Date Of Judgment 12-07-2018, Ita v. M/S Systech Integrators India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 12 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.369/2014 BETWEEN : 1.COMMISSIONER OF INCOME TAX-IIL CHRNTRAL REVENUB BUILDINGS QUEENS ROAD, BANGALORE-5S60001 «|THE INCOME TAX OFFICERWARD 12(2), BANGALORE . APPELLANTS| (BY SRI E.I.SANMATHI, ADV.) AND : M/s SYSTECH INTEGRATORS INDIA PVT. LTD.,OZONK MANAY TRHCHPARKA BLOCK, 2 KLOOR.NO.56/18 & 95/9|HOSUR MAIN ROAD|BANGALORBE-560068PAN: AAICSI1151K_. RESPONDENT. (BY SRI S.SHARATH, ADV. FOR SRI CHYTHANYA K.K., ADV.) THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 14/03/2014.PASSEDIN|IT(TP)ANO.1283/BANG/2012,KOR.THEASSESSMENI YEAR JOO&8B-2JOO9O ANNEXURE-A. PRAYING TO:DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH.OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE| Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 2/14 HON'BLE COURT AS DEEMED FIT. 2. SEIT ASIDE JHEAPPELLATE ORDER DATED: 14/03/2014 PASSED BY THE.INCOME TAX APPELLATE TRIBUNAL, A’ BENCH, BANGALORE,IN APPEAL PROCEEDINGS NO. IT(TP)A NO. 1283/BANG/2012.FOR ASSESSMENT YEAR 2008-09 ANNEXURE-A. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. E.I.Sanmathi,Adv. for Appellants — Revenue.Mr. S.Sharath,Adv. forMr. Chythanya K.K.,Ady.Respondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal,6A?Bench,Bangalore, inIT A No.1283/Bang/2012dated 14.03.2014relating to the Assessment Year2008-09. 2. This Appeal has been admitted on6.02.2015. The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether on the facts and in_ thecircumstances of the case, the Tribunal was right inlaw in holding that the functions of the assessee arenot comparable to the functions of M/s Celestial Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 3/14 Biolabs Ltd, M/s Infosys Technologies Ltd, M/sKALs Information Systems Ltd., M/s Tata Elxsi Ltd.,M/s Wipro Ltd and M/s PSI Data Systems Ltdwithout doing any FAR analysis P D2 WhetherOnlthe.factsandin|thecircumstances of the case, the Tribunal is right in!law in selectively not considering the decisions of itsco-ordinate|benchesrenderedinother|CaSeSwherein the above companies have been consideredas fit comparables ? 3.|WhetherOF|the.factsandin|the circumstances of the case, the Tribunal was justifiedin law in holding that the reimbursement ofcommunication expense are to be excluded bothfrom total turnover as well as from export turnoverfor computation of deduction under section 10Bwhereas such exclusion is permitted to arrive atexport turnover only as per the definitions given insection 10A of the I.T.Act and total turnover has notbeen defined in the section ? 4. Whether the Tribunal is correct in law in'holding that the deduction under Section 10BShould be computed in the above manner followingthe judgment ofjurisdictional High Court in the caseof CIT Vs Tara Elxsi Ltd., which has not becomefinal since the same has not been accepted by theDepartment and SLPs filed by the Revenue on this issue are pending before the Hon’ble SupremeCourt ?” Regarding Substantial Question Nos.3 & 4: 3. The issues are 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). The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCL|Technologies Ltd. (supra),is quoted below for readyreference: - 4. Whether the Tribunal is correct in law in'holding that the deduction under Section 10BShould be computed in the above manner followingthe judgment ofjurisdictional High Court in the caseof CIT Vs Tara Elxsi Ltd., which has not becomefinal since the same has not been accepted by theDepartment and SLPs filed by the Revenue on this issue are pending before the Hon’ble SupremeCourt ?” Regarding Substantial Question Nos.3 & 4: 3. The issues are 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). The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCL|Technologies 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 Taxman321/17/taxman.com 100/349 ITR 98.The issue|before the Karnataka High Court was whether|the Tribunal was correct in holding that while|computing relief under Section 10A of the IT Act,the amount of communication expenses should be|excluded from the total turnover if the same are.reduced from the export turnover? While giwing|the answer to the issue, the High Court, inter-alia, Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 5/14 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 wulogical result whichwould cause grave injustice to the Respondentwhich could have never been the intention of thelegislature. 