Date Of Judgment 13-07-2018 I.t.a v. M/S. Inteva Products India Automotive Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURUDATED THIS THE 13[th]DAY OF JULY 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA I.T.A.No.396/2014 Between: 1.The Commissioner of Income-tax, |C.R. Building,Queens Road,Bangalore.C.R. Building,Queens Road,Bangalore. 2.The Assistant Commissioner of Income Tax,Circle — 12 (1).Rashtrothana BhavanNrupathunga RoadBangalore. 560 OO1.Circle — 12 (1).Rashtrothana BhavanNrupathunga RoadBangalore. 560 OO1. .. Appellant (By Mr. Aravind K.V. Advocate) And: M/s. Inteva Products India Automotive Pvt.Ltd. (Formerly known as MentorLVS India Pvt.Ltd.)No.69, Al-Ameen Towers,Hosur Road,Near Lalbagh Main Gate,Bangalore — 560 O78. . Respondent (By Mrs. Nitya Kaugotla for Mr. Nageswar Rao. Advocate) Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 2/16. This I.T.A. is tiled under Section 260-A of Income Tax!Act 1961, praying to: 1. Formulate the substantial questions|of law; 2. Allow the appeal and set aside the orders passed|by the Income-Tax Appellate Tribunal, Bangalore in ITA|No.1934/Bang/2012 dated 11-04-2014 Annexure —-D andconfirm the order of the Appellate Commissioner confirming|the Assistant Commissioner of Income Tax, Circle-12(1),|Bangalore & etc. ThisL.T.A.|comingOT]forHearing,this|S. SujathaJ. delivered the following:- day JU DBGMENT Mr. Aravind K.V.Adv. for Appellants — RevenueMs. Nitya Kaugotlafor Mr. Nageswar Rao.Adv. for Respondent — Assessee 1. The Appellants - Revenue have filed this appealraising purported substantial questions of law arisingfrom the Order of thelearned Income Tax Appellate| Tribunal Bangalore Bench “B”,Annexure Dsdated11/04/20141nN IT(TP)A.No.1534/Bang/2012forAY|2008-09 2. The Revenue has suggested eight substantial|questions of law, which are quoted below for readyreference: Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 3/16. “1. Whether, the Hon’ble Tribunal|was correct in holding that the functions of|the assessee is not comparable to _ thfunctionsof|CelestialBio-labs, eC-ZeCSsolutions Ltd, Infosys Ltd, Quintegra Solution|Ltd, Wipro Ltd, Lucid Software Ltd and KALS|Information Systems Ltd by relying on thedecisions of the co-ordinate benches rendered|in other cases and applying the decisions to|the facts of the assessee without making FAR|analysis of the assessee and the companies|which it directed to be omitted from the list ofcomparables? D2 Whether, the Hon’ble Tribunal|was correct in holding that the functions of|the assessee is not comparable to thefunctions of Infosys Ltd by relying on thedecisions of the co-ordinate bench rendered in|Trilogy E-Business Software Ltd and applying|the decisions to the facts of the assessee|withoutappreciatingthefactthatthe|company is also into software developmentservices and qualifies all the filters applied bythe TPO and hence it was considered as qicomparable at the enterprise level and even| Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 4/16. the assessee company owns the _ bran“meritor’ which cannot be ignored and the|brandStandsforthe|Motor|vehiclesmanufactured which includes the software|applications embedded therein as well as the.automatic parts that go into the making of the|final products and hence the contribution ofMeritor India to the brand image of Meritor issignificant? Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 4/16. the assessee company owns the _ bran“meritor’ which cannot be ignored and the|brandStandsforthe|Motor|vehiclesmanufactured which includes the software|applications embedded therein as well as the.automatic parts that go into the making of the|final products and hence the contribution ofMeritor India to the brand image of Meritor issignificant? 3Whether, the Hon’ble Tribunal|was correct in holding that the functions of|the assessee is not comparable to thefunctions of KALS Information Systems Ltd.,(seg) by relying on the decisions of the co-ordinatebenchrenderedinTrilogyfHBusiness Software Ltd and SDPLM Softwaresolutions Ltd and applying the decisions to|the facts of the assessee without appreciating|the fact that the TPO had only taken the|segmentalsof|the|applicationsoftwaresegmentfor computation of the margin?| 4Whether, the Hon’ble Tribunal|was correct in holding that the functions of|the assessee is not comparable to thefunctions of Quintegra Solutions Ltd by Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 9/16. relying on the decision of the co-ordinate|bench rendered in 24/7 Customer.Com Put.