Date Of Judgment 20-08-2018, Ita v. M/S. Business Process Outsourcing [India] Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 20 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.932/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-ITAX ![‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BENGALURU-560095.. «|THERE DEPUTLY COMMISSIONOF INCOME-TAX, CIRCLE-11[2]PRESENT ADDRESS CIRCLE-1][1]/2]~ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560095... APPELLANTS|OF INCOME-TAX, CIRCLE-11[2]PRESENT ADDRESS CIRCLE-1][1]/2]~ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560095... APPELLANTS| (BY SRI ARAVIND.K.V., ADV.) AND ; M/s. BUSINESS PROCESS OUTSOURCINGJINDIA| PVT. LTD.,TOWER 2D, VRINDAVAN TECH VILLAGEDBVBRABBSANHALLIBBNGALURU-560037PAN: AABCB 5293N._. RESPONDENT. (BY SRI ANKUR PAI, ADV. FOR SRI K.R.VASUDEVAN, ADV.)| Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 09.06.2017 PASSED IN IT/TP|A No.229/BANG/2014, FOR,THE ASSESSMENT YEAR 2009-2010, VIDE ANNEXURE-D,PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS|OF LAW STATED ABOVE. 2. ALLOW THERE APPKAL AND SEASIDE THR ORDERS PASSED BY THR INCOME TAX APPELLATETRIBUNAL, BENGALURU IN IT JA No.229/BANG/2014 DATED09.00.2017, VIDE ANNEXURE-D, CONFIRMING THE ORDER OFTHER DRP AND CONFIRM THR ORDER PASSBD BY THE DEBPUTCOMMISSIONER OF INCOME TAX, CIRCLE-1{1]/2], BENGALURU.| THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Aravind.K.V.,,Adv. for Appellants — Revenue.Mr. Ankur Pai,Adv. tor | Mr. K.R.Vasudevan,Adv. for Respondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘B’, Bangalore, inIT[TP|A No.229/Bang/2014dated|09.06.2017, relating to the Assessment Year2009-10. 2.The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., aWhether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding certain comparables on the basisoffunctional dissimilarity by following its earlierjudgment in the case of M/s. E4E Businesssolutions Put. Ltd., which has not reached finalityand even when the Transfer Pricing Officer hasconsidered the comparables on the basis ofqualitative and quantitative filters? D2 Whether on the facts and in thecircumstances of the case, Tribunal ts right in law)in setting aside the recomputation of l10Adeduction made by assessing authority byfollowing the judgment of this Hon’ble High Courtin the case of CIT v/s. Tata Elxi even though thesaid decision has not reached finality and theassessingauthority recomputedtheLOAdeduction as per the provisions of the Act?”| Regarding Substantial Question of Law No.2: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 4/10 4The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. Regarding Substantial Question of Law No.2: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 4/10 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 CourtinCIT 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 tf the same are.reduced from the export turnoverPr 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 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. | Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., LSE, XXXXXX 19. In the instant case, if the deductions on|freight,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 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 andRespondent-Assessee, has returned the findings asunder: Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 6/10 Regarding Substantial Question of Law No.1: oneWe|haveheardthelearnedAuthorised Representative as well as learnedDepartmental Representative and considered therelevant material on record. The assessee 1Sdisputing the functional comparability of thesefour companies on various grounds and factswhich have been considered by the co-ordinatebench of this Tribunal in the case ofI oeBusiness Solutions India Pvt. Ltd., Vs. DCIT|vide order dated 10.11.2015, 67 taxmann.com 68|in paras 11.1 to 11.4 as under: KVeVNKK” We find that the facts recorded by the|Tribunal in the above sqid decision has not beendisputed and therefore the finding of the Tribunalfor the same assessment year based on the factsand merits is binding. Accordingly, by followingthe earlier order of this Tribunal, we direct theTPO/A.O to exclude these four companies fromthe set of comparables. 6. As regards the inclusion ofLee & Neesoftware[Exports]Limited,thelearned Authorised Representative of the assessee has'submitted that the DRP has _ confirmed th Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 7/10 KVeVNKK” We find that the facts recorded by the|Tribunal in the above sqid decision has not beendisputed and therefore the finding of the Tribunalfor the same assessment year based on the factsand merits is binding. Accordingly, by followingthe earlier order of this Tribunal, we direct theTPO/A.O to exclude these four companies fromthe set of comparables. 6. As regards the inclusion ofLee & Neesoftware[Exports]Limited,thelearned Authorised Representative of the assessee has'submitted that the DRP has _ confirmed th Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 7/10 exclusion of Lee & Nee Software /Exports/ Limitedon the ground that this company has earned the)revenue from software development exports andtherefore the activity of this company is softwaredevelopment and not in ITES. He pointed out thatas per the profit and loss account of the saidcompany, this company has classified its incomefrom the segment of ITES. Therefore the DRP hassimply taken into consideration the Annual Reportof this company without giving a finding of factbased on any query. Thus he has submitted thatthis company has shown only segment underITES and therefore this company is functionallycomparable. * 6.However, this Court in a recent judgment inI.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. Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 8/10 The relevant portion of the said judgment is quoted below for ready reference: “Conclusion: 55.Asubstantialquantumof|international trade and transactions dependsupon 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. Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 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 arysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|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 before 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|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 before Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd., 10/10 this 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.” T.Havingheardthelearnedcounsels.appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the presentcase also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. is liable to be dismissed and it is dismissed accordingly. — NC. Sd/-.JUDGE. Sd/-.JUDGE.