Date Of Judgment 01-08-2018, Ita v. M/S. E4E Business Solutions India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 1 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.354/2016 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-ITAX ![‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BANGALORE-560095. «|THERE DEPUTLY COMMISSION OF INCOME-TAX. CIRCLE-3]1]/2], 2 KFLOOR| BMIC BUILDING 80 FEET ROAD, KORMANGALA|BANGALORE -560095.BANGALORE -560095. _ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND ; M/s. E4E BUSINESS SOLUTIONSINDIA PVT. LTD.,.UNIT No.1303-1304, 13[‘T]KLOOR.PRESTIGE MERIDAN-ILINo.30, MG ROAD, BANGALORE PAN: AAACI 6324A. _. RESPONDENT. (BY SRI A.SHANKAR AND SRI M.LAVA, ADVS.)_ THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., DATED 04.11.2015 PASSED IN IT/TP|A No.324/BANG/2015, FOR.THE ASSESSMENT YEAR 2010-11, ANNEXURE-D, PRAYING TO:1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAWSTATED ABOVE; 2. ALLOW THE APPEAL AND SET ASIDE THEORDERS PASSED BY THE ITAT, BENGALURU IN ITITPIANo.3824/BANG/2015 DATED 04.11.2015, ANNEXURE-D ANDCONFIRM THR ORDER OF THR DRP CONFIRMING THR ORDERPASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-3]1][2], BENGALURU; AND ETC.| THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. A.Shankar & Mr. Lava,Advs. for Respondent —|ASS@ESSEE. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘A’, Bangalore, inIT[TP|A No.324/Bang/2015dated04.11.2015, relating to the Assessment Year2010-11. ? TheappealhasbeenadmittedOT)06.12.9017|TO consider.the|followingsubstantial|questionsoT lawformulated1nthe.appealmemorandum: Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 3/9 aWhether the Tribunal twas correct indirecting the TPO to adopt the internal TNMM asthe most appropriate method for benchmarkingwithout appreciating the fact that the revenuehad and from the associated Enterprises’s fromthe international market but as the revenueearned from the non-associate Enterprises’s fromthe domestic market?| D2 Whether the Tribunal ts correct in notappreciating the fact that services rendered intwo different markets cannot be same or similarand hence internal TNMM was not the mostappropriatemethodforbenchmarkingthe international transaction? 3.|Whether the Tribunal ts correct in notappreciating the fact that profit margins are andfrom transactions with international marketscannot be same or similar to the profit marginsearned from transactions with the domesticmarket since there are differences in the factorsthat influence the profit margins and henceinternal TNMM was not the most appropriatemethodfor|benchmarkingthe.internationaltransaction> Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 4/9 4 |Whether the Tribunal ts correct in notappreciating the fact that factors like geography,functions performed, assetsemployed, respectcan, cost of labout, legal provisions between twodifferent markets have a bearing on the profitmargins. Hence the profit margin earned frominternational transactions cannot be comparedwith profit margins earned from transactions withthe domestic market, therefore internal TNMMwas not the most appropriate method forbenchmarking the international transaction? Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 4/9 4 |Whether the Tribunal ts correct in notappreciating the fact that factors like geography,functions performed, assetsemployed, respectcan, cost of labout, legal provisions between twodifferent markets have a bearing on the profitmargins. Hence the profit margin earned frominternational transactions cannot be comparedwith profit margins earned from transactions withthe domestic market, therefore internal TNMMwas not the most appropriate method forbenchmarking the international transaction? 5.|Whether the Tribunal twas correct innot appreciating the fact that the tax payer hasnot reported segmental break-up in respect of AEand Non AB’s.transactionin|theauditedfinancials. It is only before the transfer pricingoffice that a break-up between AE and Non AEsegment has been furnished and it is without anykey of a allocation and supporting evidences inrespect of expenses across the segments, hencethe internal TNMM is not the most appropriatemethod for benchmarking? ~ 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 5/9 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law Nos.1 to 5: is 7FirstWE|Shalladjudicatethe Additional grounds. The learned counsel for theassessee submitted that several rulings of theHon'ble Tribunal, subsequent to the pr finalizingits TP study have accepted internal ALP in casethe assessee renders similar services to bothAssociated Enterprises and non-AE’s. Thecounsel relied on the decision in the case ofMylan Labs Ltd., I[TP/A No.179/Bang/2015 and)214/Bang/ 2015. No.179/Bang/ 15 in the case of M/s Mylan LabsLtd., at para-10 itt has been held as follows; Respectfully following the decision of the|Co-ordinate Bench authored by JM in this appeal,we direct the TPO to choose internal comparablein controlled transaction as against an externalcomparable. Hence, we conclude our decision asfollows: Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 6/9 4The controversy involved herein is no moreres integrain view of the decision of this Court in|1.T.A. Nos.536/2015 c/w 537/2015dated25.06.2018[Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,]|wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions dependsupon 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|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares| Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 7/9 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. Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 7/9 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|found to be devoid of merit and the same are.liable to be dismissed. Date of Judgment 01-08-2018, ITA No.354/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. E4E Business Solutions India Pvt. Ltd., 8/9 57. We make it clear that the same'§yardsticks 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 “ArmLength 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.In the circumstances, having heard the learned Counsel appearing for both the sides, we are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. 9/9 6.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. Nocosts.| NC. Sd/-.JU DGE Sd/-.JU DGE