Date Of Judgment 07-08-2018, Ita v. M/S. Axa Business Services Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 7 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.320/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-ITAX "[‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BENGALURU-560095.. «|THERE DEPUTLY COMMISSION OF INCOME-TAX, CIRCLE-11[2] PRESENT ADDRESS: CIRCLE-1]1]]1] ~ FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BENGALURU-560095... APPELLANTS| (BY SRI ARAVIND.K.V., ADV.) AND ; M/s. AXA BUSINESS SERVICES PVT. LTD.,.SJR PLAZA, MUNICIPAL No.1, 29[‘L]MAINBIM LAYOUT 1[S|]STAGEBENGALURU-5600068. .. RESPONDENT. (BY SRI SANDEEP HUILGOL, ADV. FORoRI T. SURYANARAYANA, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 29.11.2016 PASSED IN ITA No.91/BANG/2014, FOR THE Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 2/16 ASSESSMENT YEAR 2009-2010, ANNE XURE-D, PRAYING TO: |i]FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED|THEREIN; [11] ALLOW THE APPEAL AND SET ASIDE THE ORDER,PASSED BY THE ITAT, BENGALURU IN ITA No.91/BANG/2014DATED 29.11.2016, ANNEXURE-D, CONFIRMING THE ORDEROF THR APPRLLATK COMMISSIONBR AND CONFIRM THRORDER PASSED BY THR DBPUTY COMMISSIONBR OF INCOMBTAX, CIRCLE-1[1][1], BENGALURU. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. Mr. Sandeep Huilgol,Adv. tor Mr. T.Suryanarayana,Adv. for Respondent — Assessee. 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.91/Bang/2014 dated29.11.2016, relating to the Assessment Year2009-10. ? The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 3/16 aWhetherin|the factsandcircumstances of the case, the Tribunal ts right in|law in directing the assessing officer to re-calculate the deduction allowable to the assesseeunder section 10A of the Act by reducing the totalturnover also by the same amount by whichexport turnover was reduced by the assessing|officer in respect of foreign currency expensesincurred towards technical services renderedoutside India, without appreciating the fact thatthere is no provision in Section 1OA that suchexpenses should be reduced from the_ totalturnover also, as clause [iv] of the Explanation 2to Section IOA provides that such expenses are tobe reduced only from the export turnover? D2 Whetherinthe factsandcircumstances of the case, the Tribunal is right inlaw in excluding the comparables, namely, M/s.Cross Domain Solutions Ltd., M/s. E-ClerxServicesLtd.,M/s.|GenesysInternationalCorporation Ltd., and M/s. Wipro Ltd., on theground offunctional dissimilarity by following itsearlier order which has not reached finality andeven when the TPO had chosen the comparables|as it satisfies qualitative and quantitative filtersapplied by the TPO and Tribunal ought to have Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 4/16 decided the comparability of these companies onthe basis of specific facts brought out on recordby the TPO in the case of the assesseeP D2 Whetherinthe factsandcircumstances of the case, the Tribunal is right inlaw in excluding the comparables, namely, M/s.Cross Domain Solutions Ltd., M/s. E-ClerxServicesLtd.,M/s.|GenesysInternationalCorporation Ltd., and M/s. Wipro Ltd., on theground offunctional dissimilarity by following itsearlier order which has not reached finality andeven when the TPO had chosen the comparables|as it satisfies qualitative and quantitative filtersapplied by the TPO and Tribunal ought to have Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 4/16 decided the comparability of these companies onthe basis of specific facts brought out on recordby the TPO in the case of the assesseeP 3.|Whetherinthe factsandcircumstances of the case, the Tribunal ts right in|law in excluding the comparable, namely M/s.Acropal Tech Ltd., Asit C Mehta Financialservices Ltd., Cosmic Global Ltd., DatamatricsFinancial Services Ltd., I-services P. Ltd., JindalIntelliccom P. Ltd., Modi-tek Tech Ltd., andR.Systems Ltd., on the basis of low turnover byfollowing its earlier decision which has _ noreached finality without appreciating that evenwhen the said comparables are chosen by TPOafter’applyingrequiredtestsandwithoutappreciating that the sales turnover of thecompany does not have any impact on themargins earned and there is no_ correlationbetween size of the company and the profitmargins reported when the said companies havesatisfied all the qualitative and quantitativefilters? 