Ita/540/2016 Of The Pr Commissioner Of Income-Tax, Cit (A) v. M/S Electronics For Imaging

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 4 DAY OF JULY 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.540/2016 BETWEEN : 1.THE Pr. COMMISSIONER OF |INCOME-TAX, CIT|A}%[‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560095..INCOME-TAX, CIT|A}%[‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560095.. «|THERE DEPUTLY COMMISSIONER OINCOME-TAX, CIRCLE-3}]1]/2]~ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560095.. . APPELLANTS| (BY SRI ARAVIND.K.V., ADV.) AND ; M/s. ELECTRONICS FOR IMAGING INDIA PVT. LTD.,KALYANI PLATINA, 4[‘T]KLOOR.BLOCK-I, No.24, EPIP ZONEPHASE II, WHITEFIELD|BBNGALURU-560066PAN: AAACG 6053BE._. RESPONDENT. (BY SRI S.SHARATH, ADV.) THIS TTA IS FILED UNDER SECIION 2J6O0-A OF INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED 24.02.2010PASSED IN C.O. No.94/BANG/2015, FOR THE ASSESSMENT Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. YEAR 2010-2011, ANNEXURE-E, PRAYING TO: 1. FORMULATE|THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THEHK APPEAL AND SEI ASIDE THE ORDERS PASSED BTHE ITAT, BENGALURU IN C.O.NO.94/BANG/2015 DATED24.02.2016, ANNEXURE-E AND CONFIRM THE ORDER OF THE|DRP CONFIRMING THR ORDER PASSEBKD BY THR DEBPUCOMMISSIONER OF INCOME TAX, CIRCLE-3]/1]}2], BENGALURUAND BIC. THIS APPEAL COMING ON FOR HEARING, THIS DAY,Dr,VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. Aravind.K.V., Adv. for Appellants — Revenue.Mr. S.Sharath.,Adv. for Respondent — Assessee. _ This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal,‘BBBench, Bangalore,?:C.O.No.94/Bang/2013dated 24.02.2016relating to the Assessment Year2010-11. 2 |ThoughthisAppealWaS admitted|OTL28.11.2017 to consider the substantial questions of law |framed at paras VI(2), VI(3), VI(4) and VI(5) by theRevenue in the Memorandum of Appeal, learned counselfor the appellant does not press substantial questionNos. 1 to 4. The substantial questions of law as framed Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 3/10 by the Revenue in the Memorandum of Appeal are asunder: “1. Whether, on the facts and in thecircumstances of the case, the Tribunal isjustified in directing the assessing officer torecomputed the deduction under section 10Aafter reducing those expenses that werereduced only from export turnover from thetotal turnover also, without appreciating thatthere is no provision in section 10A to the effectthat such expenses should also be reducedfrom the total turnover, as clause [iv] of theExplanation 2 to section 10A provides thatsuch expenses have to be reduced only fromthe export turnover and the decision of thisHon’ble Court in the case of Tata Elxsi Ltd.,349 ITR 98 /[Karnataka/ has not reachedfinality since SLP has been filed against suchorder on this 1ssue?| aDWhether, on the facts and in thecircumstances of the case, the Tribunal isjustified in excluding comparables such hasICRA|TechnoAnalyticsLtd.,SaskenCommunication Technologies Ltd, Infosys Ltd, Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 4/10 Kals|Information Systems_ Ltd,Persistentsystems Ltd, Tata Elxsi Ltd by relying on itsearlier order which even though the saidorders have not reached finality and when theTPOhasightl richosen|theSaTneas|comparables by applying all required tests? aDWhether, on the facts and in thecircumstances of the case, the Tribunal isjustified in excluding comparables such hasICRA|TechnoAnalyticsLtd.,SaskenCommunication Technologies Ltd, Infosys Ltd, Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 4/10 Kals|Information Systems_ Ltd,Persistentsystems Ltd, Tata Elxsi Ltd by relying on itsearlier order which even though the saidorders have not reached finality and when theTPOhasightl richosen|theSaTneas|comparables by applying all required tests? Oo.Whether, on the facts and in thecircumstances of the case, the Tribunal ts rightin excluding comparables such has HCCABusiness Services Put. Ltd., Killick Agencies &Marketing Ltd and Asian Business Exhibition& Conference Ltd by relying on the decision ofMumbai ITAT in case of RGA Services IndiaPut. Ltd., in ITA No.22/Mum/2015 dated10.11.2015 by erroneously holding that thesaid companies are functionally different evenwhen the said company’s functions are similarto that of assessee? 