Date Of Judgment 11-07-2018 I.t.a v. M/S. Bearing Point Business Consulting Private Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 11 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.246/2013 BETWEEN: 1.THE COMMISSIONER OF INCOME-TAX CIT(A)C.R. BUILDING, QUEENS ROADBANGALORE.C.R. BUILDING, QUEENS ROADBANGALORE. 2.THER DEPUTY COMMISSIONER OF INCOMBE-TACIRCLE-11(2), RASHTROTHANA BHAVAN|NRUPATHUNGA ROADBANGALORE.CIRCLE-11(2), RASHTROTHANA BHAVAN|NRUPATHUNGA ROADBANGALORE. .. APPBLLANT (By Mr. K.V. ARAVIND, ADV.) AND: M/S. BEARING POINT BUSINESS|CONSULTING PRIVATE LTD.,HMBASSY ICON ANNEBXINFANTRY ROAD, BANGALORE-5S60001. . RESPONDENT (By Mr. SANDDEP HUILGOL, ADV., FORMr. T. SURYANARAYANA, ADV.,) THIS I.T.A. IS FILED UNDER SECTION 2J60-A OF INCOMETAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN. ALLOW THE APPEAL|AND SET ASIDE THE ORDER OF THE ITAT, BANGALORE IN ITANo.1124/Bang/2011 DATED 21/12/2012 ANNEXURE-D AND. Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 2/13 CONFIRM THR ORDEBR OF THR APPKRHLLATKH COMMISSIOCONFKFIRMINTH EORDERPASSEDBY|TH EDEBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-11(2), BANGALORE. 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. Sandeep Huilgol,Adv. for Mr. T. Suryanarayana,Adv. for Respondent-Assessee The appellants-Revenuehave filed this appealu/s. 260Aot theIncome 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’|dated 21.12.2017passed in.ITA No.1124/Bang/2011for theA.Y.200'77- 2.Thisappealhas|beenADMITTERDOT]11.02.2014to consider the following substantialquestions of law as framed by the Revenue in theMemorandum of Appeal:- Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 3/13 “1. Whether on the facts and in the circumstancesof the case and in law the Tribunal was right inSuper imposing the decisions of the other benchesand the decision of the ITAT while rejecting thecomparables [( (i) Accel Transmatic Limited, (i)Avant Cimcon Technologies Limited, (ii) CelestialLabs Limited, (iv) KALS information SystemsLimited,(v)MegasoftLimited)withoutappreciatingthefact thatselectionofcomparables in a case depends on assesse)specific FAR analysis and recorded a perversefinding? D2 WhetherOnlthe factsandin|thecircumstances of the case and in law the Tribunalwas correct in rejecting the comparables adoptedby the Transfer Pricing Officer only on the basis ofthe order passed by the Tribunal in case of otherassessee, despite the finding recorded by theTransfer Pricing Officer regarding functions andprofitability of the comparables and the assesseecompany are similar and recorded a perversefinding? 3.|WhetherOnlthe factsandin|thecircumstances of the case and in law Tribunalwas correct in holding that foreign exchangeloss/gain is operating in nature when, such Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 4/13 loss/gain though attributable to the operatingactivity, is not derwed from the _ operatingactivity ?. 4 |WhetherOnlthe factsandin|thecircumstances of the case and in law the Tribunalwas correct in holding that the telecommunicationExpenses,insurance,broadband,internetexpenses and traveling expenses incurred in’foreign currency reduced from export turnover hasto be reduced from total turnover for computingdeduction u/s. 1OA of the Act when Explanationto Section IOA of the Act mandates reduction onlyfrom export turnover. ” Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 4/13 loss/gain though attributable to the operatingactivity, is not derwed from the _ operatingactivity ?. 4 |WhetherOnlthe factsandin|thecircumstances of the case and in law the Tribunalwas correct in holding that the telecommunicationExpenses,insurance,broadband,internetexpenses and traveling expenses incurred in’foreign currency reduced from export turnover hasto be reduced from total turnover for computingdeduction u/s. 1OA of the Act when Explanationto Section IOA of the Act mandates reduction onlyfrom export turnover. ” 3.Learned Counsel for the Appellants-Revenuesubmits that Substantial Question No.4 is covered bythe Judgment of the Hon’ble Supreme Court in the caseot Commissioner of Income-tax, Central - III vs. HCLTechnologies Ltd., [2018] 93 Taxmann.com 33(SC)The relevant portion of the judgment of the Hon'blesupreme Court in the case ofHCL Technologies Ltd.(supra),is quoted below for ready reference:- Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 5/13 “17. The similar nature of controversy,akin this case, arose before the Karnataka|High Court inCIT v. Tata Elxsi Ltd. [2012]204 Taxman 321/17/taxman.com 100/349)ITR 9&8. The tssue before the Karnataka HighCourt was whether the Trnbunal was correct|in holding that while computing relief under|section IOA of the IT Act, the amount of|communication expenses should be excluded|from the total turnover if the same arereduced from the export turnover? While|giving the answer to the issue, the HighCourt, inter-alia, held that when a particularword is not defined by the legislature and an|ordinary meaning 1s to be attributed to it, the|said ordinary meaning is to be in conformity|with the context in which it is used. Hence,what is excluded from ‘export turnover’ must|also be excluded from ‘total turnover’, since|one of the components of ‘total turnover’ 1s|export turnover. Any other interpretation|would run counter to the legislative intent and|would be impermissible. — TSB. XXXKXX X Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 6/13 19. In the instant case, tf the deductionson freight, telecommunication and insurance|attributable to the delivery of computer'software under Section 10A of the IT Act areallowed only in Export Turnover but not from|the Total Turnover then, it would give rise to|inadvertent,unlawful,meaninglessandulogical result which would cause _ graveinjustice to the Respondent which could have|never been the intention of the legislature. 20. Even in common parlance, when theobject of the formula is to arrive at the profit|from export business, expenses excluded fromexport turnover have to be excluded from total|CTUTNOVETalso.Otherwise,anyotherinterpretation makes the formula unworkable|and absurd. Hence, we are satisfied thatsuch deduction shall be allowed from the totalturnover in same proportion as well”. 