(Prayer: This Income Tax appeal is filed under Sec.260-a of Income Tax Act 1961, arising out of order dated:07.07.2017 passed in IT[TP]A No.755/Bang/2017, for the assessment year:2012-2013, Annexure–D, praying to: I. Formulate the substantial questions of law stated above. II. Allow the appeal and set aside the orders passed by the Income-Tax Appellate Tribunal, Bengaluru in IT[TP]A No.755/Bang/2017 dated:07.07.2017 Annexure-D and confirm the order of the DRP confirming the order passed by the deputy commissioner of Income Tax, Circle-1(1)(2), Bengaluru.)
Dr. Vineet Kothari, J.
1. 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 ‘C’, Bangalore, in IT [TP]A No.755/Bang/2017 dated 07.07.2017, relating to the Assessment Year 2012-13.
2. The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
1. 'Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the basis of functional dissimilarity by following its earlier judgment which has not reached finality and even when the Transfer Pricing Officer has considered the comparable on the basis of qualitative and quantitative filters?
2. Whether on the facts and in the circumstances of the case, Tribunal is right in law in setting aside the disallowance made by assessing authority under section 2(24)(x) read with section 36(1)(va) for the Act on account of belated remittance of employees contribution to PF and ESI even when the assessing authority rightly rejected the said claim as the assessee hand not deposited the said amount collected from employee’s into respective accounts of the Government within time prescribed under the respective Acts?
3. Whether, on the facts and circumstances of the case, the Tribunal has erred in directing the exclusion of comparable companies having RPT transactions more than 15% ignoring the TPO’s observation that the basis for determining the threshold limit for eliminating companies having RPT transactions more than 25% was through the determination of Indian companies with foreign shareholding greater than 26% and, therefore, had its basis in the provisions of the Act and the accounting standards AS-18?'
3. Learned Counsel for the Appellants-Revenue does not press substantial question No.3.
4. Submission is taken on record.
Regarding Substantial Question No.2:
5. Learned Counsel for the Appellants-Revenue submits that the issue regarding disallowance made towards belated remittance of employees contribution to PF and ESI by the Assessing Authority u/s. 2(24)(x) of the Act, is no longer res integra and is covered by the decision of the Division Bench of this Court in the case of Essae Teraoka [P] Ltd., v. Deputy Commissioner of Income Tax, Circle 11(3), decided on 4.2.2014 since reported in (2014) 366 ITR 408 (Kar).
6. The relevant portion of the judgment of this Court in the case of Essae Teraoka [P] Ltd., (supra), is quoted below for ready reference:-
'17. Section 6 of the PF Act provides for contributions and matters which may be provided for in Schemes. Paragraph-29 of the PF Scheme states what is 'Contribution'. The expression 'contribution' is also defined under the PF Act by Section 2(c) of the PF Act, which means a contribution payable in respect of a member under the Scheme or the contribution payable in respect of an employee to whom the Insurance Scheme applies. If this definition is read with sub-para(1) of paragraph-29 in Chapter-V of the PF Scheme, it would mean that the contributions payable by the employer under the Scheme shall be at a particular rate and the contribution payable by the assessee shall be equal to the contribution payable by the employer.
18. Paragraph-30 of the PF Scheme provides for payment of contributions. Sub-para(1) of paragraph-30 states that the employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer’s contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member’s contribution).
19. From bare perusal of sub-para(1) of paragraph-30, it is clear that the word 'contribution' is used not only to mean contribution of the employer but also contribution to be made on behalf of the member employed by the employer directly.
20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub-para(1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word 'contribution' used in Clause(b) of Section 43-B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section(1) of Section 139 of the IT Act is made, the employer is entitled for deduction.'
Regarding Substantial Question No.1:
7. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under:
'13. Regarding the request of the assessee for exclusion of 4 other comparable companies on account of being functionally different, we find force in the submissions of the learned AR of the assessee because the functional profile of these 4 companies as per annual report of these companies is as under:
(i) Guindy Machine Tools Ltd., - page 116 of paper book, out of total turnover of Rs.5,365 Lakhs, Rs.3,341 lakhs is for Chuck & Chuck Components, Rs.997 laksh is for Iron Castings and 307 lakhs is for Granite surface plate.
(ii) Lykot Hitech Toolrooms Ltd., - 118 of paper book, manufactures moulded components.
(iii) Kiran Machine Tools Ltd.,- 124 of paper book- all types of springs, jigs and fixtures along with special purpose machinery.
(iv) Kulkarni Power Tools Ltd. – 129 of paper book – total turnover Rs.8,086 lakhs and it includes Rs.4,871 lakhs for Tools, Rs.2177 lakhs for spares, blowers and electricity.
14. The functional profile of the assessee company is as per page 2 of TPO’s order and as per the same, the assessee company is engaged in manufacturing of woodworking machinery and spare parts. Hence we find that these 4 companies are functionally dissimilar to the assessee company because these are not in manufacturing of any machinery and therefore, we direct the AO/TPO to exclude these 4 companies from the list of final comparables.'
8. 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:
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 b
Please Login To View The Full Judgment!
e 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.' 9. 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. 10. Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordingly dismissed. No costs.