1[CASE NUMBER]12 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 3RD DAY OF JULY 2018 PRESENT THE HON'BLE DR.JUSTICE VINEET KOTHARI AND THE HON'BLE MRS.JUSTICE S.SUJATHA I.T.A.No.595[CASE NUMBER]2017 BETWEEN : 1. THE Pr. COMMISSIONER OF INCOME-TAX, CIT[A] 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11[5], PRESENT ADDRESS CIRCLE-3[1][1], 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA BENGALURU-560095. APPELLANTS (BY SRI K.V.ARAVIND, ADV.) AND : M[CASE NUMBER]s. LOGIX MICROSYSTEMS LTD., 177[CASE NUMBER]2-C, PB No.7620 BILEKAHALLI INDL. AREA BANNERGHATTA ROAD BENGALURU-560076 PAN: AAACL 3000E. RESPONDENT (BY SRI S.SHARATH, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 22.02.2017 PASSED IN IT[TP]A NO.280[CASE NUMBER]BANG[CASE NUMBER]2014, FOR Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], 2[CASE NUMBER]12 THE ASSESSMENT YEAR 2009-2010 AT ANNEXURE-D, PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT[TP]A No.280[CASE NUMBER]BANG[CASE NUMBER]2014 DATED 22.02.2017 AT ANNEXURE-D CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3[1][1], BENGALURU AND ETC. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JUDGMENT
Mr. [ENTITY], Adv. for Appellants - Revenue. Mr. [ENTITY], 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, Bangalore Bench 'B', Bangalore, in [CASE NUMBER][CASE NUMBER][CASE NUMBER] dated 22.02.2017, relating to the Assessment Year 2009-10.
2. The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
"1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], holding that the expenses and foreign exchange loss reduced from the Export Turnover has to be reduced from the Total Turnover also following the ratio laid down by this Hon'ble Court in the case of [PRECEDENT], even when the said decision has been challenged before Apex Court by Revenue and no provision under [SECTION] provides for exclusion of such expenses from total turnover?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable from list of comparable adopted by TPO on the ground of functional dissimilarity by following its earlier which has not reached finality even when said decisions have not reached finality and all the requires tests are satisfied?
3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable even when the said comparable are chosen as all the required tests are satisfied?
4. Whether on the facts and in the circumstances of the case, it is submitted that Tribunal is Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], right in law in excluding comparable on the basis of turnover filer by following its earlier decision which has not reached finality and even the said comparable satisfies the required filters as prescribed under the parameters of the Transfer Pricing Provisions?
5. Whether, on the facts and in the circumstances of the case, the Tribunal has also erred in excluding comparable's on the basis of RPT filter being less than 25% by following its earlier decision which has reached finality not even when the comparable's are chosen as all the required tests are satisfied?"
3. Learned Counsel for the Appellants-Revenue does not press substantial question No.5.
4. Submission is taken on record. Regarding first substantial question of law:-
5. Learned counsel for the Appellants-Revenue Mr.[ENTITY] submits that the issue regarding deduction of expenditure incurred for 'Export Turn Over' is also required to be deducted from 'Total Turn Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], Over' for the purpose of computing the deduction u[CASE NUMBER][SECTION] 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 [PRECEDENT], decided on 20.10.2015 since reported in [PRECEDENT], which has been affirmed by the Hon'ble Supreme Court in the case of [PRECEDENT].
6. 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 [PRECEDENT] [PRECEDENT]. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], computing relief under [SECTION] of the [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.
18. XXXXXX
19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under [SECTION] of the [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.
Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY],
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 questions of law Nos.2, 3 and 4:-
7. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under:
"23. We have considered the rival submissions as well as the relevant material on record. As regards Sasken Communication Technology Ltd., we find that the turnover of this company is Rs.479 Crores in comparison to the assessee's turnover of Rs.25.44 Crores. Therefore by applying the tolerance range of 10 times of turnover of assessee in both sides, this company cannot be considered as a good Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], comparable. Accordingly, we direct the TPO[CASE NUMBER]A.O to exclude this company from the set of comparables.
KALS Information Systems Limited.
24. The functional comparability of this company has been considered by the co-ordinate bench of this Tribunal in the case of [PRECEDENT] [supra] in para 10.4 as under:
"xxxxxxx"
In the absence of any contrary decision and to maintain the rule of consistency, we follow the earlier decision of this Tribunal and direct the Assessing Officer [CASE NUMBER] TPO to exclude this company from the set of comparables.
Bodhtree Consulting Limited.
25. We have considered the rival submissions as well as the relevant material on record. We find that the comparability of this company has been considered by this Tribunal in the case of [PRECEDENT] vide order dated 10.12.2014 in [CASE NUMBER][CASE NUMBER][CASE NUMBER] in para 9.3 as under:
"xxxxxx"
Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], Following the decision of the co-ordinate bench of this Tribunal, we direct the TPO[CASE NUMBER]A.O to exclude this company from the set of comparables."
8. The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536[CASE NUMBER]2015 c[CASE NUMBER]w 537[CASE NUMBER]2015 dated 25.06.2018 [Prl. Commissioner of Income Tax & Anr. V[CASE NUMBER]s. M[CASE NUMBER]s.[ENTITY],], wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u[CASE NUMBER][SECTION] 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 [ACT] (DTAA), interpretation of provisions of Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], the [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 [ENTITY] etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under [SECTION] 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] of the Act and Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
57. 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] of the Act before this Court.
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
9. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of Date of Judgment 03-07-2018, [CASE NUMBER] The [ENTITY] [ENTITY], the considered opinion that no substantial question of law arises for consideration in the present case.
10. Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd[CASE NUMBER]-
JUDGE Sd[CASE NUMBER]-
JUDGE NC.