Date Of Judgment 09-07-2018, Ita v. M/S. Centillium India Pvt., Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 9 DAY OF JULY 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.281/2012 BETWEEN : 1.THE COMMISSIONER |OF INCOME-TAX, CITA] —C.R. BUILDING|QUEENS ROADBANGALORE _ 2.THE DY. COMMISSIONER OF INCOME-lTAXCIRCLE — 11 (2), C R BUILDING|QUEENS ROAD,BANGALORE. |... APPELLANTS| (BY SRI K.V. ARAVIND, ADV.) AND: M/s. CENTILLIUM INDIA PVT. LTD.(A TRANSWITCH GROUP COMPANY)NO.3, SALARPURIA CITADEL1[Si]FLOOR, ADUGODIHOSUR ROADBANGALORE —- 560030... RESPONDENT (BY SRI V.K.GURUNATHAN, ADV. FOR| oRI PARTHASARATHI.S. ADV.) THIS ITA IS FILED UNDER SEC.2600-A OF I.T. ACT, 1961,ARISING OUT OF ORDER DATEBD 29.02.2012 PASSBD IN ITA Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 2/12 NO.1354/BANG/2010, FOR THE ASSESSMENT YEAR 2006-07,ANNEXURE —-D , PRAYING TO: 1. FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN, 11. ALLOW THE APPEALAND SET ASIDE THE ORDERS PASSED BY THE MITAT,BANGALORE IN ITA NO.1354/BANG/2010 DATED 29.02.2012,ANNBXURE-D AND CONFIRM THR ORDER PASSBED BY THEDEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(2),.BANGALORE. S. SUJATHA, J., DELIVERED THE FOLLOWING: THIS APPEAL COMING ON FOR HEARING, THIS DAY, | JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. Mr. V.K.Gurunathan,Adv. for Mr. Parthasarathi.S, 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, inITA No.1354/Bang/2010dated29.02.2012, relating to the Assessment Year2006-07. ? TheappealhasbeenadmittedOT) 11.02.2013 to examine the substantial questions of law as indicated in the memorandum of appeal.| Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 3/12 3.The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as.under: “1. Whether the Trbunaql was correct inholding that the communication expenses|reduced from export turnover should be|reduced from the total turnover also, in the|absence of any provisions to this effect in|section 10A of the Act?| D2 Whether the Tribunal correct in remittingbank all the issues to the file of AO When|there are no fresh facts brought before the|Hon’ble ITAT apart from those which are.already discussed in the order of _ thAssessing Officer/ Transfer Pricing Officer? 3Whether the Tribunal correct in holdingthat the assessee is eligible for a standard|deduction of 5% from the Arm’s Length price|under the proviso to section 92C(2) of the Act,without considering the corrigendum dated|30.04.2010 to the circular 5/2010 issued by.the Board in this regard? Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 4/12 4Whether the Tnbunal was correct indirecting cross examination in the case of|comparables where information was gathered|in terms of provisions of section 133(6) of the|Act, without appreciating that no_ crossexamination is warranted as it was a processof gathering information and any examination|of evidence is not involved and recorded a|perverse finding?” 4Learned Counsel for the Appellants-Revenue does not press substantial question No.2. 5.Submission is taken on record. +Regarding first substantial question of law: 6.Learned counsel for the Appellants-Revenuesubmitsthat.the.issueregardingdeductionot expenditure incurred for‘Export Turn Over’is also.required to be deducted from‘Total Turn Over’for the.purpose of computing the deductionu/s.1OAof the Act,|the controversy is no longer|res integraand is covered| Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 5/12 4Learned Counsel for the Appellants-Revenue does not press substantial question No.2. 5.Submission is taken on record. +Regarding first substantial question of law: 6.Learned counsel for the Appellants-Revenuesubmitsthat.the.issueregardingdeductionot expenditure incurred for‘Export Turn Over’is also.required to be deducted from‘Total Turn Over’for the.purpose of computing the deductionu/s.1OAof the Act,|the controversy is no longer|res integraand is covered| Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 5/12 by the decision of the Division Bench of this Court intheCaSE€oT|M/s. TataEILxsiLtd.,DS,Asst.Commissioner of Income Tax,decided on20.10.2015since reported in(2015) 127 DTR O327 (Kar), whichhas been affirmed by the Hon’ble Supreme Court in thecase oftCommissioner of Income-tax, Central — III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com33(SC). T.The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCLTechnologies Ltd. (supra),is quoted below for readyreference:-. “17. The stmilar nature of controversy, akinthis case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd[2012] 204 Taxman321/17/taxman.com 100/349 ITR 98.The issue|before the Karnataka High Court was whetherthe Tribunal was correct in holding that whilecomputing relief under Section IOA of the IT Act,the amount of communication expenses should beexcluded from the total turnover tf the same are. Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., reduced 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. 