4 |Whetherinthe factsandcircumstances of the case, the Tribunal ts right in|law in excluding the comparables, namely, M/s.Infosys BPO Ltd., and M/s. Cosmic Global Ltd., Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., by following its earlier order in the case of M/s.E-4E Business Solutions India Ltd., even though|the said decision has not reached finality andwithout appreciating that the TPO has chosen thesaid comparable after applying all the requiredtestsP” Regarding Substantial Question of Law No.1: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCLTechnologies Ltd. (supra),is quoted below for readyreference:-. “17. The simular nature of controversy, akin|this case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd. [2012] 204 Taxman|3S21/17/taxman.com 100/349 ITR 98. The issuebefore the Karnataka High Court was whetherthe Tribunal was correct in holding that whilecomputing relief under Section IOA of the IT Act, Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., the amount of communication expenses should beexcluded from the total turnover tf the same arereduced from the export turnoverP While givingthe answer to the issue, the High Court, inter-alia,held that when a particular word is not definedby the legislature and an ordinary meaning 1s tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it isused. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover’1Sexportturnover.Anyotherinterpretation would run counter to the legislativeintent and would be impermissible. | LSE, XXXXXX 19, In the instant case, if the deductions onfreight,telecommunicationand|insuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and illogical result whichwould cause grave injustice to the Respondentwhich could have never been the intention of thelegislature. LSE, XXXXXX 19, In the instant case, if the deductions onfreight,telecommunicationand|insuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and illogical result whichwould cause grave injustice to the Respondentwhich could have never been the intention of thelegislature. Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 20. Even in common parlance, when theobject of the formula ts to arrive at the profit fromexport business, expenses excluded from exportturnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makesthe formula unworkable and absurd. Hence, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.2: “vpCrossdomain Solutions Ltd. KVeVNKK” 40.4 |Having considered the rival'Submissions as well the relevant material onrecord, we note that the functional comparabilityof this company has been examined by the co-ordinate bench of this Tribunal in case ofSymphony Marketing Solutions India Pvt.Ltd., Vs. ITO1 in IT/TP/A No.1316/ Bang/ 20 Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., dated 14.08.2013 /supra/ in paras 18 & 19 asunder: KVeVNKK” Thus it is clear that this company is|engaged in the business of providing servicesFAPGESfromhighendKPOServicestodevelopment ofproduct and routine low and highend services. By following the order of the co-ordinate bench [supra], we direct the A.O/TPO toexcludethisCOTTLDPAfromtheSef|Of|comparables. [vu]%Clerx Services Ltd. KVeVNKK” 42.3 Havingconsidered|therivalSubmissions as well the relevant material onrecord, at the outset, we note that an identicalissue of the functional comparability of thiscompany has been examined for the AssessmentVYeaqr 2YOOYI-10 wherein it was held that tcompany is engaged in providing high end KPO)services and therefore not comparable with thepure BPO services provider. Accordingly, in viewof our finding for the Assessment Year 2009-10, Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., we direct the A.O/TPO to exclude this companyfrom the set of comparables. [vif|Genesys International Corporation Ltd. KVeVNKK” 43.3 Havingconsidered|therivalSubmissions as well the relevant material onrecord, we note that the functional comparabilityof this company has been examined by thisTribunal in the case of.Symphony Marketing Solutions India Pvt. Ltd., Vs. ITO| [Supra/ inparas 22 & 23 as under: KVeVNKK” Following the earlier order of this Tribunal,we direct the Assessing Officer to exclude thiscompany from the set of comparables. [ix]|Wipro Limited [Seqd. Myer” Accordingly, in view of the decision of co-ordinate bench of this Tribunal as well as theHon’ble High Court of Bombay, we direct theA.O/TPO to exclude this company from the list ofcomparables. ” Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 10/16 6.similarly,thelearnedTribunal|has considered other comparables and excluded the same. Regarding Substantial Question of Law No.3: “By applying this criteria, we find that thefollowing companies will be excluded due to low turnover: 1Acropetal Technologies Ltd. [Seg.