|Ltd Vs. DCIT in ITA No. 227/ Bang/ 2010 anapplying the decision to the facts of the|assessee without appreciating the fact thatthe Quintegra Solutions Ltd is engaged in|product engineering services also and 1s not.just a pure software development companywhichwillmakethe|COrMlDpaTTltocomparable since the assessee is also intoproduct designing of automotive parts usingCAD technology and the mere fact that the|company owns intangible assets and has|applied for trade mark registration does not|make the company a non-comparableP 5. Whether, the Hon’ble Tribunal was)correct in holding that the functions of the|assessee is not comparable to the functions ofWIPRO Ltd by relying on the decision of theco-ordinatebenchrenderedIn|24/7Customer.Com Put. Ltd., Vs. DCIT in ITA|No.227/Bang/ 2010andapplyingthedecision to the facts of the assessee withoutappreciating the fact that the IT Services|segment along is considered as a comparable Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 6/16. on standalone basis as this segment is into|software development services and qualifies|all the filters applied by the TPO. 6. Whether, on the facts and in thecircumstances of the case, the Tribunal was|correct in holding that the functions of the|assessee is not comparable to the functions ofLucid SoftwareLtd by relying|Orlthedecisionsof|the|Co-ordinatebenchesrendered in LG Soft India Put. Ltd., (ITA|No.1121/ Bang/ 2011)MercedesBenzResearch & Development India Put. Ltd.,|(IT(TPJA No.1222/ Bang/2011) and SDPLM|softwareSolutionsLtd(IT(LP)ANo.1303/7 Bang/ 201and.applyingthedecisions to the facts of the assessee withoutgoing into the functions of the assessee beforecoming to the conclusion that the company1s |not functionally comparable and also _ notaking cognizance of the fact that the|comparable company is in the business of|development of software products which 1s|similar to that of the assessee company? 7. Whether, on the facts and in thecircumstances of the case, the Tribunal was| Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 7/16— right in directing the assessing officer to|exclude the telecommunication expenses of|Rs. 55,81,840 incurred in foreign currency.both from the export turnover as well as the|total turnover without appreciating the fact|that there is no provision in section 10A that|such expenses Should be reduced from the.totalturnover,aS|clause(iv)of|the|Explanation 2 to section 1OA provides thatsuch expenses are to be reduced only fromthe export turnover?| 7. Whether, on the facts and in thecircumstances of the case, the Tribunal was| Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 7/16— right in directing the assessing officer to|exclude the telecommunication expenses of|Rs. 55,81,840 incurred in foreign currency.both from the export turnover as well as the|total turnover without appreciating the fact|that there is no provision in section 10A that|such expenses Should be reduced from the.totalturnover,aS|clause(iv)of|the|Explanation 2 to section 1OA provides thatsuch expenses are to be reduced only fromthe export turnover?| &. Whether the Tribunal was justified,on the facts and in the circumstances of the|case, in allowing relief to the assessee by|relying on the decision of the High Court in|the case of Tata Elxsi Ltd, 349 ITR 98 without|appreciating that the decision of the High|Court has not reached its finality and SLPs|have been filed against such orders on this|issue in a number of cases including the case|of Tata Elxs1 Ltd?”| 3. The learned counsel appearing for theAppellants — Revenue, Mr.K.V. Aravind submitted thatin so far as the substantial questions 1 to 6 are Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 8/16. concerned, the learned ITAT in its Order dated)11/04/2014has given the findings, the relevantportion of which is quoted below for ready reference:- Celestial Biolabs Ltd. . . . . . . 