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1/14 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.181/2012
Between:
The Commissioner of Income-tax, C.R. Building, Queens Road, Bangalore.
The Deputy Commissioner of Income-tax, Circle-11(3), C.R. Building, Queens Road, Bangalore.
…Appellants (By Mr. Aravind K.V. Advocate)
And:
M/s. Genesis Microchip (I) Pvt. Ltd., (now merged with M/s. ST Microelectronic Pvt., Ltd.,) Level 4, Ferns Icon, No.28 & 36/5, Doddanakundi Village, K.R. Puram Hobli, PAN: AACCC 1734G.
…Respondent (By Mr. Vijayaraghavan R. Advocate)
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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This I.T.A. is filed under Section 260-A of Income Tax Act 1961, praying to: 1. Formulate the substantial questions of law stated therein. 2. Allow the appeal and set aside the orders passed by the Income-Tax Appellate Tribunal, Bangalore in ITA No.1254/Bang/2010 dated 31-01-2012 Annexure –D and confirm the order of the Appellate Commissioner confirming the order passed by the Income Tax, Circle-11(13), Bangalore, in the interest of justice & equity etc.
This I.T.A. coming on for Admission, this day S. Sujatha J. delivered the following:-
J U D G M E N T
Mr. Aravind K.V. Adv. for Appellants – Revenue Mr. Vijayaraghavan R. Adv. for Respondent - Assessee
The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bangalore Bench “A”, Annexure D dated 31/01/2012 in ITA.No.1254/Bang/2010 for AY 2006-07.
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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The Revenue has suggested six substantial questions of law, which are quoted below for ready reference:- “1. Whether the Tribunal was correct in holding that the communication expenses are required to 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 was correct in remitting back all the issues to the Assessing Officer when there are no fresh facts brought before the Tribunal from those which are already discussed in the order of the Assessing Officer/Transfer Pricing Officer?
Whether the Tribunal was correct in directing the Assessing Officer 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 profit lever indicators of
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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uncontrolled comparables as per the proviso to section 92C(2) of the Act?
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 was correct in directing cross examination in the case of certain comparables in whose cases information was gathered in terms of the provisions of section 133(6) of the Act and without appreciating that no cross examination is warranted under the Indian Evidence Act, as it is a process of gathering information and that examination of any evidence is not involved in the process and therefore, there is no scope for any cross examination?
Whether the Tribunal was correct in holding that the assessee is eligible for a standard deduction of 5% from the arms
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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length price and the proviso to section 92C(2) of the Act, without considering the corrigendum dated 30.04.2010 to the circular No.5/2010 issued by the Board in this regard?”
The learned counsel appearing for the Appellants – Revenue, Mr.K.V. Aravind submitted that he does not press substantial question Nos.2 to 4 raised in the present appeal.
In so far as the first substantial question of law is concerned, the same is covered by the decision of the Hon’ble Apex 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:-
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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“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.
XXXXXX
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) 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.
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”.
In so far as the fifth and sixth substantial questions of law raised by the Revenue are concerned, the learned counsel for the Revenue submitted that the
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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learned ITAT in its Order dated 31/01/2012 has given the findings, the relevant portion of which is quoted below for ready reference:-
“17. Having heard both the parties and having considered the rival contentions, we find that the assessee had adopted 44 comparables while the TPO has adopted 20 companies as comparables, which are as under:
Out of these companies, the assessee is mainly aggrieved by the adoption of Infosys Technologies Ltd., KALS Information System Ltd., Accel Transmatic Ltd. and Floctronics Software System Ltd. We find that the TPO has his given reasons for adopting these companies as comparables on the basis of the data obtained by him on account of notices issued u/s 133(6) of the Income-tax Act. However, the learned counsel for the assessee has brought before us various differences which will have to be taken into account while considering these companies as comparables. The information
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acquired by the TPO u/s 133(6) was no doubt provided to the assessee. However, the assessee was not allowed to rebut the said information by way of any evidences. Now similar issues had arisen under similar facts before us in the case of Genesis Integrating System India Pvt. Ltd., Bangalore and this Tribunal vide orders dated 5.8.2011 had answered the various issues raised by the assessee therein and has also issued guidelines for adoption of comparables and has also directed the TPO to allow the assessee to cross examine the comparables whose replies were sought to be used against the assessee if the assessee so desires. In view of the same, we feel that justice would be done if the issue of dealing with the objections of the assessee regarding the comparables adopted by the TPO is remitted ITA No.1254/B/10 17 back to the file of the Assessing Officer with a direction to follow the guidelines issued by this Tribunal in the case of Genesis Integrating System India Pvt. Ltd., Bangalore. The copy of the order of the Tribunal in the case of Genesis Integrating
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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System India Pvt. Ltd., Bangalore shall be appended to this order as part of this order.
In the result, the issue of transfer pricing adjustment is remitted back to the file of the AO for reconsideration and the appeal is accordingly allowed for statistical purposes.
As regards the ground No.14 is concerned, we find this issue is already covered in favour of the assessee by various decisions of this Tribunal and the assessee has also placed reliance upon the decisions of the Hon’ble Pune Bench in the case Starent Networks (I) Pvt. Ltd., in ITA No.1350/Pune/2010, whereby it has been held that benefit of + range should be provided under the proviso to sec. 92CA of the Income-tax Act and the amendment was not only prospective and not applicable to the said assessment year.
In view of the same, we direct the AO to give the benefit of +5% range while making the adjustment of the ALP.”
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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However, this Court in a recent judgment in I.T.A.No.536/2015 c/w. I.T.A.No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) rendered on 25-06-2018, 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: “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
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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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 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
Date of Judgment 10-07-2018 I.T.A.No.181/2012 The Commissioner of Income-Tax & Anr. Vs. M/s. Genesis Microchip (I) Pvt., Ltd.,
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsel for the appellant – Revenue, this Court is satisfied that no
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substantial question of law would arise in the present case and the appeal filed by the Revenue is therefore, liable to be dismissed. Accordingly, it is dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
BMV*