Date Of Judgment 10-07-2018 I.t.a v. M/S. Electronics For Imaging India Pvt., Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 10 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.186/2012 BETWEEN: 1.THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROADBANGALORE.BANGALORE. 2.THER DEPUTY COMMISSIONER OF INCOMBE-TACIRCLE-11(3), C.R. BUILDINGCIRCLE-11(3), C.R. BUILDING QUEENS ROAD, BANGALORE. .. APPBLLANT (By Mr. K.V. ARAVIND, ADV.) AND: M/S. ELECTRONICS FOR IMAGING INDIA PVT. LTD.,No.133, SALARPURIA HALLMARK|KADUBHBBSANAHALLIBANGALORE -560 076. . RESPONDENT (By Mr. S. SHARATH, ADV., FOR. Mr. K.K. CHYTHANYA, ADV..,) THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN. ALLOW THE APPEALAND SET ASIDE THR ORDBR PASSBD BY THR INCOMB TAX|APPBRLLA TTRIBUNAL, BANGALOREIN|ITA|No.11/71/Bang/2010, DATED 31-01-2012 ANNEXURE-C AND Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 2/12 CONFIRM THR ORDEBR OF THR APPKRHLLATKH COMMISSIOCONFKFIRMINTH EORDERPASSEDBY|TH EDEBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE,|IN THE INTEREST OF JUSTICE AND EQUITY. THIS LT.A. COMING ON FOR HEARING, THIS DAY |S. SUJATHA JT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. K.V. Aravind,Adv. for Appellants-Revenue Mr. S. Sharath,|Adv. for Mr. K.K. Chythanya,Adv. for Respondent-assessee The appellants-Revenuehave filed this appealu/s. 260Aot the.Income Tax Act, 1961(for short ‘Act’) raising purportedly certain substantial questions of lawarising from the order of theIncome Tax Appellate| Tribunal, Bangalore Bench ‘B’(for short ‘Tribunal’|dated3091L.Q01Lpassed inITA No.1171(Bang)/2010for theA.Y.2006-07 ?)ThisappealhasbeenADMITTEDOTL21.01.2013to consider the following substantialquestions of law as framed by the Revenue in theMemorandum of Appeal: Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 3/12 aWhetherthe.TribunalWascorrect in holding that the communication|expenses and foreign currency expenditure|reduced from export turnover should bereduced from the total turnover also, in theabsence of any provisions to this effect in|section 1OA of the Act? D2 Whether the Tribunal correct inremitting bank all the issues to the file ofAO when there are no fresh facts broughtbefore the Hon’ble ITAT apart from thosewhich are already discussed in the order ofthe.ASSeSSINGgOfficer/ TransferPricingOfficer? 3.|Whether the Tribunal correct indirecting the AO to consider only thoseuncontrolled comparables which are havingturnover between FPs.1 crore to Rs.200Crores,withoutappreciating thatthedirection1S|againstthemethodofarithmeticalaverageoftheoperating margins and profit level indicators ofuncontrolledcomparablesas|per]theproviso to section 92C(2) of the Act?| Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 4/12 4 |Whetherthe.TribunalWascorrect in directing the Assessing Officer to apply turnover filter of turnover between|Rs.1 crore to Rs.200 crores without any|evidenceinSupportof(Ocorrelationbetween the turnover and the profitabilitymargin? 5.|Whether the Tribunal correct inholding that the assessee 1s eligible for astandard 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 _ thcircular 5/2010 issued by the Board in thts|regard? 6. Whetherthe.TribunalWascorrect in directing cross examination in the|case of comparables where information|was gathered in terms of provisions ofsection133(6)oftheAct,withoutappreciating that no cross examination 1s warranted as it was a process of gatheringinformationandexaminationofevidence 1S not involved and recorded aiperverse finding?”. 5.|Whether the Tribunal correct inholding that the assessee 1s eligible for astandard 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 _ thcircular 5/2010 issued by the Board in thts|regard? 6. Whetherthe.TribunalWascorrect in directing cross examination in the|case of comparables where information|was gathered in terms of provisions ofsection133(6)oftheAct,withoutappreciating that no cross examination 1s warranted as it was a process of gatheringinformationandexaminationofevidence 1S not involved and recorded aiperverse finding?”. Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 5/12 3.Regarding substantial question of law No. 1:- The controversy is no longer|res integraand 1s)covered by the decision of the Division Bench of thisCourt in the case otfM/s.Tata Elxsi Ltd., vs.Asst.CommissionerofIncome.Tax,decidedOTL20.10.2015since reported in.(2015) 127 DTR 0327(Kar), which has been affirmed by the Hon’ble SupremeCourt in the case of|Commissioner of Income-tax,Central - III vs. HCL Technologies Ltd., [2018] 93Taxmann.com 33(SC). The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCLTechnologies Ltd. (supra),is quoted below for readyreference:-. “17. The similar 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 whether| Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 6/12 the Tribunal was correct in holding that whilecomputing relief under Section 1OA of the IT Act,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 is 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 on|freight,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 wulogical result whichwould cause grave injustice to the Respondent Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 7/12 which could have never been the intention of thelegislature. 