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The Commissioner of Income-Tax, Bangalore & Another v/s M/s. Capital One Services India Pvt. Ltd., Bangalore

    I.T.A. No. 432 of 2015

    Decided On, 18 July 2018

    At, High Court of Karnataka

    By, THE HONOURABLE DR. JUSTICE VINEET KOTHARI & THE HONOURABLE MRS. JUSTICE S. SUJATHA

    For the Appellant: K.V. Aravind, Advocate. For the Respondent: Sandeep A. Huilgol, T. Suryanarayana, Advocates.



Judgment Text

(Prayer: This Income Tax Appeal 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 the Assessment Year 2009-2010 Annexure-D. Praying To: I. Formulate the Substantial Questions of Law Stated Above. II. Allow the Appeal and set aside the Order Passed by the ITAT, Bangalore in ITA No.28/Bang/2014 Annexure-D dated 24/04/2015 and confirm the order of the DRP confirming the order passed by the Deputy Commissioner of Income Tax, Circle-11(2), Bangalore.)

S. Sujatha, J.

Mr. K.V.Aravind, Adv. for Appellants - Revenue.

Mr. Sandeep A. Huilgol, Adv. For

Mr. T.Suryanarayana, Adv. Respondent - Assessee.

1. This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the orde

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r of the Income Tax Appellate Tribunal, Bangalore Bench 'C', Bangalore, in IT[TP]A No.28/Bang/2014 dated 24.04.2015, relating to the Assessment Year 2009-10.

2. The appeal has been admitted on 08.12.2015 to consider the following substantial questions of law framed in the memorandum of appeal:

"1. Whether on the facts and in the circumstances of the case the Tribunal erred in holding that the comparables considered by TPO cannot be taken as comparables, having extraordinary events when it satisfies all the qualitative and quantitative, filters rightly adopted by the TPO and without appreciation of the facts and materials available on record?

2. Whether on the facts and in the circumstances of the case the Tribunal erred in directing to include forex gain/loss as operating in nature without ascertaining the nexus with the business activity of the taxpayer?

3. Whether on the facts and in the circumstances of the case the Tribunal erred in holding that those expenses which are not part of normal business activities should get excluded for determining the operating revenue while computing the margin and as such donation is required to be excluded from operating revenue while computing the margin?"

3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under:

Regarding Substantial Question of Law No.1:

"7.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited and placed reliance upon by the assessee. We find that a co-ordinate bench of this Tribunal in the case of Mindteck [India] Ltd., for A.Y. 2009-10 [supra] has decided that this company is to be excluded from the set of comparables; holding as under at paras 32 to 34 thereof:-

"xxxxx"

7.3.2 Following the above cited decision of the co-ordinate bench of this Tribunal in the case of Mindteck [India] Ltd., [supra] for A.Y. 2009-10, we also hold and direct that this company/ i.e., Accentia Technologies Ltd., be excluded from the list of comparables in view of the occurrence of extra-ordinary event of the amalgamation of Accentia Technologies Ltd., with M/s. Asscent Infoserve Ltd., which would impact financial results in the period under consideration thereby rendering it not comparable to the assessee in the case on hand."

Regarding Substantial Question of Law No.2:

"5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited and placed reliance on by the learned Authorised Representative for the assessee. We find that the co-ordinate bench in the case of Mindteck [India] Ltd., [supra] has held that foreign exchange gain / loss is operating in nature and in this regard at para 11 thereof has held as under:-

"xxxxx"

5.3.2 It is not disputed by Revenue that the foreign exchange fluctuation has arisen as a result of the realization of the consideration for rendering software development services. It, therefore, arises or occurs in the normal course of business and hence there is no reason why it should be excluded from determining the operating 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 of the assessee be computed by including the foreign exchange gain."

Regarding Substantial Question of Law No.3:

"6. Donation to be included in or excluded from Operating Revenue.

6.1 In respect of the issue raised at [ii] in para 4.4 [supra], the assessee contends that donations are not a part of normal business activities and hence it should be excluded from operating revenues.

6.2 In the preceding paragraphs, we have already expressed the view that those expenses incurred / incomes earned in the normal course of business are to be included for determining the operating revenue while computing the margins. By the same analogy, those expenses which are not part of normal business activities should get excluded for determining the operating revenue while computing the margin. As donation is not in the nature of the normal business activity of the assessee, we hold and direct that donation requires to be excluded from operating revenue, while computing the margin."

4. 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 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.

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."

5. 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.

6. Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
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