20. Even in common parlance, when theobject of the formula ts to arrive at the profit from Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., export 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”. 8.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under:| +Regarding substantial question of law Nos.3 and 4: “9.3. Having held so, we_ shall nowglimpse at the next question, as to whether theTPO can make his own enquiries and call forinformation from various entities keeping theassessee in the dark. Under sub-sec. [3] & [7] ofS.92CA, the TPO is entrusted with all the powersunder clauses |a/ to [d/ of sub-section [1] of section131 or sub-section |[6/ of section 133 to call forand gather any information as may be required.When the TPO is making the search for a relevantcomparable, he can issue notices to the partieswhom he considers as relevant to gather requisiteinformation and on being satisfied with regard to rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under:| +Regarding substantial question of law Nos.3 and 4: “9.3. Having held so, we_ shall nowglimpse at the next question, as to whether theTPO can make his own enquiries and call forinformation from various entities keeping theassessee in the dark. Under sub-sec. [3] & [7] ofS.92CA, the TPO is entrusted with all the powersunder clauses |a/ to [d/ of sub-section [1] of section131 or sub-section |[6/ of section 133 to call forand gather any information as may be required.When the TPO is making the search for a relevantcomparable, he can issue notices to the partieswhom he considers as relevant to gather requisiteinformation and on being satisfied with regard to Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 8/12 relevancy of the material which can be usedagainst the assessee only then the assessee has|to be given an opportunity of presenting itsobjections, if any. Thus, the TPO need not informthe assessee about the process used by him forissuing the notices u/s. 133/6/ of the Act nor is heunder any obligation to furnish the entireinformation to the assessee. 5.4..However, we are of the firm viewthat the principles of natural Justice requires thatwhen any information is sought to be usedagainst the appellant, the appellant has to begiven a reasonable opportunity of hearing on thatmaterial. In the present case, the TPO hadfurnished all the information to the appellant inthe form of CD and the appellant, after perusingthe same, had submitted a detailed submissionalong with its objections for taking variouscompanies as comparables. It was anothermatter, uf the TPO had not considered theobjections of the appellant judiciously. In such acase, it would be an error of judgment, but, notviolation of principles of natural justice. Theobjections of the appellant were that certaincompanies have been taken into consideration bythe TPO as comparables without affording the Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 9/12 appellantan.opportunityoffurnishingits|objections, if any, and also with regard to certainother companies, it had sought opportunity tocross-examine them, but, it has been observedthat no such an opportunity has been extended tothe appellant.” QOThe controversy involved herein is no moreres integrain view of the decision of this Court in 1.T.A.Nos.536/2015 c/w 537/20152:<8225.06.2018 [Prl. |Commissioner.of|Income.TaxOQAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein 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 Judgmentis quoted below for ready reference: “Conclusion: 55.ASubstantialquantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|substantial questionof|interpretationof| Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 10/12 QOThe controversy involved herein is no moreres integrain view of the decision of this Court in 1.T.A.Nos.536/2015 c/w 537/20152:<8225.06.2018 [Prl. |Commissioner.of|Income.TaxOQAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein 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 Judgmentis quoted below for ready reference: “Conclusion: 55.ASubstantialquantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|substantial questionof|interpretationof| Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 10/12 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|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. 56. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|suggested| Date of Judgment 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 11/12 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. 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 | “ALength 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 09-07-2018, ITA No.281/2012 The Commissioner of Income-tax CIT[A] & another Vs. M/s. Centillium India Pvt., Ltd., 12/12 10,In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question of law arises for consideration in the present case. 11.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. No costs. NC. Sd/-.JUDGE. Sd/-.JU DGE