Section 260-A of Income Tax Act 1961 praying to 1. Formulate the substantial questions of law stated above. 2. Allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bengaluru in IT(TP)A No. 444/Bang/2011 dated:09/11/2016, Annexure-D confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-1(1)(1), Bengaluru and etc.
This I.T.A. coming on for Orders, this day DR. VINEET KOTHARI J. delivered the following:-
JUDGMENT
Mr. Aravind K.V, Adv. for Appellants-Revenue Mr. Nageshwar Rao & Mallaharao.K, Adv. for Respondent-assessee
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, ‘A’ Bench, Bangalore, dated 09.11.2016 passed in IT(TP)A No.441/Bang/2011 (The Income Tax Officer vs. M/s.Acusis Software India Pvt. Ltd.) for A.Y.2004-05.
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- 1. “Whether on the facts and in the circumstances of the case, the Tribunal is right in law holding that the assign authority is not right in including expenditure incurred in foreign currency from export turnover and from total turnover by relying upon the decision of this Hon’ble Court in case of CIT V/s Tata Elxsi even when the assessing authority has rightly included the according to parameters set out in section 10A and the decision relied upon by the Tribunal has not reached finality”?
“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in erred in excluding certain comparable from list of comparable on the ground of
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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functional dissimilarity by following its earlier orders which has not reached finality and when the said companies satisfied qualitative and quantitative filters applied by Transfer Pricing Officer and they are functionally similar to that of assessee”?
“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority/transfer pricing officer to treat foreign gain as part of operating profit by relying on its earlier decisions which has not reached finality”?
“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to include certain comparable in list even when the TPO has chosen proper comparable by application of all required tests”?
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software 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 directing the assessing authority to exclude certain comparable in list even when the TPO has chosen proper comparable by application of all required tests.
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in following its earlier decision in case of 24/7 Customer.com.p.ltd which has not reached finality”?
Regarding 1st substantial question of law:-
The controversy is no longer res integra and is covered by the decision of the Division Bench of this Court in the case of M/s. Tata Elxsi Ltd., vs. Asst. Commissioner of Income Tax, decided on 20.10.2015 since reported in (2015) 127 DTR
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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0327 (Kar), which has been affirmed by 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:- “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
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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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.
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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. 20. Even in common parlance, when the object of the formula is to arrive at the
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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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”.
Regarding substantial question of law Nos.2 to 5:-
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to ‘Transfer Pricing’ and ‘Transfer Pricing Adjustments’ made by the concerned authorities below. We consider it appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:-
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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“In the circumstances, we are unable to agree with the submission that the company was engaged in software development. Hence we uphold the action of TPO/AO in including this company in the list of comparables.
(ii) M/s. Wipro BPO Ltd: The learned AR contends that this company cannot be compared with that of assessee company as it is functionally dissimilar having high brand value, goodwill and high turnover. The learned AR has placed reliance on the following decisions:
a. 24/7 Customer.Com Pvt. Ltd., b. Market Tools Research Private Limited
c. Deloitte Consulting India Pvt. Ltd., d. Maersk Global Service Center (India) P. Ltd., Vs. ACIT
On the other hand, the learned DR placed reliance on the orders of the lower authorities.
It is undisputed fact that the company Wipro BPO Ltd., is having high
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brand value, goodwill with high turnover. Now it is trite law that the company having high brand value and intangibles cannot be compared with a company rendering purely ITES services. And in this regard, reliance can be placed on the following decisions:
(a) Genisys Integratingn Systems (India) (P.) Ltd., Vs. Dy. CIT [2012] 2o taxman.com 715/53 SOT 159 (Bang.-Trib)
(b) Kodiak Networks (India) (P.) Ltd, V. Asstt.CIT[2012] 18 taxmann.com 32/51 SOT 191 (Bang-Trib.)
(c) Telcordia Technologies India (P.) Ltd., V.Asstt. CIT [2012] 22 taxmann.com 96/137 ITD 1 (Mum.-Trib.)
We do not find any reason to differ with the ratio laid down in the above cases. Therefore, we direct the TPO/AO to exclude this company from the list of the comparables.”
v) M/s. Mapro Industries Limited: The assessee company had pleaded for inclusion of this company as functionally comparable with the assessee
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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company. He further submitted that the company made profit in the financial year 2001-02. It is only in the financial year 2002-03, 2003-04 the company incurred losses on account of under utilization of resources. Thus according to the assesse company, this company is not a persistent loss company. Normal loss making company cannot be excluded following the law laid down by special bench in Quark Systems Pvt. Ltd. We heard the rival submissions. As held by us in the para supra that a comparable cannot be excluded only because it is making losses. It cannot be said that this company was persistently incurring losses and therefore this company cannot be excluded from the list of comparables. We place reliance on the following 2 decisions:
( i) Technimount ICB (P.) Ltd. V. Asstt. CIT [2011] 11 taxmann.com 49 (mum.)
(ii) ITO V. CRM Services India (P.) Ltd., [2011] 14 taxmann.com 96/48 SOT 41 (RO) (Delhi-Trib.)
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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Following the ratio laid down in the above cases, we direct the TPO/AO to include this company in the list of comparables. vi) M/s. Cosmic Global Limited: The assessee company is seeking inclusion of this company in the list of comparables. There is no dispute about the functional comparability with that of the assessee company. The CIT(A) deleted this company on account of loss making company.
We heard the rival submissions and perused the material on record. The reasoning given by us in respect of Mapro Industries holds good even in respect of this comparable. It is not the case of the TPO/AO that the company is incurring persistent losses. Therefore, we direct the TPO/AO to include this company in the list of comparables.”
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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Regarding substantial question of law No.6:-
Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the substantial question of law No.6. His submission is taken on record.
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.,) 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:
Date of Judgment 02-07-2018 I.T.A.No.443 /2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Acusis Software India Pvt. Ltd.,
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“ 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 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
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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.
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
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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.” 7. Having heard the learned counsels for the parties, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants- Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
Sd/- JUDGE
Sd/-
JUDGE