By Sri.aravind K v. And Sri.dilip, Advs

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 28 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.1079/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX, ©[‘T]FLOOR, BMTC BUILDING[‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BBENGALURU — 560 095 2.THR DBEPUTY COMMISSIONBR OF INCOMB TAXCIRCLE — 2 (1) (2).2 FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU — 560 O95.. APPELLANTS|CIRCLE — 2 (1) (2).2 FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU — 560 O95.. APPELLANTS| (BY SRI.ARAVIND K V. AND SRI.DILIP, ADVS.) AND: M/S ELECTRONIC IMAGING INDIA PVT. LTD.KALYANI PLATINA, 4[‘T]FLOOR,BLOCK - 1, NO.24EPIP ZONE, PHASE II, WHITE FIELD)BBENGALURU — 560 066_. RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDER)DATED:14.07.2017 PASSED IN IT(TP)A NO.1506/BANG/2015,.FOR THE ASSESSMENT YEAR-2011-2012 VIDE ANNEXURE - D,PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF| Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., 2/9 LAW STATED ABOVE. Il. ALLOW THR APPEAL AND SKIT ASIDETHR ORDERS PASSED BY THR [NCOMB-TAX APPELLATE|TRIBUNAL,|BRENGALURUINIT(TP)ANO.1506/BANG/2015_DATED: 14.07.2017 VIDE ANNEXURE - D AND CONFIRM THE.ORDER OF THE DRP CONFIRMING THR ORDER PASSED BY THEDEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2),.BENGALURU. THIS APPKAL COMING ON FOR)ORDERS, THIS DAY,S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Aravind K.V.andMr. Dilip,Advs. for Appellants — Revenue. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, Bangalore Bench ‘A’, Bangalore, inIT[TP|A No.1506/Bang/2015dated|14.07.2017, relating to the Assessment Year2011-12. 2.The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., 3/9 “1. Whether, on the facts and circumstances ofthe case, the Tribunal ts right in law in directingAO/TPO to exclude certain comparable based onfunctional dissimilarity even when the TPO haschosen.theSqidcomparablebyapplyingqualitative and quantitative filers when cullingout comparable companies? D2 WhetherOF|the factsandin|the circumstances of the case, the Tribunal is right inlawconfirmingthe.exclusion|Of|certaincomparable’s from list of comparables by holdingthat financial year of the said companies did notcoincide with that of assessee by relying onIOB(4) of LT.Rules when the Transfer PricingOfficer|had|ly rightchosentheSCITIas|comparables and moreover, assessee itself hadchosen the same as comparables in the listprovided by it? 3.|WhetherOF|the factsandin|the circumstances of the case, the Tribunal ts right in|law in holding that the foreign exchange gain isoperating in nature while determining ArmsLength Price? Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., 4/9 4 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law in directing the assessing authority/ transferpricing officer to include and exclude certaincomparable’s even when the Transfer PricingOfficer/ Assessing Authority has rightly chosenthe comparable’s after applying all the requirestestsP” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law Nos.1, 2 & 4: Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., 4/9 4 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law in directing the assessing authority/ transferpricing officer to include and exclude certaincomparable’s even when the Transfer PricingOfficer/ Assessing Authority has rightly chosenthe comparable’s after applying all the requirestestsP” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law Nos.1, 2 & 4: “8Havingconsidered|therivalSubmissions as well as the relevant material onrecord, first we will deal with the functionalcomparability of the stx companies namelyAcropetal Technologies Limited (Seg.), E-Zestsoluations Ltd. L&T Infotech Ltd., Persistentsystem & Solution Ltd., Persistent Systems Ltd.and Tata Elxsi Limited. The business activities ofthese six companies have been examined on thepoint of functional comparability in the softwaredevelopment services provider by the co-ordinate Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., bench of this Tribunal vide decision dt.21.9.2016in the case ofApplied Materials India Put. Ltd. Vs.ACIT in IT(TPJA Nos.17 & 39/Bank/ 2016 in para9.1.1. to 9.2.4; 16.1 to 16.4 and 19 to 20 asunder: XXXKKX| We further note that the Tribunal in the|case of M/s. AMD India Put. Ltd., vs. ACIT hasagain taken similar view in respect of these sixcompanies following the earlier order of theTribunal, we direct the TPO/A.O. to exclude thesesix companies from the set of comparables. ” Regarding Substantial Question of Law No.3: “93. Wehaveheardthe|learnedAuthorised Representative as well as learnedDepartmental Representative and considered therelevant material on record. If the foreignexchange fluctuation gain or loss is arising onaccount of realization of export turnover then thesame is in the nature of operating revenue or loss.Therefore we do not find any error or illegality inthe order of the DRP in deciding this issue andholding that the same is operating in nature. ” Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., 6/9 4However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-facie perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A otthe Act is not maintainable. The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick Judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the| Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick Judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the| Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone|etc.), tf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could have|embarked upon such exercise offraming 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, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act andthus the appeals filed by the Revenue are| Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., 8/9 found to be devoid of merit and the same are.liable to be dismissed. 57. We make it cleqr that the sameyardsticks and parameters will have to beapplied, even tf 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|7S. “ArLength Price”’ in the case of the assesseeswith which the assessees may not be|satisfied and have filed such appeals beforethis Court. Therefore we clarify that mere|dissatisfaction with the findings of facts|arrived at by the learned Tribunal ts not at all|a sufficient reason to invoke.Section 260-Aof the Act before this Court. o8. The appeals filed by the Revenueare therefore dismissed with no order as to|costs.” 5.Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of the Date of Judgment 28-08-2018, ITA No.1079/2017 The Pr. Commissioner of Income Tax, & Another Vs. M/s. Electronic Imaging India Pvt. Ltd., 9/9 opinion that no substantial question of law arises in the present case also. The Appeal filed by the Appellants-|Revenue is liable to be dismissed and it is dismissed|accordingly. No costs. Copy of this Order be sent to the Respondent- Assessee forthwith. PMR Sd/-.JU DGE Sd/-.JU DGE