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”. 4Regarding substantial question of law No.2:- Learnedcounsel{OrtheAppellants-Revenue|Mr.K.V.Aravind submits that he does not press thesubstantial question of law No.2. His submission istaken on record. — 5The learned Tribunal, after discussing the rival contentions of both the appellants-Revenue andthe Respondent-assessee, has returned the findings asunder: 8/12 Regarding substantial question of law Nos.3,4,| 5 and 6:- 4Regarding substantial question of law No.2:- Learnedcounsel{OrtheAppellants-Revenue|Mr.K.V.Aravind submits that he does not press thesubstantial question of law No.2. His submission istaken on record. — 5The learned Tribunal, after discussing the rival contentions of both the appellants-Revenue andthe Respondent-assessee, has returned the findings asunder: 8/12 Regarding substantial question of law Nos.3,4,| 5 and 6:- “Q We have heard rival submissions andconsidered the facts and materials on recordincluding the contents of the paper books and thecase-laws cited therein. After consideration of theentire submissions in the light of the facts of thecase before us and following the decision of theTribunal in the case of M/s.Genesis Integratingsystems (India) Pvt. Ltd., we deem it fit andproper to accept the contention of the assesseethat the matter is to be remitted back to the file ofthe TPO for fresh consideration. Hence, we areremitting the matter to the file of the TPO with thefollowing directions: (tl) The operating revenue and theoperating cost of the transactionsrelating to associated enterprisesonly shall be considered.operating cost of the transactionsrelating to associated enterprisesonly shall be considered. (u) The comparables having theturnover of more than Rs.1 crore butless than Rs.200 crores only shall betaken into consideration. (ui) All the information relating tocomparables which are sought to be Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 9/12 used against the assessee shall befurnished to the assessee. (w) The assessee shall be given anopportunity to cross examine theparties whose replies are sought tobe used against the assessee if theassessee So desires. (v) To consider the objections of theassessee that relate to additionalcomparables sought to be adopted bythe TPO and pass a detailed order,and (vil) to gwe the standard deduction of9% under the proviso to sec.92C(2) ofthe Act.” 6. The controversy involved herein is no moreres integra|in view of the decision of this Court inITA No.536/2015 C/w ITA No.537/2015delivered on 25.06.2018 (Pri. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Put. Ltd.,}) wherein ithas been observed that in these type of cases, unless an |ex-facle- perversity in the findings of the learned Income Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 10/12 Tax Appellate Tribunal is established by the appellant,the appeal at the instance of an assessee or the Revenue underSection 260-Aof the Act 1s not maintainable andthe relevant portion of the said judgment is quotedbelow for ready reference: § Conclusion: 038. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofSubstantialquestionofinterpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectofthe TreatiesOVEeCtheDomestic.Legislations or _ the questions like TreatyShopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), | based on relevantfacts, such substantial questions of law could |be raised before the High Court underSection|260-A|of the Act, the Courts could haveembarked upon such exercise of framing andanswering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightly Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 11/12 picked up or not, Filters for arriving at the correctlust of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 11/12 picked up or not, Filters for arriving at the correctlust of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the considered|opinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-Aof the Act and thus the appealsfiled 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 _ bapplied, even tf such appeals are filed by theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findings|has found certain comparables to be goodcomparables to arrive at an'‘Arm’s LengthPrice~ 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 findingsoffacts arrived at by the learned Tribunal is notat alla sufficient reason to invokeSection 260-Aof the Act before this Court. Date of Judgment 10-07-2018 I.T.A.No.186/2012 The Commissioner of Income-tax, & Anr. Vs. M/s. Electronics for Imaging India Pvt., Ltd., 12/12 o8. The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” T |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. _ Hence, the appeal filed by the appellants-Revenue is liable to be dismissed and is accordingly|aismissed.No costs. TTL Sd/-.JUDGE Sd/-.JUDGE| JUDGE|