Date Of Judgment 18-07-2018, Ita v. M/S Capital One Services India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 18 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.432/2015 BETWEEN : 1.THERE COMMISSIONER OF [INCOME-IC.R.BUILDING, QUEENS ROAD,C.R.BUILDING, QUEENS ROAD, BANGALORE, «|THE Dy. COMMISSIONER OF INCOME-TAX.CIRCLE 11(2) RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD,BANGALORBE-560001BANGALORBE-560001 . APPBLLANTS (BY SRI K.V.ARAVIND, ADV.) AND : M/s CAPITAL ONE SERVICES INDIA PVT. LTD. ASCENDAS, ITPB-SEZ, 3 FLOOR,VOYAGER BUILDING, INTL. TECH PARK,WHITEFIELD MAIN ROAD,BANGALORBE-560 066PAN: AACCC4131D_. RESPONDENT. (BY SRI SANDEEP A. HUILGOL, ADV. FORSRI T.SURYANARAYANA, ADV.) Date of Judgment 18-07-2018, ITA No.432/2015 The Commissioner of Income Tax & Another Vs. M/s Capital One Services India Pvt. Ltd. 2/10 THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 24/04/2015 PASSED IN ITA NO.28/BANG/2014, FOR:THR ASSBESSMBNT YBAR 2JOO9O-2J010 ANNBXURE-D. PRAYTO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED ABOVE. II. ALLOW THR APPBAL AND SET ASIDE THE)ORDERPASSED|BYTHREITAT,BANGALOREIN|ITA|NO.28/BANG/2014 ANNEXURE-D DATED 24/04/2015 AND.CONFIRM THR ORDER OF THR DRP CONFIRMING THR ORDER|PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,|CIRCLE-11(2), BANGALORE. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. Sandeep A. Huilgol,Adv. for |Mr. T.Suryanarayana,Adv. Respondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theorder of the Income Tax Appellate Tribunal, BangaloreBench ‘C’, Bangalore, inIT[TP|A No.28/Bang/2014dated|24.04.2015, relating to the Assessment Year2009-10. 2.Theappealhas|beenadmitted|OTLO8.12.2015.TO consider.thefollowingsubstantialquestions of law framed in the memorandum of appeal: Date of Judgment 18-07-2018, ITA No.432/2015 The Commissioner of Income Tax & Another Vs. M/s Capital One Services India Pvt. Ltd. 3/10 aWhetherOnlthe factsandin|thecircumstances of the case the Tribunal erred inholding that the comparables considered by TPOcannotbe|takenas|comparables,havingextraordinary events when it satisfies all thequalitative|andquantitative,filtersrightlyadopted by the TPO and without appreciation ofthe facts and materials available on record?| D2 WhetherOnlthe factsandin|thecircumstances of the case the Tribunal erred indirecting to include forex gain/loss as operatingin nature without ascertaining the nexus with thebusiness activity of the taxpayer? 3.|WhetherOnlthe factsandin|thecircumstances of the case the Tribunal erred inholding that those expenses which are not part ofnormal business activities should get excluded fordeterminingthe.operating Tevenue|whilecomputing the margin and as such donation isrequired to be excluded from operating revenuewhile computing the margin?” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and 4/10 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1: 67 3.1 |We|haveheardthe.rivalcontentions and perused and carefully consideredthe material on record; including the judicialpronouncement cited and placed reliance upon bythe assessee. We find that a co-ordinate bench ofthis Tribunal in the case of Mindteck [India/ Ltd.,for A.Y. 2009-10 |[supra/ has decided that thiscompany is to be excluded from the set ofcomparables; holding as under at paras 32 to 34thereof:-| KVeVNKK” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and 4/10 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1: 67 3.1 |We|haveheardthe.rivalcontentions and perused and carefully consideredthe material on record; including the judicialpronouncement cited and placed reliance upon bythe assessee. We find that a co-ordinate bench ofthis Tribunal in the case of Mindteck [India/ Ltd.,for A.Y. 2009-10 |[supra/ has decided that thiscompany is to be excluded from the set ofcomparables; holding as under at paras 32 to 34thereof:-| KVeVNKK” 7.3.2Following theabove.citeddecision of the co-ordinate bench of this Tribunalin the case of Mindteck [India] Ltd., /[supra/ forA.Y. 2009-10, we also hold and