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The Pr. Commissioner of Income Tax CIT(A) & Another v/s M/s. Ketera Software India Pvt. Ltd.

    I.T.A. No. 600 of 2017

    Decided On, 03 July 2018

    At, High Court of Karnataka


    For the Appellants: K.V. Aravind, Advocate. For the Respondent: S. Sharath, Advocate.

Judgment Text

(Prayer: This Income Tax appeal is filed under Section 260-A of Income Tax Act 1961, arising out of order dated 22.02.2017, passed in C.O. No.96/Bang/2015, for the assessment year 2008-2009, 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 C.O.No.96/Bang/2015 dated 22.02.2017 Annexure-D confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Circle-2(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 ‘B’, Bangalore, in C.O.No.96/Bang/2015 dated 22.02.2017, relating to the Assessment Year 2008-09.

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 holding that the expenses and foreign exchange loss reduced from the Export Turnover has to be reduced from the Total Turnover also following the ratio laid down by this Hon’ble Court in the case of CIT V/s. M/s. Tata Elxsi Ltd., even when said decision has been challenged before Apex Court by Revenue and no provision under Section 10A provides for exclusion of such expenses from total turnover?

2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable from list of comparable adopted by TPO on the ground of functional dissimilarity by following its earlier which has not reached finality even when said decisions have not reached finality and all the requires tests are satisfied?

3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding comparable even when the said comparable are chosen as all the required tests are satisfied?

4. Whether on the facts and in the circumstances of the case, it is submitted that Tribunal is right in law in excluding comparable on the basis of turnover filer by following its earlier decision which has not reached finality and even the said comparable satisfies the required filters as prescribed under the parameters of the Transfer Pricing Provisions?

5. Whether, on the facts and in the circumstances of the case, the Tribunal has also erred in excluding comparable’s on the basis of RPT filter being less than 25% by following its earlier decision which has reached finality not even when the comparable’s are chosen as all the required tests are satisfied?'

3. Learned Counsel for the Appellants-Revenue does not press substantial question Nos.3 and 4.

4. Submission is taken on record.

Regarding first substantial question of law:

5. Learned counsel for the Appellants-Revenue Mr.K.V.Aravind 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 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).

6. 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 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.


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 from the total turnover in same proportion as well'.

Regarding substantial questions of law Nos.2 and 5:-

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

'14. Having carefully examined the order of the Tribunal in the case of M/s. Infineon Technologies India Pvt. Ltd., V. DCIT [supra], we find that the said assessee is also engaged in software development services to its AE and the Tribunal has examined the functional profile of the aforesaid comparables. Having examined the functional profile in detail, the Tribunal has held that these comparables are to be excluded from the list of comparables while determining the ALP for international transactions. For the sake of reference, we extract the relevant observations of the Tribunal hereunder:-


15. Since the Tribunal has taken a particular view with regard to these comparables, we find no justification in taking a contrary view. Accordingly, we confirm the order of the CIT[A] who has rightly excluded these comparables from the final set of comparables.

20. Softsol India Ltd. : The CIT[Appeals] having applied the RPT filter more than 15% has excluded this company as a comparable. In the instant case, the RTP was 18.3%. It has been repeatedly held that RPT filter is not a water tight compartment and where once it crosses 15%, the comparable has to be excluded. In a number of cases, we have confirmed the RPT percentage of 15 to 20%. In the instant case, since the RPT is 18.3%, we find no justification in exclusion of this comparable from the list of comparables. We therefore do not find ourselves in agreement with the order of CIT[Appeals], who has excluded this comparable from the list of comparables. We accordingly set aside the order of CIT[Appeals] and direct the TPO/AO to take into account this comparable while determining the ALP of the international transactions. Accordingly, the AO/TPO is directed to recomputed the ALP in the terms indicated above.'

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

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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.' 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.