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1/20 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.586/2017
BETWEEN :
THE PR. COMMISSIONER OF INCOME-TAX CIT (A) 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(2), PRESENT ADDRESS, CIRCLE-2(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND :
M/s CYPRES SEMICONDUCTORS TECHNOLOGY PVT. LTD., C BLOK, BAGMANE TECHPARK, C.V. RAMAN NAGAR, BENGALURU-560 093, PAN: AABCC 2470Q
…RESPONDENT
(BY SRI SANDEEP HUILGOL, ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 07.02.2017
Date of Judgment 02-07-2018, ITA No.586/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Cypres Semiconductors Technology Pvt. Ltd.
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PASSED IN ITA NO.463/BANG/2013, FOR THE ASSESSMENT YEAR 2008-2009. 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 ITA NO.463/BANG/2013 DATED 07.02.2017 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Sandeep Huilgol, 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, ‘B’ Bench, Bangalore, in IT [TP] No.463/Bang/2013 dated 07.02.2017 (The Deputy Commissioner of Income Tax – v- M/s Cypres Semiconductors Technology Pvt. Ltd.,) relating to the Assessment Year 2008-09.
The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
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“1. Whether on the facts and circumstances of the case, the Tribunal is correct in directing the assessing officer to exclude expenses incurred in foreign currency and other expenses that has been excluded from ETO, from the total turnover also and accordingly recomputed the deduction under Section 10A without appreciating the fact that there is no provision in Sec.10A that such expenses should be reduced from the total turnover also as clause (iv) of the Explanation 2 to Sec, 10A provides that such expenses are to be reduced only from the export turnover ? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable’s on the ground of functional dissimilarity even when Transfer Pricing Officer has rightly chosen the same considering its functions which are similar to assessee’s and has satisfied all the required tests and without doing an FAR analysis of the taxpayer with those other cases ? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable even
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when the said decisions relied upon by Tribunal has not reached finality and TPO has chosen the comparable after applying all the required tests ? 4.
Whether on the facts and circumstances of the case, the Tribunal is right in law in retaining certain comparable’s by following its earlier order which has not reached finality TPO has chosen the comparable arfter applying all the required tests ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the relief to the assessee for deduction under Section 10A in respect of Lara Unit (STPI Unit-II) of Rs.5,27,61,580/- relying on the assessee’s own case for the assessment years 2002-03 to 2004-05 which was later confirmed by this Hon’ble Court in ITA No.1013/2008 connected with ITA No.1014/2008 and 1015/2008 dated 7/11/2014 even though the said decisions have not reached finality?”
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Learned counsel for the appellants does not press substantial question Nos.4 and 5. Submission is taken on record.
Regarding Substantial Question No.1: 4. The issue raised in the present appeal as to the deduction of expenditure incurred for ‘Export Turn Over’ is also required to be deducted from ‘Total Turn Over’ for the purpose of computing the deduction u/s.10A of the Act, 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).
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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 02-07-2018, ITA No.586/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Cypres Semiconductors Technology Pvt. Ltd.
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XXXXXX
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 Respondent-Assessee, has returned a finding with regard to question Nos. 2 and 3 as under:
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“8. The first comparable as per this chart is M/s Avani Cimcon Technologies.
The turnover of this company is Rs.2.93 Crores and the turnover of the assessee company is Rs.90.00 Crores approximately and therefore, the turnover of this company is less than 1/10th of the turnover of the assessee company. Hence, by applying this turnover filter of 1/10th or 10 times of the turnover of the assessee company, this company is to be excluded from the list of final comparables. We uphold the order of the Id. CIT(A) regarding this comparable.
The second comparable is M/s Bodhtree Consulting Ltd. This Company was excluded by the Id. CIT(A) on this basis that services provided are in the nature of ITES and no break-up of segmental data is available and also for this reason that this is functionally different and we find that exclusion of this company is squarely covered in favour of the assessee by the Tribunal order rendered in the case of GXS India
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Technology Centre Pvt. Ltd. Vs ITO in IT(TP)A No.1444/Bang/2012 dated 31.07.2015 for the same assessment year 2008-09, copy of which is available on pages 38 to 86 of the case laws paper book. Respectfully following this Tribunal order, we decline to interfere in the order of the Id. CIT(A) about exclusion of this comparable.
The third comparable as per the chart is M/s Celestial Biolabs. Exclusion of this company is also squarely covered in favour of the assessee by the same Tribunal order rendered in the case of M/x GXS India Technology Centre Pvt. Ltd (Supra) and therefore, regarding this comparable also, we decline to interfere in the order of the Id. CIT(A).
The fourth comparable as per char is M/s e-zest Solutions Ltd. This comparable was retained by the Id. CIT(A) but since this company is having turnover of only Rs.7.66 Crores which is less than 1/10 of the turnover
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of the assessee company, we hold that this company does not satisfy the turnover filter of 1/10th of turnover of assessee company and therefore, we exclude this company from the list of final comparables.
The fifth comparable as per the chart is M/s Flextronics (Arient). Regarding this comparable, it is submitted by the assessee in the chart that this company is having a turnover of Rs.954.42 Crores and therefore, this company’s turnover is in excess of 10 tines of assessee’s turnover and therefore, we find no reason to interfere with the order of the Id. CIT(A) Regarding this comparable also.
