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1/11 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.Nos.253-254/2012
BETWEEN:
COMMISSIONER OF INCOME TAX-III REVENUE BUILDINGS QUEENS ROAD, BANGALORE-560001.
THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 12(3), BANGALORE.
…APPELLANTS (By Mr. JEEVAN J. NEERALGI, ADV.)
AND:
M/S. TIMKEN ENGINEERING & RESEARCH INDIA PVT. LTD., Sy.No.(s), 39(P), 41(P), 42(P) ELECTRONIC CITY PHASE II DODDATHOGUR VILLAGE BEGUR HOBLI TALUK BANGALORE SOUHT DISTRICT BANGALORE-560 100.
…RESPONDENT (By Mr. A. SHANKAR & Mr. M. LAVA ADVS.)
THESE I.T.A.s ARE 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 DATED 24/02/2012
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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PASSED BY THE ITAT ‘A’, BENCH, BANGALORE IN ITA No.974/Bang/2008 & ITA No.983/Bang/2008, ANNEXURE-A IN THE INTEREST OF JUSTICE & EQUITY.
THESE I.T.A.s COMING ON FOR HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Jeevan J. Neeralgi, Adv. for Appellants-Revenue Mr. A. Shankar & Mr. M. Lava, Advs. 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 common order of the Income Tax Appellate Tribunal, Bangalore Bench ‘A (for short ‘Tribunal’) dated 24.02.2012 passed in I.T.A.Nos.974/Bang/2008 and 983/Bang/2008 for the A.Y.2004-05.
The proposed substantial questions of law framed in the memorandum of appeal by the appellants- Revenue are quoted below for ready reference:
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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“1. Whether the tribunal’s order can be said as perverse as tribunal has followed the judgment of this Hon’ble High Court in the case of CIT vs. Tata Elxsi Ltd., even though SLP filed by Revenue against said order is pending before the Hon’ble Supreme Court?
Whether the tribunal’s order can be said as perverse as tribunal has followed it’s earlier judgment passed in the case of M/s. Genisys Integrating Systems (India) Pvt Ltd and SAP Labs even though the said orders have been challenged before this Hon’ble Court in ITA No.23 and 24 of 2011 and ITA No.17/2012 by the revenue which are pending before this Hon’ble High Court?
Whether on the facts and circumstances of the case, the tribunal is correct in law in holding that foreign exchange fluctuation gains constitute part of operating revenues of the assessee for purpose of determination of arms length price under the provisions of Section 92-C of the Income Tax Act, 1961?
Whether tribunal is justified in rejecting arms length price determined by Transfer Pricing Officer and whether the rejection of same is
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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sustainable in law even when no valid reasons are assigned by tribunal?
Whether the tribunal is correct in law in interpreting the proviso to sub-section (2) of section 92-C of the I.T. Act as mandatorily providing for deduction of + 5% benefit and whether such interpretation is sustainable having regard to subsequent amendment by the Finance Act, 2009 being of clarificatory in nature?”.
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).
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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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 turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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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 appellants-Revenue and the Respondent-assessee, has returned the findings as under:
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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(i) Regarding substantial question of law No.2:-
The appeals-ITA No.24/2011 (M/s SAP India Pvt. Ltd.,) and ITA No.17/2012 (M/s. Genisys Integrating Systems (India) Pvt Ltd) filed by the appellants-Revenue are dismissed by this Court on 09.07.2018.
(ii) Regarding substantial question of law Nos.3 and 4:- “3.7.5 In the present case also, the documents furnished by the assessee are vital which go to the root of the present controversy, so these are to be admitted in the interest of natural justice but these documents are required to be examined and considered at the level of the AO. We, therefore, set aside the impugned order and remand the present issue back to the file of the AO to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
3.7.7 In view of the above, the impugned order of the ld. CIT(Appeals) is set aside and the issue is remanded back to the file of the AO for fresh
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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adjudication in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. As stated earlier, the Assessing Officer shall consider whether the issue that is raised in the instant case is covered by the dictum laid down by the Tribunal in the case of M/s Genisys Integrating Systems (India) Pvt. Ltd. It is ordered accordingly.”
(iii) Regarding substantial question of law No.5:- “3.7.2 The issue of standard deduction of 5% as provided under the proviso to section 92A(2) before making adjustment for price is squarely covered by various orders of the Tribunal namely, M/s Genisys Integrating Systems (India) Pvt. Ltd., M/s Sap Labs India Pvt. Ltd. v ACIT 2010-TII-44- ITT-BANG-TP, Philips Software Centre Pvt. Ltd. 26 SOT 226 and MSS India Private Limited 32 SOT 132.”
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 &
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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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 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
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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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.
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
Date of Judgment 10-07-2018 I.T.A.Nos.253-254/2012 Commissioner of Income-tax-III & Anr. Vs. M/s. Timken Engineering & Research India Pvt. Ltd.,
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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.” 6. 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 cases. Hence, the Appeals filed by the Appellant-Revenue are liable to be dismissed and are accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE