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1/8 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 29TH DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.67/2018
BETWEEN:
PR. COMMISSIONER OF INCOME TAX-4 BMTC COMPLEX, KORAMANGALA BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME TAX OFFICER CIRCLE 11(5), BANGALORE.
…APPELLANTS
(By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. KODAIK NETWORKS (INDIA) PVT LTD., 9TH FLOOR, GREENHEART PHASE IV MFAR MANYATHA TECH PARK NAGWARA, BANGALORE-560 045.
…RESPONDENT
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, 1961, PRAYING TO DECIDE THE FOREGOING QUESTION
Date of Judgment 29-08-2018 I.T.A.No.67/2018 Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Kodaik Networks (India) Pvt Ltd.,
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OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED: 08-09-2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALORE, AS SOUGHT FOR IN THE RESPONDENT- ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A No.296/BANG/2014 FOR A.Y.2009-10 VIDE ANNEXURE-‘A’ & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS I.T.A. COMING ON FOR ADMISSION THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Sanmathi E.I. Adv. for Appellants- Revenue
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly one substantial question of law arising from the order of the ITAT, ‘A’ Bench, Bangalore, dated 08.09.2017 passed in IT(TP)A No.296/Bang/2014 for the A.Y.2009-10.
Date of Judgment 29-08-2018 I.T.A.No.67/2018 Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Kodaik Networks (India) Pvt Ltd.,
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The proposed substantial question of law framed in the Memorandum of appeal by the Appellants-Revenue is quoted below for ready reference:- “Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the following comparables have to be excluded from the list of comparables as they are functionally different forum than that of the assessee,. (i) Kals Information Systems Ltd (ii) Persistent Systems Ltd (iii) Tata Elxsi (iv) Bodh tree Consulting Ltd., (v) Infosys Ltd when all the companies satisfies the tests required for determining qualitative and quantitative filters and when selection of comparables in a case depends on FAR analysis?”
The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and the Respondent-Assessee has given the following findings in regard to substantial question of law: “11. We have considered the rival submission as well as the relevant material on record. We find that in the case of DCIT Vs. Fair
Date of Judgment 29-08-2018 I.T.A.No.67/2018 Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Kodaik Networks (India) Pvt Ltd.,
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Isaac Software India Pvt. Ltd. (supra), the TPO has selected an identical set of 11 companies for the purpose of determining the ALP of the said company. Thus the TPO itself found the said company viz. DCIT Vs. Fair Isaac Software India Pvt. Ltd. (supra) and the assessee before us on the same footing and business activities to be compared by the same set of 11 comparable companies. Further we find that the Tribunal in the case of Fair Isaac Software India Pvt. Ltd. has considered the various facts and functions of these companies which cannot be compared with any software development captive service provider. The comparability of all these 5 companies have been examined by the Tribunal in the case of DCIT Vs. Fair Isaac Software India Pvt. Ltd. (supra) in paras 11.1.1 to 12.3. We further note that the TPO has given the details of the functions of Persistent Systems Ltd. at page 23 of the impugned order which reveals that this company has a research centre for development of informatics specially life time product, life cycle services, medical research, chemistry and computer science to help the customers to improve drug discovery and Research and instrument diagnostics. Thus it is clear that this company is in a different field from
Date of Judgment 29-08-2018 I.T.A.No.67/2018 Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Kodaik Networks (India) Pvt Ltd.,
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the assessee who is providing software services for the telecommunication sector. Accordingly, in view of the decision of the co-ordinate Bench of this Tribunal as well as the facts and circumstances as discussed above, we direct the TPO/A.O. to exclude these 5 companies viz. (i) Kals Information Systems Limited (ii) Bodhtree Consulting Limited (iii) Tata Elxsi Limited (Seg.) (iv) Persistent Systems Limited and (v) Infosys Limited from the set of comparables.
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 appellants, 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:
Date of Judgment 29-08-2018 I.T.A.No.67/2018 Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Kodaik Networks (India) Pvt Ltd.,
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“ 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
Date of Judgment 29-08-2018 I.T.A.No.67/2018 Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Kodaik Networks (India) Pvt Ltd.,
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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.
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.”
Having heard the learned counsel for the appellants-Revenue, we are therefore of the opinion that
Date of Judgment 29-08-2018 I.T.A.No.67/2018 Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Kodaik Networks (India) Pvt Ltd.,
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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.
Copy of this order be sent to the Respondent- assessee.
Sd/- JUDGE
Sd/-
JUDGE