direct that thiscompany/ te., Accentia Technologies Ltd., beexcluded from the list of comparables in view ofthe occurrence of extra-ordinary event of theamalgamation of Accentia Technologies Ltd., withM/s. Asscent Infoserve Ltd., which would impactfinancial results in the period under consideration Date of Judgment 18-07-2018, ITA No.432/2015 The Commissioner of Income Tax & Another Vs. M/s Capital One Services India Pvt. Ltd. 5/10 thereby rendering it not comparable to theassessee in the case on hand.” Regarding Substantial Question of Law No.2: "5.3.1We.haveheardthe.rivalcontentions and perused and carefully considered|the material on record; including the judicialdecisions cited and placed reliance on by thelearnedAuthorised|Representativefortheassessee. We find that the co-ordinate bench inthe case of Mindteck [India] Ltd., [supra] has heldthat foreign exchange gain / loss its operating innature and in this regard at para 11 thereof hasheld as under:-' KVeVNKK” 5.3.2It is not disputed by Revenue|that the foreign exchange fluctuation has arisenas a result of the realization of the considerationfor rendering software development services. It,therefore, arises or occurs in the normal course ofbusiness and hence there is no reason why itShouldbeexcludedfromdeterminingtheoperating revenue while computing the margin.Consequently, following the decision of the co-ordinate bench in the case of Mindteck [India]Ltd., [supra/, we hold that the operating revenue 6/10 of the assessee be computed by including theforeign exchange gain.” Regarding Substantial Question of Law No.3: “6.DonationTobe|includedinOFexcluded from Operating Revenue. 6.1In respect of the issue raised at /i/ inpara 4.4 /supraj,the assessee contends thatdonations are not a part of normal businessactivities and hence it should be excluded fromoperating revenues. 6.2In the preceding paragraphs, wehave already expressed the view that thoseexpenses incurred / incomes earned in thenormal course of business are to be included fordeterminingthe.operating ~revenuewhilecomputing the margins. By the same analogy,those expenses which are not part of normalbusiness actiwities should get excluded fordeterminingthe.operating Tevenue|whilecomputing the margin. As donation is not in thenature of the normal business activity of theassessee, we hold and direct that donationrequires to be excluded from operating revenue,while computing the margin.” Date of Judgment 18-07-2018, ITA No.432/2015 The Commissioner of Income Tax & Another Vs. M/s Capital One Services India Pvt. Ltd. 7/10 4The controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A. Nos.536/2015 c/w 537/2015dated95.06.2018[Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]|wherein it has beenobserved 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: Date of Judgment 18-07-2018, ITA No.432/2015 The Commissioner of Income Tax & Another Vs. M/s Capital One Services India Pvt. Ltd. 7/10 4The controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A. Nos.536/2015 c/w 537/2015dated95.06.2018[Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]|wherein it has beenobserved 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|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| Date of Judgment 18-07-2018, ITA No.432/2015 The Commissioner of Income Tax & Another Vs. M/s Capital One Services India Pvt. Ltd. 8/10 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. 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 18-07-2018, ITA No.432/2015 The Commissioner of Income Tax & Another Vs. M/s Capital One Services India Pvt. Ltd. 9/10 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|7s “ArmLength 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 Revenueare therefore dismissed with no order as to|costs.” 5.In the circumstances, having heard the learned Counsel appearing for both the sides, we are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. 10/10 6.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. Nocosts.| NC. Sd/-.JU DGE Sd/-.JU DGE