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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 30TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.132/2018
BETWEEN :
PR. COMMISSIONER OF
INCOME TAX-5
BMTC COMPLEX
KORAMANGALA
BENGALURU.
DEPUTY COMMISSIONER OF
INCOME TAX
CIRCLE-5(1)(1)
BANGALORE. ...APPELLANTS
(BY SRI. SANMATHI E.I., ADV.)
AND : M/S NOVO NORDISK INDIA PVT. LTD., PLOT No.32, 47-50 EPIP AREA, WHITEFIELD BANGALORE-560 066 PAN No.AAACN7425M. …RESPONDENT
(BY SRI. MALLAHARAO K, ADV. FOR NAGESWAR RAO, ADV.,)
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31.08.2017 PASSED IN IT(TP)A No.247/BANG/2016, FOR THE ASSESSMENT YEAR: 2011-2012, PRAYING TO 1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. 2) SET ASIDE THE APPELLATE ORDER DATED: 31.08.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS No.IT(TP)A No.247/BANG/2016 FOR ASSESSMENT YEAR: 2011-2012, AS SOUGHT FOR IN THIS APPEAL.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. Sanmathi E.I., Adv. for Appellants – Revenue. Mr. Mallaharao K, Adv. for Mr. Nageswar Rao, Adv. 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 ‘A’, Bangalore, in IT[TP]A No.247/Bang/2016 dated 31.08.2017, relating to the Assessment Year 2011-12.
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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The 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 and in law, the Tribunal was justified in seeking exact comparability, which searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require seeking similar comparable companies? 2) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in seeking comparability in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin? 3) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in not acknowledging that determination of ALP by carrying out comparability analysis of the comparable companies is an art and not exact science as no two companies are exactly same?
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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4) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the Act? 5) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in deciding Accentia Technologies Ltd., and Acropetal Technologies Pvt. Ltd., as functionally not comparable by demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the Act? 6) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in directing the TPO to grant the assessee risk adjustment on actual basis even when the assessee has not justified its claim for any such adjustment?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under:
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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Regarding Substantial Question of Law Nos.1 to 5: “7. Accentia Technologies Ltd., (‘Accentia’)
7.3.1. We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncement cited. We find that a coordinate bench of the Tribunal in the case of Swiss Re Shared Services (India) Pvt. Ltd., (Supra) for asst. year 2011-12 (i.e., the year under consideration in the case on hand also) has examined in detail the issue of comparability of “Accentia”, and held this company is functionally dissimilar and not a good comparable to an assessee engaged purely in ITES. At paras 9 to 20 of its order (Supra) the coordinate bench held as under:-
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7.3.2. On a careful consideration of the aforesaid order of the co-ordinate bench for asst. year 2011-12 (Supra), we find that it squarely applies to the facts of the case on hand. Therefore, respectfully following the aforesaid decision in the case of Swiss RE Shared Services (India) Pvt. Ltd., (Supra), we hold that this company, Accentia Technologies Ltd., is functionally dissimilar and
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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therefore not a good comparable to the assessee in the case on hand who merely renders ITES to its AE’s and therefore direct the AO/TPO to exclude this company from the final set of comparables.
Acropetal Technologies Ltd., (‘Acropetal’)
8.3.1. We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that a co-ordinate bench of this Tribunal in the case of Swiss Re Shared Services (India) Pvt. Ltd., for asst. year 2011-12 (Supra) has examined in detail the comparability of this company as a comparable to that of a service provider of ITES services to its AE’s and at 6 para 21 to 24 thereof held as under:-
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8.3.2. Taking into consideration the facts and circumstances of the case and respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Swiss Re Shared Services (India) Pvt. Ltd., for asst. year 2011-12 (Supra), we hold that the engineering
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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design services segment of Acropetal Technologies Ltd., is functionally different and hence cannot be considered as a good comparable to the assessee in the case on hand who is providing only ITES services to its AE’s. The AO/TPO are, therefore, directed to exclude this company from the list of comparables in the case on hand ”
Similarly, the learned Tribunal has considered other comparables and excluded the same. Regarding Substantial Question of Law No.6:
“22.2.2. It is accepted principle that risk adjustment may be granted, as per law, if the assessee submits the computation thereof and substantiates the same. It is also an accepted principle, upheld in several decisions, that the adjustment has to be granted on actuals, based on the computation that is substantiated. No adhoc adjustment percentage can be prescribed. In this view of the matter, we direct the TPO to grant the assessee risk adjustment, if applicable, on actual basis, based on computations submitted by the assessee which are substantiated. We hold and direct accordingly.
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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Consequently ground No.3 is treated as allowed for statistical purposes.”
However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. –v- 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
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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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.
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
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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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.
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.
The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Date of Judgment 30-08-2018, ITA No.132/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd.,
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Having heard the learned counsels appearing 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
PMR