Date Of Judgment 13-08-2018, Ita v. M/S. Microchip Technology [India] 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.916/2017 BETWEEN : 1.PR. COMMISSIONER OF INCOME TAX-4 BMTC COMPLEX. KORMANGALA, BANGALORE.| «|ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12[1} BANGALORE. _ APPBLLANTS| (BY SRI E.L.SANMATHI, ADV.) AND ; M/s. MICROCHIP TECHNOLOGY|INDIA] PVT. LTD.,No.149-B, EPIP, 1 PHASEINDL. AREA, WHITEFIELDBANGALORE,PAN: AABCM 9868 J._. RESPONDENT. THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 03.05.2017 PASSED IN IT|TP|A No.1986/BANG/2012,.FOR THE ASSESSMENT YEAR 2008-2009, VIDE ANNEXURE-A,|PRAYING TO: [1] DECIDE THE FOREGOING QUESTION OF LAW,AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.RFORMULATBED BY THR HON’BLBE COURT AS DBBMED FIT A Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 2/10 SET ASIDE THE APPELLATE ORDER DATED 03.05.2017 PASSEDBY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH,|BENGALURU,AS|SOUGHIFOR,|LN|THE;RESPONDENI-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN IT/TPJA.No.1586/BANG/2012 FOR A.Y. 2008-09 VIDE ANNEXURE-A ANDGRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE)INTKBREST OF JUSTICE. THIS APPEAL COMING ON FOR ADMISSION, THIs DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT 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 ‘A’, Bangalore, inIT[TP|A No.1586/ Bang/2012 dated|03.05.2017, relating to the Assessment Year2008-09. 2.The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: “1.WhetherOTLthefactsand|circumstances of the case, the Tribunal ts justifiedin directing the assessing officer to exclude theexpenditureinforeignCUITeEPcyand Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 3/10 communication charges both from the exportturnover and the total turnover when there is noprovision in Section 1OA which requires the saidexpenses to be reduced from the total turnover?| D2 WhetherOF.the.factsand|circumstances of the case, the Tribunal ts right in|law in excluding certain by imposing RPT filter of15% for selection of comparable without givingspecific reason for rejection of RPT filter of 25%applied by the Transfer Pricing Officer?”| 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|HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. “17. The similar nature of controversy, akinthis case, arose before the Karnataka High Court Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 4/10 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|HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. “17. The similar nature of controversy, akinthis case, arose before the Karnataka High Court Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 4/10 inCIT v. Tata Elxsi Ltd. [2012] 204 Taxman|3S21/17/taxman.com 100/349 ITR 98. The issuebefore the Karnataka High Court was whetherthe Tribunal was correct in holding that whilecomputing relief under Section IOA of the IT Act,the amount of communication expenses should beexcluded 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,held that when a particular word is not defined|by the legislature and an ordinary meaning is to|be attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is|used. Hence, what is excluded from ‘export|turnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total|turnover’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 only|in Export Turnover but not from the _ TotaTurnover then, it would give rise to inadvertent,| Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 5/10 unlawful, meaningless and illogical result whichwould cause grave injustice to the Respondentwhich 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: “6.We|haveheardthe|learnedAuthorised Representative as well as learnedDepartmental Representative and considered therelevant material on record. The assessee’sturnover of international transactions is Rs.22.88 Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 6/10 Crores. Therefore the first issue raised 1sregarding the applying ofproper filter of turnover.Both the parties have agreed in principle that 10times of the assessee’s turnover on both sidesShall be applied as a fiuter for selecting hecomparable companies. The second aspect whichis to be considered in this appeal is regardingRelated Party Transaction filter. The TPOapplied 25% RPT. We find that neither the TPOnor the assessee has found any difficulty inselection of comparable companies. The TPO hasselected as many as 20 companies in the final setof comparables. Therefore this is a normal case ofavailability of comparables. Accordingly, in viewof the consistent view taken by this Tribunal thatin the normal circumstances, the RPT tolerancerange shall not exceed 15%. 6/10 Crores. Therefore the first issue raised 1sregarding the applying ofproper filter of turnover.Both the parties have agreed in principle that 10times of the assessee’s turnover on both sidesShall be applied as a fiuter for selecting hecomparable companies. The second aspect whichis to be considered in this appeal is regardingRelated Party Transaction filter. The TPOapplied 25% RPT. We find that neither the TPOnor the assessee has found any difficulty inselection of comparable companies. The TPO hasselected as many as 20 companies in the final setof comparables. Therefore this is a normal case ofavailability of comparables. Accordingly, in viewof the consistent view taken by this Tribunal thatin the normal circumstances, the RPT tolerancerange shall not exceed 15%. 7.|Thus the comparability of the entireset of comparables has to be decided by applyingthe appropriate filter of turnover at 10 times ofassessee’s turnover on both sides and furtherRPT filter of 15%. We are of the consideredopinion that the entire TP issue requires freshexamination and consideration at the level ofTPO/A.O.Accordingly,inthefactsandcircumstances of the case, we set aside the TP Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 7/10 issue including selection of comparables andfunctional comparability to the record of the TPOfor consideration and adjudication. Needless tosay the assessee be given a proper opportunity ofhearing raising the objections on the functionalcomparability of the company. ” 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 isestablished 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.Asubstantial quantumof|international trade and transactions depends Date of Judgment 13-08-2018, ITA No.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 8/10 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.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 9/10 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.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 9/10 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.916/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Microchip Technology [India] Pvt. Ltd., 10/10 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. NC. Sd/-. JUDGE| Sd/-.JUDGE|