1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 21st DAY OF AUGUST 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON'BLE Mrs.JUSTICE S.SUJATHA [CASE NUMBER] BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-6 BMTC COMPLEX, KORMANGALA BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-12(3), BANGALORE. APPELLANTS (By Mr. SANMATHI E.I. ADV.) AND: M/S. SYNOPSIS INDIA PVT. LTD., RMZ INFINITY, TOWER-A 4TH AND 5TH FLOOR, MUNICIPAL No.3 OLD MADRAS ROAD, BENEGANAHALLI BANGALORE-560016 PAN No. AABCS 8847 D. RESPONDENT THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, 1961, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. SET ASIDE THE APPELLATE ORDER DATED 08/03/2017 PASSED BY Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], 2/12 THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT- ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A No.1095/BANG/2012 FOR A.Y. 2007-2008 (VIDE ANNEXURE-A) & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS I.T.A. COMING ON FOR ORDERS THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:- JUDGMENT
Mr. [ENTITY], Adv. for Appellants- Revenue
1. The Appellants-Revenue have filed this appeal u/[SECTION] of the [ACT], raising purportedly certain substantial questions of law arising from the order of the ITAT, 'B' Bench, Bangalore, dated 08.03.2017 passed in [PRECEDENT] for A.Y.2007-
2. The proposed substantial questions of law framed in the Memorandum of appeal by the Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], Appellants-Revenue are quoted below for ready reference:-
"1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables, on the basis of functional dissimilarity even when the assessing authority has applied qualitative and quantitative tests and the Tribunal failed to appreciate the FAR analysis brought on record by the TPO?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the basis of RPT filter without applying 25% considered by the Transfer Pricing Officer. The Tribunal ought to have followed its own orders in case of Katera Software India Pvt. Ltd., and also in the case of M/s. United Engineers, Malaysia, Berhad?
3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the recomputation made by the assessing authority with regard to [SECTION] of the Act by setting aside the reduction of expenditure incurred in foreign currency from export turnover only without reducing the same Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], from total turnover by following the judgment of this Hon'ble High Court in the case of [PRECEDENT] even though it has not reached finality?"
3. Learned counsel for the Appellants-Revenue Mr.[ENTITY] submits that in so far as the third substantial question of law is concerned, the same is covered by the decision of the Hon'ble Apex Court in the case of [PRECEDENT].
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 Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], while 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 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [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".
4. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:-
Regarding substantial question of law No.1:-
"16. We have heard the rival submissions and perused the material on record. The comparability of this company has come before the coordinate bench in the case of Trilogy wherein it has been held that since the company was engaged in clinical research and manufacture of other products. This company cannot be compared with that of assessee company which is engaged in the software development business. The relevant para is as under:
Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], xxxxxxxxxxxxxxx
17. The learned DR had not brought any evidence on record contradicting the findings given by the coordinate bench in the above decision. Thus, we hold that this company cannot be considered as comparable with that of assessee company and therefore, we uphold the findings of the CIT (A). Hence, this ground of appeal by the revenue is dismissed.
18. In the result, the appeal filed by the Revenue is partly allowed.
22. KALS Information System: This comparable was included by the TPO and objected by the assessee company before the TPO itself and before the CIT (A) it was contended that this company derived significant revenues from sale of the products and no segmental details were available. However, CIT (A) has included this in the final list of comparables. Even before us, the same submissions were reiterated and the assessee has placed reliance on the following decisions:
xxxxxxxxxxxxxx Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY],
24. The learned DR had not brought any evidence on record contradicting the findings given in the above cited decisions. Hence, respectively following the decision, we direct the AO/TPO to exclude this company from the list of comparables.
25. As regards Lucid Software Ltd., this company was introduced by the TPO and contested by the assessee company. However, the assessee company accepted for inclusion before the CIT (A). It is only before us that the assessee company is seeking exclusion of this company on the ground of functional dissimilarity.
26. It is the contention of the assessee that it is engaged in the development of products and should be excluded. We find that there is no findings of the CIT (A) on this comparable. We therefore restore this issue back to the file of the TPO for fresh adjudication in accordance with law".
Regarding substantial question of law No.2:-
" 14. Ground No.4 challenges the direction of the CIT (A) applying the filter of related party transactions at 0%. Now the law is Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], well settled that an entity can be taken as uncontrolled if its related party transaction does not exceed 15% of the total revenue. Hence, we direct TPO/AO to adopt RPT filter at 15%. Hence, the Ground No.4 is partly allowed".
5. However, this Court in a recent judgment in [CASE NUMBER] C/w [CASE NUMBER] delivered on 25.06.2018 ([PRECEDENT],) 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] of the Act is not maintainable.
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 Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of 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 thus the appeals Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], 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."
6. Having heard the learned counsel for the Appellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is Date of Judgment 21-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY], liable to be dismissed and it is dismissed accordingly. No costs.
Copy of this order be sent to the Respondent- Assessee forthwith.
JUDGE Sd/-
JUDGE Srl.