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1/8 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.340/2012
BETWEEN:
COMMISSIONER OF INCOME TAX-III CENTRAL REVENUE BUILDING QUEENS ROAD, BANGALORE-560001.
THE INCOME TAX OFFICER WARE 12(3), BANGALORE.
…APPELLANTS (By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. SAP LABS INDIA PVT. LTD., NO.138, EXPORT PROMOTION INDUSTRILA PARK WHITEFIELD, BANGALORE-560 066.
…RESPONDENT (By Mr. P. DINESH, ADV.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS STATED THEREIN. SET ASIDE THE COMMON APPELLATE ORDER DATED 04/05/2012 PASSED BY THE ITAT, ‘B’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS ITA No.1417/Bang/2008, ANNEXURE-A AS SOUGHT FOR IN THIS APPEAL.
Date of Judgment 10-07-2018 I.T.A.No.340/2012 Commissioner of Income Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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THIS I.T.A. COMING ON FOR HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr.E.I.Sanmathi, Adv. for Appellants - Revenue Mr.P.Dinesh, Adv. for Respondent - Assessee
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Bangalore Bench ‘B’, Bangalore, dated 04.05.2012 passed in ITA No.1417/Bang/2008 (M/s.SAP Labs India Pvt. Ltd., vs. Income-tax Officer) for A.Y.2004-05.
The proposed substantial question of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- “(a) Whether the tribunal was justified in law in holding that profit on cost of the comparable companies (M/s. VMF Softech Ltd. & M/s. iPower Solutions Ltd.) is abnormal and
Date of Judgment 10-07-2018 I.T.A.No.340/2012 Commissioner of Income Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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therefore these companies have to be excluded from the set of comparables? (b) Whether the tribunal was justified in law in including foreign exchange gain as part of operating revenues even though foreign exchange gain is nothing to the business operations of the company and is dependent on external factors like money supply, inflation, Govt. policy etc? (c) Whether the tribunal was justified in law in equating business income/sales with operating revenues and thus concluding that foreign exchange gain forms 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? (d) Whether tribunal is justified in rejecting comparable cases adopted by transfer pricing officer for purpose of determination of arms length price and whether the rejection of such comparables by the tribunal is sustainable in law?”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings
Date of Judgment 10-07-2018 I.T.A.No.340/2012 Commissioner of Income Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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against Revenue with regard to various issues raised before it with regard to ‘Transfer Pricing’ and ‘Transfer Pricing Adjustments’ made by the concerned authorities below. We consider it appropriate to quote the relevant portions hereunder:- “22. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the Assessing Officer although accepted the comparable which were quoted by the assessee, however, the assessee had shown its prima facie case to exclude the three comparable for the purposes of determining the ALP. On a similar issue, the ITAT, Chandigarh Special Bench in the case of DCIT v. Quark Systems (P) Ltd., (2010) 38 SOT has held as under:
xxxxxxxxxxxxxx 13. After considering the submissions of both the parties and the materials available on record, it is noticed that a similar issue has been decided in favour of the assessee by the ITAT ‘A’ Bench in assessee’s own case which is reported at 44 SOT 156. Relevant findings has been given
Date of Judgment 10-07-2018 I.T.A.No.340/2012 Commissioner of Income Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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in para 42 of the said order which reads as under:
xxxxxxxxxxxxxx
Respectfully following the aforesaid referred to order in assessee’s own case, the present issue is decided in favour of the assessee”.
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.,) 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. The relevant portion of the said judgment is quoted below for ready reference: “ Conclusion:
Date of Judgment 10-07-2018 I.T.A.No.340/2012 Commissioner of Income Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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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 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
Date of Judgment 10-07-2018 I.T.A.No.340/2012 Commissioner of Income Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsels for the parties, we are therefore of the opinion that no substantial question of law arises in the present case
Date of Judgment 10-07-2018 I.T.A.No.340/2012 Commissioner of Income Tax-III & Anr. Vs. M/s. SAP Labs India Pvt. Ltd.,
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also. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
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