The sixth comparable as per the chart is iGate Global Solutions Ltd. It has been fairly conceded by the Id. AR of the assessee that this company may be retained in the list of final comparables because this company satisfies the turnover filter of 1/10th or 10 times of turnover and the Id. CIT(A) excluded
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this company by applying the turnover filter of Rs.One Crore to Rs.200 Crores filter. Hence, we reverse the order of the Id. CIT(A) regarding exclusion of this comparable and direct the TPO to include this company in the final list of comparables.
The next company as per the chart is M/s Infosys Ltd. And this company is having turnover of Rs.15672 Crores and this company has to be excluded by applying the turnover filter of 10 times of turnover filter. Accordingly, we decline to interfere with the order of the Id. CIT(A) regarding exclusion of M/s Infosys Ltd.
The next comparable as per the chart is M/s Kals Informatin Systems Ltd.(Seg). The turnover of this company is Rs.2.05 Crores and therefore, this company has to be excluded because the turnover of this company is less than 1/10 of the assessee’s turnover. Therefore, we decline to interfere
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with the order of the Id. CIT(A) regarding exclusion of this comparable.
The Ninth comparable as the chart is M/s LGS Global Ltd. This comparable was retained by the Id. CIT(A) and we find no reason to interfere with the order of the Id. CIT(A) regarding this comparable.
The tenth comparable as per the chart is M/s Mindtree Ltd. (Seg.). The Id. AR of the assessee fairly conceded that this company has to be included in the final list of comparable because this company was excluded by the Id. CIT(A) by applying turnover filter of Rs.200 Crores. But if we apply the turnover filter of 10 times of the turnover of the assessee company, this company is a good comparable, Accordingly, we reverse the order of the Id. CIT(A) regarding exclusion of this company and direct the TPO/AO to include this company in the list of final comparables.
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The eleventh comparable in the chart is M/s Presistent Systems Ltd. As per the chart, the Id. AR of the assessee submitted that that the Id. CIT(A) excluded this company by applying the turnover filter of Rs.200 Crores but turnover of this company at Rs.383.41 Crores is less than 10 times of the assessee complany’s turnover and therefore, by applying this turnover filter, this company cannot be excluded but this company has to be excluded for this reason that this company is not functionally comparable as has been held by the Tribunal in the case of M/s GXS (Supra).
By respectfully following this Tribunal order, we decline to interfere with the order of the Id. CIT(A) regarding exclusion of this company although on a different basis i.e. on the basis of functional dissimilarity.
The 12th comparable as per the chart is M/s Quintegra Solution Ltd. The exclusion of this company is squarely covered in favour of the assessee by the same Tribunal order rendered in the case of M/s GXS (Supra) and
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respectfully following the same, we decline to interfere with the order of the Id. CIT(A) on this issue.
Comparable nos.13th & 14th in the chart are M/s R Systems International Ltd. and M/s R.S.Software (Ind.) Ltd. Both these comparables were retained by the Id. CIT(A) and we find no reason to interfere with the order of the Id. CIT( A) regarding these two comparables.
Comparable no.15 as per chart is M/s Sasken Communication Technologies Ltd. (Seg.) This comparable was excluded by the Id. CIT(A) by applying the high turnover filer of Rs.200 Crores because this company was having a turnover of Rs.335.80 Crores. It was fairly conceded by the Id. AR of the assessee that since we are applying the turnover filter of 10 times of assessee company’s turnover, this comparable is a good comparable and accordingly, we reverse the order of the Id. CIT (A) on this aspect and direct the TPO/AO
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to include this company in the final list of comparables.
For Comparable no.16 &17 i.e. M/s Elxsi Ltd. (Seg.) and M/s Thirdware Solutions Ltd., we find that the exclusion of these two comparables is squarely covered in favour of the assessee by the same Tribunal order rendered in the case of M/s GXS (Supra). Respectfully following this Tribunal order, we decline to interfere with the order of the Id. CIT(A) regarding exclusion of these two comparables.
Comparable no. 18 in the chart is M/s Wipro Ltd (Seg.) and this company has to be excluded as per the same Tribunal order rendered in the case of M/s GXS (Supra) and accordingly, regarding exclusion of this company also, we decline to interfere with the order of the Id,. Cit(A).
Comparable no.19 in the chart is M/s Softsol India. As per the Tribunal order
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rendered in the case of M/s GXS (Supra), the issue regarding exclusion of this company was restored back to the file of AO/TPO to find out the RPT percentage of this company which is claimed to be 18.38% and if it is found that the RPT percentage is more than 15% then this comparable should be excluded by applying the RPT filter. Respectfully following this Tribunal order, in the present case also, we restore the matter back to the file of the AO/TPO to find out the RPT percentage of this company with the direction that if it is found that RPT percentage of this company is more than 15% then this company should be excluded from the list of final comparables. If the same is less than 15% then it should remain in the list of final comparables.
The comparable no.20 in the chart is M/s Lucid Software Ltd. This company is having a turnover of Rs.2.35 Crores which is less than 1/10th of assessee’s turnover and therefore, by applying this turnover filter of 1/10th
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turnover, we decline to interfere with the order of the Id. CIT(A) regarding exclusion of this company from the list of final comparables.
Comparable no.21 in the chart is M/s Indus Networks Ltd. The Id. CIT (A) directed to include this company in the final list of comparable but by following the Tribunal order rendered in the case of DCIT Vs M/s PMC Sierra India Pvt. Ltd. In IT (TP) A No.882 (Bang)/2013 dated 26.08.2016, copy available on page-174 to 220 of case laws paper book, we reverse the order of the Id. CIT (A) and hold that this company should not be included in the final list of comparables.”
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
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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 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
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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
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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. Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE ln.