Karnataka High Court
The Commissioner Of Income Tax vs M/S Continuous Computing on 9 July, 2018
Bench: Vineet Kothari, S.Sujatha
1/13
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 9TH DAY OF JULY 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A.No.271/2012
BETWEEN:
1. THE COMMISSIONER
OF INCOME TAX, CIT[A]
C.R. BUILDING, QUEENS ROAD,
BANGALORE.
2. THE INCOME-TAX OFFICER,
WARD-11(1), C.R. BUILDING,
QUEENS ROAD,
BANGALORE. ...APPELLANTS
(BY SRI K.V. ARAVIND, ADV.)
AND:
M/s. CONTINUOUS COMPUTING
INDIA PVT. LTD.,
4TH FLOOR, PANE VALLEY,
EMBASSY GOLF LINK,
BUSINESS PARK,
OFF. INTERMEDIATE RING ROAD,
KORAMANGALA,
BANGALORE - 560 071. ... RESPONDENT
(BY SRI A.SHANKAR & SRI M.LAVA, ADVS.)
THIS ITA IS FILED UNDER SEC.260-A OF I.T. ACT, 1961,
ARISING OUT OF ORDER DATED 30.03.2012 PASSED IN ITA
NO.1343/BANG/2010, FOR THE ASSESSMENT YEAR 2006-07
Date of Judgment 09-07-2018, ITA No.271/2012
The Commissioner of Income-tax CIT [A] & another Vs.
M/s. Continuous Computing India Pvt. Ltd.,
2/13
ANNEXURE-D, PRAYING TO: I. FORMULATE THE SUBSTANTIAL
QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL
AND SET ASIDE THE ORDERS PASSED BY THE ITAT,
BANGALORE IN ITA NO.1343/BANG/2010 DATED 30.03.2012
ANNEXURE - D AND CONFIRM THE ORDER OF THE APPELLATE
COMMISSIONER CONFIRMING THE ORDER PASSED BY THE
INCOME TAX OFFICER, WARD-11(1), BANGALORE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. K.V.Aravind, Adv. for Appellants - Revenue. Mr.A.Shankar & M.Lava, Advs. for Respondent - Assessee.
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench 'B', Bangalore, in ITA No.1343/Bang/2010 dated 30.03.2012, relating to the Assessment Year 2006-07.
2. The appeal has been admitted on 08.10.2012 to examine the substantial questions of law as framed in the memorandum of appeal.
Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 3/13
3. The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
"1. Whether the Tribunal was correct in holding that the communication expenses are required to be reduced from the "total turnover" also, in the absence of any provisions to this effect in Section 10A of the Act?
2. Whether the Tribunal was correct in remitting back all the issues to the Assessing Officer when there are no fresh facts brought before the Tribunal from those which are already discussed in the order of the Assessing Officer/Transfer Pricing Officer?
3. Whether the Tribunal was correct in directing the Assessing Officer to consider only those uncontrolled comparables which are having turnover between Rs.1 crore to Rs.200 Crores, without appreciating that the direction is against the method of arithmetical average of the operating margins and profit Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 4/13 lever indicators of uncontrolled comparables as per the proviso to section 92C(2) of the Act?
4. Whether the Tribunal was correct in directing the Assessing Officer to apply turnover filter of turnover between Rs.1 crore to Rs.200 crores without any evidence in support of a correlation between the turnover and the profitability margin?
5. Whether the Tribunal was correct in directing cross examination in the case of certain comparables in whose cases information was gathered in terms of the provisions of section 133(6) of the Act and without appreciating that no cross examination is warranted under the Indian Evidence Act, as it is a process of gathering information and that examination of any evidence is not involved in the process and therefore, there is no scope for any cross examination?
6. Whether the Tribunal was correct in holding that the assessee is eligible for a standard deduction of 5% from the Arms Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 5/13 length price and the proviso to section 92C(2) of the Act, without considering the corrigendum dated 30.04.2010 to the circular No.5/2010 issued by the Board in this regard?"
4. Learned Counsel for the Appellants-Revenue does not press substantial question No.2.
5. Submission is taken on record.
Regarding first substantial question of law:-
6. Learned counsel for the Appellants-Revenue submits that the issue regarding deduction of expenditure incurred for 'Export Turn Over' is also required to be deducted from 'Total Turn Over' for the purpose of computing the deduction u/s.10A of the Act, the controversy is no longer res integra and is covered by the decision of the Division Bench of this Court in the case of M/s.Tata Elxsi Ltd., vs. Asst. Commissioner of Income Tax, decided on 20.10.2015 since reported in (2015) 127 DTR 0327 (Kar), which Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 6/13 has been affirmed by the Hon'ble Supreme Court in the case of Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
7. The relevant portion of the judgment of the Hon'ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:-
"17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/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 giving 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 to be in conformity with the context in which it is Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 7/13 used. Hence, what is excluded from 'export turnover' must also be excluded from 'total turnover', since one of the components of 'total turnover' is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible.
18. XXXXXX
19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 8/13 from the total turnover in same proportion as well".
8. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under:
Regarding substantial question of law Nos.3, 4 & 5:-
"27. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that a similar issue having similar facts has been adjudicated by this Bench of the Tribunal in the case of M/s. Insilica Semiconductors India Pvt. Ltd., v. ITO in ITA No.1399/Bang/2010 for the A.Y. 2006-07, order dated 29.02.2012 and the issue has been remanded back to the AO / TPO. The relevant findings are given in paras 18 & 19 of the said order which read as under:
"xxxxx"
28. Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of M/s. Insilica Semiconductors India Pvt. Ltd., in ITA No.1399/Bang/2010 for Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 9/13 the A.Y. 2006-07, so respectfully following the aforesaid referred to order, we remand this issue back to the file of the Assessing Officer for fresh adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee."
Regarding substantial question of law No.6:-
"34. After considering the submissions of both the parties and material on record, it is noticed that a similar issue has been adjudicated by the ITAT 'A' Bench Bangalore having the same constitution in the case of M/s. Tatra Vectra Motors Ltd., v. DCIT, ITA No.1284/Bang/2010 for the A.Y. 2006-07 wherein the relevant finding has been given in paras 12 to 17 of the order dated 31.01.2012, which read as under:
"xxxxx"
35. Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of M/s. Tatra Vectra Motors Ltd., v. DCIT in ITA No.1284/Bang/2010 order dated 31.01.2012, so respectfully following the said order, we direct the AO to allow the benefit of +/- 5% to the assessee while computing the ALP. "
Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 10/13
9. The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl.
Commissioner of Income Tax & Anr. V/s.
M/s.Softbrands India Pvt. Ltd.,], wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference:
"Conclusion:
55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 11/13 in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing 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 considered opinion, give rise to any substantial question of law.
56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 12/13
57. We make it clear that the same yardsticks and parameters will have to be applied, even if 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 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court.
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
10. In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question of law arises for consideration in the present case.
Date of Judgment 09-07-2018, ITA No.271/2012 The Commissioner of Income-tax CIT [A] & another Vs. M/s. Continuous Computing India Pvt. Ltd., 13/13
11. Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/-
JUDGE Sd/-
JUDGE NC.