4Whether, on the facts and in thecircumstances of the case, the Tribunal ts rightin law in directing the TPO/AO to consider theforeign exchange fluctuation as operating innature by following its earlier order in case ofObopay Mobile Technology India Ltd in IT/TP] Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 5/10 A.No.469/ Bang/ 2015 dated 08.01.2016 evethough the said order has not reached finality? 5.Whether on the facts and in thecircumstances of the case, the Tribunal ts rightin including few comparables by holding thatin normal circumstances the tolerance range ofRPT should not be more than 15% even whenthe TPO has rightly applied RPT filter as 25%and the decision relied upon by the Tribunalhas not reached finality?” 3. The learned Tribunal, after discussing the rivalcontentions ot boththe.Appellants-Revenue|andRespondent-Assessee, has returned a finding withregard to question No. 5 as under: “63. We have heard the learned AR as well aslearned DR and considered the relevant materialon record. The learned AR has submitted that thiscompany is having 18.66% RPT and further thiscompany earns revenue from both services andproducts. Thus, the learned AR submitted thiscompany is also in the software products andthereforecannotbe|consideredas|good Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 6/10 comparable. He has further contended that inaseries of decisions, the Tribunal has applied 15%RPT filter and since this company is having morethan 15% RPT, the same cannot be considered as|a good comparable. 64.On the other hand, the learned DR hassubmitted that TPO has applied RPT filter of 25%and therefore only for this company, the RPTcannot be reduced to 15%. Further, the DRP hasexamined annual report of this company and)found that this company earns revenue fromsoftware development services and accordingly iscomparable. 65.We have considered the rival submissions|and relevant material on record. We find that inthe normal circumstances the tolerance range ofRPT should not be more than 15%. In the case ofthe assessee, the availability of the comparable isnot an issue and therefore we do agree with theview taken by the coordinate Benches of theTribunal that the threshold limit of tolerancerange Should not exceed 15% as far as RPTrevenue is concerned. Therefore, we direct theAO/TPO to apply 15% RPT filter in respect of allthe comparables.” Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 7/10 4. The controversy involved herein is no moreTeSintegrain view of the decision of this Court in.I1.T.A. 65.We have considered the rival submissions|and relevant material on record. We find that inthe normal circumstances the tolerance range ofRPT should not be more than 15%. In the case ofthe assessee, the availability of the comparable isnot an issue and therefore we do agree with theview taken by the coordinate Benches of theTribunal that the threshold limit of tolerancerange Should not exceed 15% as far as RPTrevenue is concerned. Therefore, we direct theAO/TPO to apply 15% RPT filter in respect of allthe comparables.” Date of Judgment 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 7/10 4. The controversy involved herein is no moreTeSintegrain view of the decision of this Court in.I1.T.A. Nos.536/2015 c/w 5377/201dated|25.06.2018(Prl. Commissioner of Income Tax & Anr. -v- M/sSoftbrands [India Pvt. Ltd,) wherein it has been|observed that unless the finding of the Tribunal isfound ex facie perverse, the Appeal u/s. 260-A of theAct, is not maintainable. The relevant portion of theJudgment is 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 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging 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 04-07-2018, ITA No.540/2016 The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging 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.” o. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of theconsidered opinion that no substantial question of lawarises for consideration in the present case. The Pr. Commissioner of Income-tax, CIT[A] & another –Vs- M/s Electronics for Imaging India Pvt. Ltd. 10/10 Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. —No costs. In. Sd/-.JU DGE Sd/-.JU DGE