4The learned Tribunal, after discussing the rival contentions of both the appellants- Revenueandthe.Respondent-assessee,has| returned findings as under: Regarding substantial question of law.Nos.1 and 2: es reWe shall now deal with the improper'selection of comparables by the TPO for thereasons that they were functionally different asobserved by the earlier Bench in the case ofTrilogy E-Business.XXXXXX A. Accel Transmatic Ltd. (Seq): The selection of this company as comparable by|the TPO was duly considered by the Tribunal inthe case of Trilogy E-Business and reasonrecorded in its finding is extracted as under:XXXXXX B.Avani Cimcon Technologies Ltd; The selection of this company as comparable bythe TPO was rejected by the earlier Bench of theTribunal in Trilogy E-Business for the reasonsthat —|XXXXX the rival contentions of both the appellants- Revenueandthe.Respondent-assessee,has| returned findings as under: Regarding substantial question of law.Nos.1 and 2: es reWe shall now deal with the improper'selection of comparables by the TPO for thereasons that they were functionally different asobserved by the earlier Bench in the case ofTrilogy E-Business.XXXXXX A. Accel Transmatic Ltd. (Seq): The selection of this company as comparable by|the TPO was duly considered by the Tribunal inthe case of Trilogy E-Business and reasonrecorded in its finding is extracted as under:XXXXXX B.Avani Cimcon Technologies Ltd; The selection of this company as comparable bythe TPO was rejected by the earlier Bench of theTribunal in Trilogy E-Business for the reasonsthat —|XXXXX Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 8/13 C. Celestial Labs. Ltd: This company was also selected by the TPO ascomparable. However, on due consideration ofthe issue, the earlier Bench of this Tribunal inTrilogy E-Business had opined that this companycannot be as comparable on the ground that-XXXXX D. KALS Information System Ltd.(Seq): Incidentally, the selection of this company as'comparable by the TPO was rejected by theTribunal in the case of Trilogy E-Business on thepremise that the information obtained by the TPO)by issuance of notice u/s 133(6) of the Act wasnot, however, available in public domain. Thereasons recorded, for appreciation of facts, areextracted hereunder:|XXXXX §.2.1.In conformity with the findings of thecoordinate bench of the Tribunal in the case ofTrilogy E-Business, we are of the considered viewthat (i) Accel Transmatic Ltd (Seg); (iu) AvantCimcon Technologies Ltd; (ut) Celestial Labs. Ltd.,& (w) KALS Information Systems Ltd (seg) cannotqualify as comparables in the case of theassessee under consideration. It is ordered|accordingly. Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 9/13 XMM XM 5.2.4.In conformity with the findings of the|earlier Bench (supra), we are of the considered|view that the TPO was justified in selecting M/s.Megasoft Ltd as comparable. However, the’AO/TPO is directed to take segmental margins ofY3.11%for|comparability.It1S|orderedaccordingly. ~ Regarding substantial question of law No.3: é5.3The Tribunalin|the|CaSeE-Businesshaddirectedthattheforeignexchange gain or loss should be considered asoperating revenue or cost while computing theoperating margin of the assessee as well as thecomparable. The relevant finding of the Tribunalread as follows: of Trilogy XXXXX XXXXX 5.3.1.In conformity with the above finding, we|direct the AO/TPO to consider the foreignexchange gain or loss as part of the operatingcost or revenue as the case may be. Since theTPO.had|computedthe|margin:withoutconsidering the foreign gain or loss, the assessee Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 10/13 had tabulated revise margins of comparablesafter considering the foreign exchange gain orloss as operating in nature. The tabulatedrevised margin of comparable after consideringthe foreign exchange gain or loss is made asAnnexure A to this’ order. The AssessingOfficer/ TPO is directed to verify the correctness ofthe working/ computation oAnnexureA._ 5The controversy involved herein is no moreres integrain view oft the decision oft this Court iITANo.536/2015 C/w ITA No.537/2015delivered on)25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)) wherein ithas been observed that unless the finding of theTribunal is found ex facie perverse, the Appeal u/s.2600-A of the Act, is not maintainable. The relevantportion of the Judgment is quoted below for readyreference: §— Conclusion: 5The controversy involved herein is no moreres integrain view oft the decision oft this Court iITANo.536/2015 C/w ITA No.537/2015delivered on)25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)) wherein ithas been observed that unless the finding of theTribunal is found ex facie perverse, the Appeal u/s.2600-A of the Act, is not maintainable. The relevantportion of the Judgment is quoted below for readyreference: §— Conclusion: 038. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had it Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 11/13 been|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 rightlypicked up or not, Filters for arriving at the correctlist 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 consideredopinion 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-A.of the Act and thus the appeals Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 12/13 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 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 filedsuch appeals before this Court. Therefore we.clarify that mere dissatisfaction with the findingsoffacts arrived at by the learned Tribunal is notat all a sufficient reason to invoke|Section 260-Aof the Act before this Court. 58. The appeals filed by the Revenue are|therefore dismissed with no order as to costs.” 6. In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question oflaw arises for consideration in the present case. | Date of Judgment 11-07-2018 I.T.A.No.246/2013 The Commissioner of Income-tax CIT(A) & Anr. Vs. M/s. Bearing Point Business Consulting Private Ltd., 13/13 Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly|aismissed. No costs. TL| Sd/-.JUDGE|Sd/-|JUDGE