9.4.1 We have heard both the parties and|perused and carefully considered the materialon record. While it is true that the decisions|cited and relied on by the assessee were with|respecttotheimmediatelypreviousassessment year, and there cannot be an|assumption that it would continue to be.applicable for this year as well, the same|parity of reasoning is applicable in the TPO as.well who seems to have selected _§ thcompany as a comparable based on the|reasoning given in the TPO’s order for the|earlier year. It is evidently clear from this,|that the TPO has not carried out any|independent FAR analysis for this company|for this year viz. Assessment Year 2008-09. To that extent, in our considered view, the|selection process adopted by the TPO forinclusion of this company in the lst of| Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 9/16. comparables is defective and suffers form|serious infirmity.| E-Zest Solutions Ltd. We heard the rival submissions and perused|and carefully considered the material on|record. It is seen from the record that the TPO|has included this company in the list of|comparables only on the basis of _ thstatement made by the company in its replyto the notice under section 133(6) of the Act. It|appears that the TPO has not examined the|services rendered by the company to give afinding whether the services performed by the.assessee. From the details on record, we find|that while the assessee is into software|development services, this company 1.e. e-Zest|SolutionsLtd1S renderingproductdevelopment services and high end technical|services which come under the category ofKPO services. It has been held by the co-ordinate benches of this Tribunal in the case|of Capital I-Q Information Systems(IndiaO (P)|Ltd. Supra) and SDPLM Software SolutionsLtd. (supra)that|KPO.SCTUICESarenotcomparable to software development services| Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 10/16) and are therefore not comparable. Following|the aforesaid decision of the _ co-ordinatbench of the Hyderabad Tribunal in _ thaforesaid case, we hold that this company,|ue. e-Zest Solutions Ltd. be omitted from the|set of comparables for the period underconsideration in the case on hand. TheA.O/ TPO ts accordingly directed. Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 10/16) and are therefore not comparable. Following|the aforesaid decision of the _ co-ordinatbench of the Hyderabad Tribunal in _ thaforesaid case, we hold that this company,|ue. e-Zest Solutions Ltd. be omitted from the|set of comparables for the period underconsideration in the case on hand. TheA.O/ TPO ts accordingly directed. Infosys Technologies Ltd. We haque heard the rival submissions andperused and carefully considered the materialon record. We find that the assessee has|brought on record sufficient evidence toestablish that this company is functionally|dis-similar and different from the assessee|and hence is not comparable and the finding|rendered in the case of Trilogy E-Business|softwareIndia.Pout.Ltd.(Supra) forAssessment Year 2007-08 is applicable tothis year also. We are inclined to concur with|the argument put forth by the assessee that|Infosys Technologies Ltd is not functionallycomparablesince.It OWNSSignificant|intangible and has huge revenues from|software products. It is also seen that the Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 11/16) break up of revenue from software services|and software products is not available. In this|view of the matter, we hold that this company|oughttobeomittedfrom)theset|of|comparablecompanies.It1S.ordered|accordingly. ~ 4. In so far as the seventh and eighth substantialquestions of law raised by the Revenue in the presentappeal are concerned, the learned counsel for theRevenue submitted that the same are covered by thedecision of the Hon’ble Apex Court in the case ofCommissioner of Income-tax, Central - III vs. HCLTechnologies 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 similar nature of controversy,akin this case, arose before the Karnataka|High Court inCIT v. Tata Elxsi Ltd[2012]204 Taxman321/17/taxman.com Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 12/16) 100/349 ITR 98.The issue before theKarnataka High Court was whether theTribunal was correct in holding that while|computing relief under Section 10A of the IT|Act, the amount of communication expensesShould be excluded from the total turnover tfthe same are reduced from the export|turnover? While gwing the answer to the|issue, the High Court, inter-alia, held thatwhen a particular word is not defined by the|legislature and an ordinary meaning is to be|attributed to it, the said ordinary meaning 1s to be in conformity with the context in whichtt |is used. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘total|turnover’, since one of the components of|‘total turnover is export turnover. Any other|interpretation would run counter to thelegislative intent and would be impermissible. IS. XXXXXX 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 are Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 13/16) allowed 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. IS. XXXXXX 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 are Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 13/16) allowed 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|TUTnNOoOValso.Otherwise,arlyotherinterpretation makes the formula unworkable|and absurd. Hence, we are satisfied thatsuch deduction shall be allowed from the totalturnover in same proportion as well”. Oo. However, this Court in a recent judgment in I.T.A.No.536/2015c/w.I.T.A.No.537/2015(Pr.Commissioner.of|IncomeTax,Bangalore andAnother Vs. M/s. Softbrands India P.Ltd.,) renderedon 25-06-2018,has held that in these type of cases,unless ansex-facle’ perversity in the findings of thelearned Income Tax Appellate Tribunal is established by Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 14/16) the appellant, the appeal at the instance of an assessee or the Revenue under|Section 260-Aot the Act is notmaintainable and the relevant portion of the saidjudgment is quoted below for ready reference:- “Conclusion: | 55.ASubstantialquantumofinternational trade and transactions dependsupon the fair and quick judicial dispensationin such cases. Had it been a case ofsubstantial questionof|interpretationofprovisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of theTreaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Sharesin Tax Havens (like in the case of Vodafoneetc.), tf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could haveembarked upon such exercise offraming and Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 15/16) answering such substantial question of law. |On the other hand, the appeals of the presenttenor as to whether the comparables havebeen rightly picked up or not, Filters forarriving at the correct list of comparableshave been rightly applied or not, do not in ourconsideredopinion,|giverisetoanysubstantial question of law. 26. We are therefore of the considered|opinion that the present appeals filed by theRevenue do not give rise to any substantialquestionof|lawandtheSuggestedsubstantial questions of law do not meet therequirements ofSection 260-A.of the Act and|thus the appeals filed by the Revenue arefound to be devoid of merit and the same areliable to be dismissed. 57. We make it clear that the same'§yardsticks and parameters will have to beapplied, even if such appeals are filed by theAssessees, because, there may be caseswhere the Tribunal giving its own reasonsand findings has found certain comparablesto be good comparables to arrive at an|°“Arm’s Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 16/16) Length Price’ in the case of the assesseewith which the assessees may not besatisfied and have filed such appeals beforethis Court. Therefore we clarify that meredissatisfaction with the findings of factsarrived at by the learned Tribunal is not at alla sufficient reason to invoke.Section 260-Aof the Act before this Court. 57. We make it clear that the same'§yardsticks and parameters will have to beapplied, even if such appeals are filed by theAssessees, because, there may be caseswhere the Tribunal giving its own reasonsand findings has found certain comparablesto be good comparables to arrive at an|°“Arm’s Date of Judgment 13-07-2018 I.T.A.No.396/2014 The Commissioner of Income-Tax, & Anr. Vs. M/s. Inteva Products India Automotive Pvt. Ltd., 16/16) Length Price’ in the case of the assesseewith which the assessees may not besatisfied and have filed such appeals beforethis Court. Therefore we clarify that meredissatisfaction with the findings of factsarrived at by the learned Tribunal is not at alla sufficient reason to invoke.Section 260-Aof the Act before this Court. o&. The appeals filed by the Revenue|are therefore dismissed with no order as tocosts.” 6. Having heard the learned counsel for theappellant — Revenue, this Court is satisfied that nosubstantial question of law would arise in the presentcase and the appeal filed by the Revenue is thereiore,liable to be dismissed. Accordingly, it is dismissed. Nocosts. BMV*~ Sd/-| JUDGE Sd/-| JUDGE|