|| 11.Asit C Mehta Financial Services Ltd., [Seg.] 111.Cosmic Global Ltd. lv.Datamatics Financial Services Ltd., [Seg.] VvI-Services India Put. Ltd., V1.Jindal Intellicom Put. Ltd., V11.Mold-tek Technologies Ltd., Vil.R Systems International Ltd., [Seg.|| Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 10/16 6.similarly,thelearnedTribunal|has considered other comparables and excluded the same. Regarding Substantial Question of Law No.3: “By applying this criteria, we find that thefollowing companies will be excluded due to low turnover: 1Acropetal Technologies Ltd. [Seg.|| 11.Asit C Mehta Financial Services Ltd., [Seg.] 111.Cosmic Global Ltd. lv.Datamatics Financial Services Ltd., [Seg.] VvI-Services India Put. Ltd., V1.Jindal Intellicom Put. Ltd., V11.Mold-tek Technologies Ltd., Vil.R Systems International Ltd., [Seg.|| 35. Forremainingcomparable companies, we will deal with the functionalcomparability as under: [UfAccentia Technologies Ltd. /Seq.| 36.This company was rejected by theCIT [Appeals} due to abnormal activity ofacquisition of other Indian and Foreign companies Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 11/16 during the year under consideration. Neither therevenue nor the assessee has challenged theexclusion of this company from the _ set ocomparables. Therefore no interference is calledfor on this company. [tt]Aditya Birla Minas Worldwide Ltd. 37.1 The ClT/Appeals} has rejected this|company on the ground of loss making company.The revenue is seeking inclusion of this companyon the ground that loss making or high profitmaking companies cannot be ai criteria forinclusion or exclusion of a particular company inthe list of comparables. — 37.2 WehaveheardthelearnedAuthorised Representative as well as learnedDepartmental Representative and considered therelevant material on record. At the outside, wenote that it is settled principle of law thatabnormal loss or abnormal profit itself cannot bea criteria or parameter for inclusion or exclusionof a company in the list of comparables. Howeverthe reasons for abnormal loss or profit can be arelevant ground for exclusion of a company fromthe set of comparables. The co-ordinate bench ofthis Tribunal in the case ofDCIT Vs. IGSImaging Services [India] Put. Ltd.,[2016] 67 Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., taxmann.com 148 /Bang-Trib/ in paras 25 & 24has considered this issue as under:| KVeVNKK” Accordingly, by following the earlier orderof this Tribunal, we set aside this issue to therecord of A.O/TPO to verify the reasons andcircumstances which are lead to the incurring ofloss by this company. ” Regarding Substantial Question of Law No.4: “OQAS|regardsthe.functionalcomparability of'Accentia Technologies Ltd..,and E-Clerx Services Ltd.,we find that the co-ordinate bench of this Tribunal in the case ofedeBusiness Solutions India Pvt. Ltd., Vs. DCIT/supra]hasconsideredthe.functionalcomparability of these two companies in paras11.1 to 11.2 as under:| Myer” By following the orders of the co-ordinatebench of this Tribunal we hold that these twocompanies functionally not comparable with thebusiness activity of the assessee providing call Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 13/16 centre and back office support services in thenature ofITES.~ T However, 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: Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 13/16 centre and back office support services in thenature ofITES.~ T However, 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.|Asubstantialquantumof|international trade and transactions dependsupon the fair and quick Judicial dispensation|in such cases. Had it been a case oOf|substantial questionof|interpretationof|provisions of Double Taxation Avoidance Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 14/16 Treaties (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|in Tax Havens (like in the case of Vodafone|etc.), uf 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 the Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 15/16 requirements 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. 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 | “A Length 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.” Date of Judgment 07-08-2018, ITA No.320/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AXA Business Services Pvt. Ltd., 8. 16/16 Havingheardthelearnedcounsels. appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the present case also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. NC. Sd/-.JUDGE. Sd/-.JUDGE.