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1/16 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.123/2014
BETWEEN :
COMMISSIONER OF INCOME TAX-III CENTRAL REVENUE BUILDINGS, QUEENS ROAD, BANGALORE-560 001.
INCOME TAX OFFICER, WARD-12(2) BANGALORE. ... APPELLANTS
(By Sri. JEEVAN J.NEERALGI, ADV. )
AND
M/S. SYMBOL TECHNOLOGIES INDIA PVT. LTD., RMZ-ECOSPACE, 4TH FLOOR, BLOCK 3B, SARJAPUR OUTER RING ROAD, DEVARADISANAHALLI, VARTHUR HOBLI, BANGALORE-560 037. ... RESPONDENT
(By Ms.MANASA ANANTHAN, ADV. FOR Sri. T. SURYANARAYANA, ADV.)
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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THIS ITA / INCOME TAX APPEAL IS UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31/10/2013 PASSED IN IT(TP)A NO.15/BANG/2013, FOR THE ASSESSMENT YEAR 2008-09 PRAYING 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 ORDERS DATED: 31/10/2013 THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH, BANGALORE IN IT(TP)A NO. 15/BANG/2013 FOR ASSESSMENT YEAR 2008-09.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr.JEEVAN J.NEERALGI, Adv. for Appellants – Revenue. Ms.Manasa Ananthan, Adv. for Mr.T.Suryanarayana, 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, ‘C’ Bench, Bangalore, in IT [TP] A No.15/Bang/2013 dated 31.10.2013 relating to the Assessment Year 2008-09.
This Appeal has been admitted on 24.02.2015 to consider the following substantial
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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questions of law as framed by the Revenue in the Memorandum of Appeal: “1, Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding Avani Cincom Technologies, Celestial Labs Ltd, Infosys Technologies Ltd, KALs Information Systems Ltd, Tata Elxsi Ltd., Thirdware Solutions Ltd & Wipro Ltd., by placing reliance on its own order in the case of Trilogy E-Business Software India Ltd., order of Mumbai ITAT in the case of Telecordia Technologies India P Ltd., and ITAT Bangalore in the case of 24/7 Customer Pvt. Ltd., without appreciating the functional similarity of the assessee company with the above comparables without going into merits of each of the case ?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to examine the PLR whereas the TPO has already correctly adopted the PLR as per the OECD Guidelines 2009 ?
Whether on the facts and in the circumstances of the case, the Tribunal was
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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justified in law in holding that the reimbursement of travelling expenses and internet charges incurred in foreign currency, and foreign exchange loss from total turnover as well as from export turnover for computation of deduction u/s.10A whereas such exclusion is permitted to arrive at export turnover only as per the definitions given in Sec.10A of the IT Act and total turnover has not been defined in the Section ?
Whether the Tribunal is correct in law holding that the deduction u/s 10A should be computed in the above manner following the judgment of jurisdictional High Court in the case of CIT –vs-Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs filed by the revenue on this issue are pending before the Hon’ble Supreme Court ?”
Regarding Substantial Question Nos. 3 & 4: 3. The issue is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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 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
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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 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 Appellant-Revenue and
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1 “ Avani Cincom Technologies Ltd: 8.5.1. We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under Section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Non- furnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the section of this company as a comparable.
8.5.3 We find that facts of the case on hand and the arguments adduced by the assessee are also similar to that put forward in the
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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cited case. Therefore following the aforesaid decision of the co-ordinate bench of the Tribunal in the case of Curam Software International Pvt. Ltd. (supra), the issue of the comparability of this company is restored back to the file of the A.O/TPO for fresh examination, by considering the above, with a direction that the assessee shall be afforded adequate opportunity of being heard and make submissions in the matter and which shall be duly considered.
“9. (2) Celestial Biolabs Ltd: 9.5.1 We have heard both parties and carefully perused and considered the material on record including the judicial decisions cited. As discussed earlier, there is merit in the contention of the learned Department Representative that the ruling of the co- ordinate bench of this Tribunal in the case of Triology E-Business Software India Pvt. Ltd. (supra), was with respect to the facts relevant to an earlier financial year and there cannot be an assumption that it would continue to be applicable to all other assesses for this year
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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as well. At the same time, we find that the TPO also seems to have selected this company as a comparable, based on the reasoning given in the TPO’s order for the earlier year i.e. F.Y. 2006-07. Evidently, in this view of the matter, the TPO has not conducted any independent FAR analysis for this company for the year under consideration and therefore the selection process adopted by the TPO is defective.
9.5.2 Further, besides relying on the decision of the co-ordinate bench in the case of Triology E-Business Software India Pvt. Ltd. (supra), the assessee has demonstrated that the finding given therein for Assessment Year 2007-08 is applicable for this year also. Further, the assessee has also brought on record substantial evidence by quoting from various portions of the Annual Report that this company is functionally different from the assessee and hence is not comparable to the assessee in the case on hand. We agree with the submissions made by the assessee, that as per the details from the Annual Report of this company, it is functionally different from
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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the assessee. In view of the fact that the financial profile and other parameters of this company have not changed during the year under consideration, which fact has been demonstrated by the assessee, following the decision of the co-ordinate bench of this Tribunal in the case of Triology E-Business Software India Pvt. Ltd. (supra), we hold that the company ought to be excluded from the list of comparables. It is ordered accordingly.
10.0 (3) KALS Information Systems Ltd:
10.4.1 We have heard both parties and.perused and carefully considered the material on record including the judicial decisions cited. As discussed earlier in this order, there is merit in the contention of the learned Departmental Representative that the ruling rendered in the case of Triology E- Business India Pvt. Ltd. (supra) was with respect to an earlier period i.e. F.Y. 2006-07 and there cannot be an assumption or presumption or presumption that it is applicable for the year under consideration as
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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well. At the same time, we find that the TPO has drawn conclusions on the basis of information obtained under section 133(6) of the Act, which was not in the public domain and could not have been used by the TPO, when the same is contrary to the Annual Report of the company as has been highlighted by the assessee in its submissions. We also find that the co- ordinate bench of this Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) has held that this company was developing software products and was not purely or mainly a software development service provider. Further, apart from relying on the decision of Trilogy E-Business Software India Pvt. Ltd. (supra), the assessee has brought on record substantial evidence quoting from various portions of the Annual Report of that this company is functionally dis-similar and different from the assessee and hence is not comparable and therefore the finding rendered in respect of this company in the case of Trilogy E-Business Software India Pvt. Ltd. for Assessment year
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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2007-08 is applicable for this year i.e. Assessment year 2008-09 also. 10.4.2 This issue has been considered by a co-ordinate bench of this Tribunal in the case of Curam Software International Pvt. Ltd. in ITA No.1280/Bang/2012 dt.31.7.2013, wherein at para 11.4 thereof it has been held that this company has to be omitted from the set of comparables for the year under consideration. Respectfully following the aforesaid decision, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted from the final set of comparable companies in the case on hand for the year under consideration i.e. Assessment Year 2008-09. It is ordered accordingly.
For the similar reasons, the Tribunal has excluded other comparables also. 6. Learned counsel for the appellants does not press substantial question No.2. Submission is taken on record.
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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- 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 Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares
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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 filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
Date of Judgment 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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 12-07-2018, ITA No.123/2014 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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
ln.