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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 10TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.186/2012
BETWEEN:
THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEEN’S ROAD BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(3), C.R. BUILDING QUEENS ROAD, BANGALORE.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. ELECTRONICS FOR IMAGING INDIA PVT. LTD., No.133, SALARPURIA HALLMARK KADUBEESANAHALLI BANGALORE-560 076.
…RESPONDENT (By Mr. S. SHARATH, ADV., FOR Mr. K.K. CHYTHANYA, ADV.,)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA No.1171/Bang/2010, DATED 31-01-2012 ANNEXURE-C AND
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants-Revenue Mr. S. Sharath, Adv. for Mr. K.K. Chythanya, Adv. for Respondent-assessee
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, Bangalore Bench ‘B’ (for short ‘Tribunal’) dated 31.01.2012 passed in ITA No.1171(Bang)/2010 for the A.Y.2006-07.
This appeal has been ADMITTED on 21.01.2013 to consider the following substantial questions of law as framed by the Revenue in the Memorandum of Appeal:
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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“1. Whether the Tribunal was correct in holding that the communication expenses and foreign currency expenditure reduced from export turnover should be reduced from the total turnover also, in the absence of any provisions to this effect in Section 10A of the Act?
Whether the Tribunal correct in remitting bank all the issues to the file of AO when there are no fresh facts brought before the Hon’ble ITAT apart from those which are already discussed in the order of the Assessing Officer/Transfer Pricing Officer?
Whether the Tribunal correct in directing the AO to consider only those uncontrolled comparables which are having turnover between Rs.1 crore to Rs.200 crores, without appreciating that the direction is against the method of arithmetical average of the operating margins and profit level indicators of uncontrolled comparables as per the proviso to section 92C(2) of the Act?
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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Whether the Tribunal was correct in directing the Assessing Officer to apply turnover filter of turnover between Rs.1 crore to Rs.200 crores without any evidence in support of a correlation between the turnover and the profitability margin?
Whether the Tribunal correct in holding that the assessee is eligible for a standard deduction of 5% from the Arm’s Length price under the proviso to Section 92C(2) of the Act, without considering the corrigendum dated 30-04-2010 to the circular 5/2010 issued by the Board in this regard?
Whether the Tribunal was correct in directing cross examination in the case of comparables where information was gathered in terms of provisions of section 133(6) of the Act, without appreciating that no cross examination is warranted as it was a process of gathering information and any examination of evidence is not involved and recorded a perverse finding?”.
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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Regarding substantial question of law No.1:- 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 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
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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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 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
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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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”.
Regarding substantial question of law No.2:-
Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the substantial question of law No.2. His submission is taken on record.
The learned Tribunal, after discussing the rival contentions of both the appellants-Revenue and the Respondent-assessee, has returned the findings as under:
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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Regarding substantial question of law Nos.3,4, 5 and 6:- “9. We have heard rival submissions and considered the facts and materials on record including the contents of the paper books and the case-laws cited therein. After consideration of the entire submissions in the light of the facts of the case before us and following the decision of the Tribunal in the case of M/s.Genesis Integrating Systems (India) Pvt. Ltd., we deem it fit and proper to accept the contention of the assessee that the matter is to be remitted back to the file of the TPO for fresh consideration. Hence, we are remitting the matter to the file of the TPO with the following directions:
(i) The operating revenue and the operating cost of the transactions relating to associated enterprises only shall be considered.
(ii) The comparables having the turnover of more than Rs.1 crore but less than Rs.200 crores only shall be taken into consideration.
(iii) All the information relating to comparables which are sought to be
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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used against the assessee shall be furnished to the assessee.
(iv) The assessee shall be given an opportunity to cross examine the parties whose replies are sought to be used against the assessee if the assessee so desires.
(v) To consider the objections of the assessee that relate to additional comparables sought to be adopted by the TPO and pass a detailed order, and
(vi) to give the standard deduction of 5% under the proviso to sec.92C(2) of the Act.”
The controversy involved herein is no more res integra in view of the decision of 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.,) wherein it has been observed that in these type of cases, unless an ex-facie perversity in the findings of the learned Income
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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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 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
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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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.
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.
Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd.,
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The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 7. 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. Hence, the appeal filed by the appellants-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE