Date Of Judgment 13-08-2018, Ita v. M/S. Sandisk India Device Design Centre Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 13 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.529/2017 BETWEEN : 1.PR. COMMISSIONER.OF INCOME TAX-6OF INCOME TAX-6 BMTC COMPLEX. KORAMANGALA> BANGALORE.» «|DEPUTY COMMISSIONER OF INCOME TAX.CIRCLE-12]3}CIRCLE-12]3} BANGALORE.» . APPELLANTS| (BY SRI E.L.SANMATHI, ADV.) AND : M/s. SANDISK INDIA DEVICEDESIGN CENTRE PVT. LTD.,.SURVEY No.143/1, AMANI BELLANDURKHANE VILLAGE, PRESTIGE EXCELSIORPRESTIGHK TRHCH PARMARATHALLI-SARJAPUROUTER RING ROAD >KADUBHBBSANAHALLIVARTHUR HOBLI BANGALORBE-560 10PAN: AAICS 9204 M._. RESPONDENT. Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 15.02.2017 PASSED IN IT/TP|JA No.126/BANG/2014, FORTHE ASSESSMENT YEAR 2009-2010, VIDE ANNEXURE-A,|PRAYING TO: DECIDE THE FOREGOING QUESTION OF LAW|AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.FORMULATED BY THE HON’BLE COURT AS DEEMED FIT; AND|SET ASIDE THR APPBELLATHKH ORDER DATEBED 15.02.2017 PABY THE INCOME TAX APPELLATE TRIBUNAL, “‘B’ BENCH,BENGALURU,IN|APPEALPROCEKBEDINGNo.IT|TPIA|No.126/BANG/2014 FOR THE ASSESSMENT YEAR 2009-2010,VIDE ANNEXURE-A, AS SOUGHT FOR IN THIS APPEAL. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. E.I.Sanmathi, Adv. for Appellants — Revenue. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, Bangalore Bench ‘B’, Bangalore, inIT[TP|A No.126/Bang/2014dated15.02.2017, relating to the Assessment Year2009-10. 2.The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 3/11 aWhether on the facts and in thecircumstances of the case, the Tribunal ts justified|in directing the assessing officer to exclude theexpenses deducted from export turnover and fromtotal turnover also where as there is no suchexplicit provision of the Act to do soP D2 Whether, on the facts and in thecircumstances of the case, the working capitaladjustment can be made on the basis of advance|received from AEs in absence of debtors andinventory in the case of assessee for calculatingthe cost of working capital built in the profitmargin? 3.|Whether, on the facts and in thecircumstances of the case, the Tribunal wasjustified by not acknowledging its own orderswhere the Tribunal has held in stretching RPT %from 15 to 20% in case of Katera Software IndiaPut. Ltd.,?| 4 |Whether, on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding certain comparable on the basisof functional dissimilarity by not acknowledgingits own decision in Narus Network Put. Ltd.,where it has held that comparable cant be Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 4/11 excluded the basis of functional different andwhenIt satisfiesall thequalitativeandquantitative filters applied by the TPO. TheTribunal has used a narrower functionality filterthan TPO, but has not tested other comparablesagainst the narrower functionality filter appliedby it?” Regarding Substantial Question of Law No.1: 3.The issue is 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). 4The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCLTechnologies Ltd. (supra),is quoted below for readyreference:-. 4/11 excluded the basis of functional different andwhenIt satisfiesall thequalitativeandquantitative filters applied by the TPO. TheTribunal has used a narrower functionality filterthan TPO, but has not tested other comparablesagainst the narrower functionality filter appliedby it?” Regarding Substantial Question of Law No.1: 3.The issue is 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). 4The 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 Taxman|3S21/17/taxman.com 100/349 ITR 98. The issuebefore the Karnataka High Court was whether Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 5/11 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. | 1S. 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 Respondent Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 6/11 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”. 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.2: 8Regarding ground Nos.4 & 5 inrespect of working capital adjustment also, wefind no infirmity in the directions of DRP andtherefore, on this issue also, we decline tointerfere in the order of DRP. Accordingly, groundNos.4 & 5 are also rejected.” Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 7/11 Regarding Substantial Question of Law No.3: “12. Accordingly, we hold that out of total|7 comparables as noted above for whichexclusion is requested by the assessee, theremaining 6 comparables are to be excluded butfor one comparable te., L&T Infotech Ltd., werestore the matter back to the file of AO/TPO toverify the correct RPT percentage of L&T InfotechLtd., and this comparable will be excluded ff it isfound that RPT percentage for AY 2009-10 is inexcess of 15%. We order accordingly.” Regarding Substantial Question of Law No.4: Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 7/11 Regarding Substantial Question of Law No.3: “12. Accordingly, we hold that out of total|7 comparables as noted above for whichexclusion is requested by the assessee, theremaining 6 comparables are to be excluded butfor one comparable te., L&T Infotech Ltd., werestore the matter back to the file of AO/TPO toverify the correct RPT percentage of L&T InfotechLtd., and this comparable will be excluded ff it isfound that RPT percentage for AY 2009-10 is inexcess of 15%. We order accordingly.” Regarding Substantial Question of Law No.4: “13. Regarding request of assessee forinclusion of one comparable 1.e., CG Vak Software& Exports Ltd., we find that in the case ofAutodesk India Put. Ltd., v. DCIT [supra/, theTribunal restored back the matter to the file ofAO/TPO for reconsideration of the same by takinginto consideration the correct employee cost.Accordingly, in the present case also, we setaside the orders of authorities below on this issueand restore the matter back to the file ofAO/TPOwith a direction to reconsider the inclusion of thiscompany 1.e., CG Vak Software & Exports Ltd., Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 8/11 after providing adequate opportunity of beingheard to the assesSee. 14.In the result, the assessee’s appealStands allowed for statistical purposes in theterms indicated above.” 6.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (Prl. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-facie perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A otthe Act is not maintainable. The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.|ASubstantialquantumof|international trade and transactions depends Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 9/11 upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|substantial questionof|interpretationof|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, Filters for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion,|giverisetO arysubstantial question of law. Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 10/11 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|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. Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 10/11 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|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 clear that the same'§yardsticks 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|7¢§ “ArLength 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. Date of Judgment 13-08-2018, ITA No.529/2017 Pr. Commissioner of Income Tax-6 & Another Vs. M/s. Sandisk India Device Design Centre Pvt. Ltd., 11/11 o8. The appeals filed by the Revenueare therefore dismissed with no order as to|costs.” T Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no substantial question of law arises in thepresent case also. The Appeal filed by the Appellants-|Revenue is liable to be dismissed and it is dismissed|accordingly. No costs. Copy of this Order be sent to the Respondent- Assessee forthwith. Sd/-.JU DGE Sd/-.JU DGE