20. Even in common parlance, when the|object of the formula is to arrive at the profit fromexport business, expenses excluded from exportturnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makes Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 6/14 the formula unworkable and absurd. Hence, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. 4. The learned Tribunal, after discussing the rivalcontentions oT boththeAppellant-RevenueandRespondent-Assessee, has returned a finding as under: Regarding Substantial Question of Law Nos.1 & 2: ¢(1) Avant Cincom Technologies Ltd. 7.0.1 We have heard both parties andperused and carefully considered the material onrecord. It is seen from the record that the TPO hasincludedthisCOTLDPDain|thefinalSefofcomparables only on the basis of informationobtained under section 133(6) of the Act. In thesecircumstances, it was the duty of the TPO to havenecessarily furnished the information so gathered tothe assessee and taken its submissions thereon intoconsiderationbeforedecidingtoincludethiscompany in its final list of comparables. Non-furnishing the information obtained under section 7/14 133(6) of the Act to the assessee has vitiated theselection of this company as a comparable. Regarding Substantial Question of Law Nos.1 & 2: ¢(1) Avant Cincom Technologies Ltd. 7.0.1 We have heard both parties andperused and carefully considered the material onrecord. It is seen from the record that the TPO hasincludedthisCOTLDPDain|thefinalSefofcomparables only on the basis of informationobtained under section 133(6) of the Act. In thesecircumstances, it was the duty of the TPO to havenecessarily furnished the information so gathered tothe assessee and taken its submissions thereon intoconsiderationbeforedecidingtoincludethiscompany in its final list of comparables. Non-furnishing the information obtained under section 7/14 133(6) of the Act to the assessee has vitiated theselection of this company as a comparable. 7.0.2. AS regards the submission of thelearned Authorised Representative, we are unableto agree that this company has to be deleted fromthe list of comparables only because it has beendeleted from the set of comparables in the case ofTriology E-Business Software India Put. Ltd. (supra).No doubt this company has been deleted as a'comparable in the case of Triology E-Businesssoftware India Put. Ltd. (supra) and this can be agood guidance to decide on the comparability in the|case on hand also. This alone, however, will notsuffice for the following reasons :-| (i) The assessee needs to demonstrate that|the FAR analysis and other relevant facts of theTriology case are equally applicable to the facts of'the assessee's case also. Unless the facts and theFAR analysis of Triology case is comparable to thatof the assessee in the case on hand, comparisonbetween the ttwo is not tenable. (u) After demonstrating the similarity and the|comparability between the assessee and_ theTriologyCUSe,the aSSCSSCECalso.needstodemonstrate that the facts applicable to theAssessment Year 2007-08, the year for which the 8/14 decision in case of Triology E-Business SoftwareIndia Pvt. Ltd. (supra) was rendered are alsoapplicable to the year under consideration 1.e.Assessment Year JOOS-OY. 7.0.9 It ts a well settled principle that theassessee is required to perform FAR analysis foreach year and it is quite possible that the FARanalysis can be different for each of the years. That!being so, the principle applicable to one particularyear cannot be extrapolated automatically andmade applicable to subsequent years. To do that, itis necessary to first establish that the facts andattendant factors have remained the same_ so thatthe factors of comparability are the same. Viewed inthat context, the assessee has not discharged theonus upon it to establish that the decision renderedin the case of Triology E-Business Software IndiaPut. Ltd. (supra) can be applied to the facts of thecase and that too of an earlier year t.e. AssessmentYear 2007-08. The assessee, in our view, has notdemonstrated that the facts of Trology E-Businesssoftware India Put. Ltd. (supra) are identical to thefacts of the case on hand and that the profile of theassessee for the year under consideration is similarto that of the earlier Assessment Year 2007- O8. Inview offacts as discussed above, we deem it fit to Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 9/14 remand the matter back to the file of the AssessingOfficer / TPO to examine the comparability of thiscompanyafreshbyconsideringthe.above|observations, The TPO 1s directed to make available|to the assessee information obtained under section133(6) of the Act and to afford the assesseeadequate opportunity of being heard and to make!its submissions in the matter, which shall be dulyconsidered before passing orders thereon. It isordered accordingly. Celestial Biolabs Ltd. Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 9/14 remand the matter back to the file of the AssessingOfficer / TPO to examine the comparability of thiscompanyafreshbyconsideringthe.above|observations, The TPO 1s directed to make available|to the assessee information obtained under section133(6) of the Act and to afford the assesseeadequate opportunity of being heard and to make!its submissions in the matter, which shall be dulyconsidered before passing orders thereon. It isordered accordingly. Celestial Biolabs Ltd. 8.5.1 We have heard both parties andcarefully perused and considered the material onrecord including the judicial decisions cited. Asdiscussed earlier, there is merit in the contention ofthe learned Departmental Representative that theruling of the co-ordinate bench of this Tribunal in thecase of Triology E-Business Software India Put. Ltd.(supra), was with respect to the facts relevant to anearlier financial year and there cannot be anassumption that it would continue to be applicableto all other assessees for this year as well. At thesame time, we find that the TPO also seems to haveselected this company as a comparable, based onthe reasoning given in the TPO’s orderfor the earlieryear t.e. F.Y. 2006-07. Evidently, in this view of the 10/14 matter, the TPO has not conducted any independentFAR analysis for this company for the year underconsideration and therefore the selection processadopted by the TPO ts defective. 8.5.2 Further, besides relying on the decisionof the co-ordinate bench in the case of Triology E-Business Software India Put. Ltd. (supra), theassessee has demonstrated that the finding giventherein for Assessment Year 2007-08 ts applicablefor this year also. Further, the assessee has alsobrought on record substantial evidence by quotingfrom various portions of the Annual Report that this|company is functionally different from the assessee|and hence is not comparable to the assessee in thecase on hand. We agree with the submissions madeby the assessee, that as per the details from theAnnual Report of this company, it is functionallydifferent from the assessee. In view of the fact thatthe financial profile and other parameters of thiscompany have not changed during the year underconsideration, which fact has been demonstrated bythe assessee, following the decision of the co-ordinate bench of this Tribunal in the case ofTriology E-Business Software India Put. Ltd. (Supra)|and Curram Software International (Pvt.) Ltd.(supra), we hold that the company ought to be excluded from the list of comparables. It ts ordered|accordingly. >. For the similar reasons, the Tribunal has|excluded other comparables also. 6. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated.25.06.2018 (Prl. Commissioner of Income Tax & Anr. -v- M/s’Softbrands India Pvt. Ltd.,) Wherein it has been|observed 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.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of| Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 12/14 6. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated.25.06.2018 (Prl. Commissioner of Income Tax & Anr. -v- M/s’Softbrands India Pvt. Ltd.,) Wherein it has been|observed 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.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of| Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 12/14 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| 13/14 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 Revenue are|therefore dismissed with no order as_ tocosts.” Date of Judgment 12-07-2018, ITA No.369/2014 Commissioner of Income Tax-III & another Vs. M/s Systech Integrators India Pvt. Ltd. 14/14 7. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of theconsidered opinion that no substantial question of lawarises for consideration in the present case. Hence, the Appeal filed by the Appellant-Revenueis liable to be dismissed and is accordingly dismissed. —No costs. In. Sd/-.JUDGE| Sd/-.JUDGE|