THE PR COMMISSIONER OF INCOME TAX V. M/S ELECTRONICS FOR IMAGING INDIA PVT.LTD.

ITA/401/2017

AI Insights

The case involves an appeal by the Pr. Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax against M/s. Electronics for Imaging India Pvt. Ltd. The appeal was filed under Section 260-A of the Income Tax Act, 1961, challenging the order of the ITAT, Bangalore, which had previously dismissed the Revenue's appeal concerning the inclusion of foreign exchange gains/losses in the income of the assessee. The main legal questions revolved around the classification of foreign exchange transactions as operating in nature and the implications of changing filters in comparability analysis under the Transactional Net Margin Method (TNMM). The High Court, referencing a recent judgment, concluded that the issues raised did not constitute substantial questions of law, leading to the dismissal of the appeal.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 728441 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-08-2018
• Assessment Year: misc
• Other Referred Cases: Deputy Commissioner of Income tax vs. M/s.Electronics for Imaging India Pvt. Ltd., Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S SHARATH
• Assessee Lawyers: K V ARAVIND
• Keywords: Arm's Length Price; Comparability Analysis; Comparable Companies; Comparables; Foreign exchange transactions; Operating in Nature; Substantial questions of law; TNMM; Criteria or filter; New filter; Accept/reject matrix
• Section: 260-A

Judgement Text

" 1/7 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 09th DAY OF AUGUST 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA I.T.A.No.401/2017 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME-TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(3), PRESENT ADDRESS, CIRCLE-2(1)(2), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095. …APPELLANTS (By Mr. K.V. ARAVIND, ADV.) AND: M/S. ELECTRONICS FOR IMAGING INDIA PVT. LTD., KALYANI PLATINA, 4TH FLOOR, BLOCK-I, 24-EPIP ZONE, PHASE-II, WHITEFIELD, BENGALURU-560 066. …RESPONDENT (By Mr. S.SHARATH, ADV., FOR Mr. K.K.CHYTHANYA, ADV.,) Date of Judgment 09-08-2018 I.T.A.No.401/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Electronics for Imaging India Pvt. Ltd., 2/7 THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.161/BANG/2014 DATED 24-11-2016 ANNEXURE-D, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), BENGALURU. THIS I.T.A. COMING ON FOR HEARING THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:- JUDGMENT Mr. K.V. Aravind, Adv. for Appellants- Revenue Mr. S.Sharath, Adv. for Mr. K.K.Chythanya, Adv. for Respondent - Assessee 1. The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Bench ‘B’, Bangalore, dated 24-11-2016 passed in ITA No.161/Bang/2014 (Deputy Commissioner of Income tax vs. M/s.Electronics for Imaging India Pvt. Ltd., ) for A.Y.2009-10. 2. This appeal has been admitted on 14.11.2017 to consider the following substantial questions of law Date of Judgment 09-08-2018 I.T.A.No.401/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Electronics for Imaging India Pvt. Ltd., 3/7 framed by the learned counsel for the Appellants- Revenue:- “1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the foreign exchange transactions are to be considered as operating in nature, when the Rule 10 B(2)(d) stipulates that the net profit margin realized by the taxpayer in the international transaction shall alone be computed for comparability analysis under TNMM? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the appeal against any disturbance in any one of the criteria or filter of the taxpayer or the TPO is only academic in nature and hence does not need to be adjudicated, when in fact, it has resulted in removal of seven comparable companies of the TPO? 3. Whether, on the facts and in the circumstances of the case, the Tribunal ought to have considered the Revenue’s ground that when a new filter is introduced by the CIT(A the entire accept/reject matrix changes resulting in a new Date of Judgment 09-08-2018 I.T.A.No.401/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Electronics for Imaging India Pvt. Ltd., 4/7 set of comparables which needs to be considered afresh?.” 3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:- “7. We have perused the orders and heard the rival contentions. The CIT(A) held with respect to failure to include foreign exchange gains/loss as follows: xxxxxxxxxxxx 8. We find that the issue is covered by the decision of Co-ordinate Bench of the Tribunal in the assessee’s own case in IT(TP)No.876/Bang/2013 and CO No.167/Bang/2015 dated 30.09.2015, wherein it has been held as follows:- xxxxxxxxxxxx 9. Respectfully following the decision of Co-ordinate Bench of the Tribunal in the assessee’s own case for the asst. year 2004-05, we dismiss the appeal of the Revenue”. Date of Judgment 09-08-2018 I.T.A.No.401/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Electronics for Imaging India Pvt. Ltd., 5/7 4. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. The relevant portion of the said 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 Date of Judgment 09-08-2018 I.T.A.No.401/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Electronics for Imaging India Pvt. Ltd., 6/7 (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 Date of Judgment 09-08-2018 I.T.A.No.401/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Electronics for Imaging India Pvt. Ltd., 7/7 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. Having heard the learned counsels for the parties, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs. Sd/- JUDGE Sd/- JUDGE Srl. "