Date Of Judgment 21-08-2018, Ita v. M/S.torry Harris Business Solutions Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 21 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.967/2017 BETWEEN: 1.PR. COMMISSIONER OF INCOME TAX-/|BMTC COMPLEX,KORAMANGALA,BMTC COMPLEX,KORAMANGALA, BANGALORE. 2.THR DEPUTYCOMMISSIONER OF INCOME TAX, |CIRCLE-7(1)(1),.(EARLIER DCIT, CIRCLE-12 (4),BANGALORE._ APPBRLLANTS)COMMISSIONER OF INCOME TAX, |CIRCLE-7(1)(1),.(EARLIER DCIT, CIRCLE-12 (4),BANGALORE._ APPBRLLANTS) (BY SRI.LSANMATHI E I, ADV.) AND: M/S.TORRY HARRISBUSINESS SOLUTIONS PVT. LTD.71, SONA TOWERS,MILLERS TANK ROAD,BANGALORE - 560 O52PAN: AAACT/287M__. RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:13/04/2017 PASSED IN IT(TP)A NO.1495/BANG/2016,|FOR THE ASSESSMENT YEAR 2011-2012 VIDE ANNEXURE - A. Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. PRAYING TO: (A) DECIDE THE FOREGOING QUESTION OF LAW)AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.RFORMULATBKBD BY THR HON'BLBE COURT AS DEBEBMED(BJSET ASIDE THE APPELLATE ORDER DATED:13/04/2017—PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.IT(TP)A NO.1495/BANG/2016 FOR ASSESSMENT YEAR 2011-12 VIDE.ANNEXURE —A., 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,SA?Bench,Bangalore, inIT A No.1495/Bang/2016dated 13.04.2017relating to the Assessment Year2011-12. 2. The substantial question of law framed by theRevenue in the Memorandum of Appeal is as under: “1.|WhetherOTFthe factsandin|thecircumstances of the case, the Tribunal wasjustified in law in holding that the lease linecharges and other expenses incurred in foreign Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. currency for delivery of software are to beexcluded both from total turnover as well as fromexport turnover for computation of deductionu/s.10A whereas such exclusion is permitted toarrive at export turnover only as_ per _ tdefinitions given in Sec. 10A of the IT Act and totalturnover has not been defined in the Section andby following the judgment of this Hon’ble Court inthe case of CIT vs. Tata Elxsi Ltd. which has notbecome final since the same has not beenaccepted by the Department and SLPs filed by therevenue on this issue are pending before theHon’ble Supreme Court? 2) Whether on the facts and in the circumstancesof the case, the Tribunal is right in law indirecting the assessing authority or TPO TheTribunal also gives relief to assessee by directingassessing authority/transfer pricing officer toadopt RPTfilter of 15%”| Regarding Substantial Question No.1: 3. The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner of Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. 4/11 Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of theHon'blesupremeCourt1nthe.CaSE€ot HCL|Technologies Ltd. (supra),is quoted below for readyreference: - 2) Whether on the facts and in the circumstancesof the case, the Tribunal is right in law indirecting the assessing authority or TPO TheTribunal also gives relief to assessee by directingassessing authority/transfer pricing officer toadopt RPTfilter of 15%”| Regarding Substantial Question No.1: 3. The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner of Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. 4/11 Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of theHon'blesupremeCourt1nthe.CaSE€ot HCL|Technologies Ltd. (supra),is quoted below for readyreference: - “17. The simular nature of controversy, akin|this case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd[2012] 204 Taxman321/17/taxman.com 100/349 ITR 98.The issue|before the Karnataka High Court was whether|the Tribunal was correct in holding that while|computing relief under Section 10A of the IT Act,the amount of communication expenses should be|excluded 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 ‘exportturnover must also be excluded from ‘totalturnover’, since one of the components of ‘total 5/11 turnover’1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. LTS. XXXXKXX 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 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”. 6/11 4. The learned Tribunal, after discussing the rival contentions of both the Appellants and Respondent, hasreturned the findings as under: Regarding Substantial Question No.2: “16. We have considered the rival submissions.Regarding the TP issue, we feel it proper torestore the matter back to AO/TPO for a freshdecision because correct RPT filter and TurnoverfilterShould|be|appliedandadditionalcomparables brought on record by the assessee|should also be considered and examined. Hence,we restore the TP issues to AO/TPO for a freshdecision by applying correct RPT Futer of 15% asbeing consistently approved by this tribunal andcorrect turnover filter and the companies havingturnover less than 1/10[th]of the turnover of theassessee company and also the companies|having turnover more than 10 times of theturnover of the assessee company should beexcluded as being consistently being held by thistribunal. Regarding Ground No.3, we hold thatthe same is rejected because this is a settledposition of law by now that the data of onlycurrent year is to be considered. Regarding thisobjection that the Draft Assessment order passed Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. 7/11 Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. 7/11 by the AO is in fact a final assessment order andtherefore bad in law, we find that reliance wasplaced in this regard on the Judgment of Hon’bleMadras High Court rendered in the case of Vijaytelevision (P) Ltd. vs. DRP as reported in 107 DTR(Mad) 111. In this case, the facts are different. Inthat case, the AO did not pass draft assessmentorder at all as noted by Hon’ble Madras HighCourt. In fact, in that case, a corrigendum waspassed by the AO in which it was stated that theorder passed earlier as final assessment orderhas to be read and treated as draft assessmentorder. In the present case, the draft order ispassed by the A.O. but the assessee is trying totreat it as final assessment order by saying thatsince, the AO has computed tax liability in thesaid order and initiated penalty proceedings, it isfinal order and not draft order. We find no meritin this contention because even if the A.O. hasworked out the tax, the draft order does notbecome final order. This is not a case of theassessee that demand notice is issued along withthis draft assessment order. Hence, we hold thatin our view, it is a draft assessment order andtherefore, this judgment of Hon’ble Madras HighCourt is not applicable. Accordingly, Ground No.6is rejected.” | Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. 8/11 Oo. However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (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|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| Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. 9/11 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, 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| 10/11 found to be devoid of merit and the same are.liable to be dismissed. 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| 10/11 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|7S. “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. o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” 6. Having heard the learned counsel appearing for the appellants, we are therefore of the opinion that no Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd. 11/11 substantial question of law arises in the present casealso. The Appeal filed by the Appellants-Revenue isliable to be dismissed and it is dismissed accordingly. —No costs. Copy of this order be sent to the respondent-Assessee, forthwith.Sd/-.JUDGE|Sd/-.JUDGE|In.