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1/10 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.1051/2017
BETWEEN :
PRINCIPAL COMMISSIONER OF INCOME TAX-4, BMTC COMPLEX, KORAMANGALA, BENGALURU
THE INCOME TAX OFFICER WARD-11(2), BANGALORE
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND :
M/s LSI INDIA RESEARCH & PVT. LTD., (ERSTWHILE LSI TECHNOLOGIES INDIA PVT. LTD.,) BLOCK C, GLOBAL TECHNOLOGY PARK, MARATHAHALLI, ORR, DEVARABEESANAHALLI, BENGALURU-560 103 PAN: AABCV 5892R
…RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 14.06.2017 PASSED IN IT[TP]A NO.736/BANG/2013, FOR THE ASSESSMENT YEAR: 2005-2006, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (A) SET ASIDE THE APPELLATE ORDER DATED 14.06.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BANGALORE, IN APPEAL PROCEEDINGS IT[TP]A NO. 736/BANG/2013 FOR THE ASSESSMENT YEAR: 2005-2006 AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. E.I.Sanmathi, Adv. for Appellants – Revenue.
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.736/Bang/2013 dated 14.06.2017, relating to the Assessment Year 2005-06.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether on the facts and circumstances of the case, the Tribunal is correct in directing the TPO to apply RPT filter of 15%
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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when decision in one case cannot be applied to another. No objective basis for arriving at the stage of 10-15% has been brought on record by Tribunal?
Whether in the facts and circumstances of the case and in law, the Tribunal was justified in removing certain comparable from the list of comparables on the basis of functional dissimilarity which satisfied all filters applied by the Transfer Pricing and without doing any FAR analysis of the tax payer with those other cases? 3. Whether on the facts and circumstances of the case, the Income Appellate Tribunal is justified in directing the Assessing Officer to exclude the expenditure both from the export turnover and the total turnover when there is no provision in Section 10(A) of the IT Act requiring the said expenses to be reduced from the total turnover also?”
Learned counsel for the Appellants-Revenue has raised additional question which is quoted hereunder:-
“4. Whether on the facts and in the circumstances of the case, the Tribunal is right in
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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law in excluding certain comparable’s on the ground of turnover filter?”
Learned counsel for the Appellants-Revenue does not press question No.3. The same is placed on record.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1: “13. We have considered the rival submissions as well as the relevant material on record. As regards the objections raised by the learned Departmental Representative regarding exclusion of Bodhtree Consulting Ltd. being part of the TP Analysis, we find that the assessee raised objection against the comparability of this company before the TPO as well as before the CIT (Appeals). Therefore the objection raised by the learned Departmental Representative are bereft of any merit. We further note that the functional comparability of these three companies has been
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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considered by the co-ordinate bench of this Tribunal in the case of Syssaris Software Pvt. Ltd. Vs. DCIT (supra) in paras 19 to 21, paras 10 & 32 to 34 as under:”
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Following the orders of the co-ordinate bench of this Tribunal (supra), we direct the TPO/A.O. to verify the RPT in respect of Geometric Software Solution Ltd., and then exclude these three companies from the set of comparables in terms of the directions given by the Tribunal in the case of Syssaris Software Pvt. Ltd. Vs. DCIT (supra).
Sankya Infotech Limited Thirdware Solution Limited Tata Elxsi Limited Foursoft Limited”
Regarding Substantial Question of Law No.2: “16. Having considered the rival submissions as well as the relevant material on record, at the outset we note that the functional comparability of these four companies have been examined by the co-ordinate bench of this Tribunal in the case
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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of ITO Vs. Net Devices India Pvt. Ltd. (supra) in para Nos.18.1.1. to 18.2; 9.1 to 9.3; 18.4.1 to 18.4.3. as under:
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Following the earlier order of this Tribunal for the same assessment year, we direct the TPO/A.O. to exclude these four companies from the set of comparables.”
Regarding Substantial Question of Law No.4:
“5. As regards the turnover filter applied by the CIT (Appeals) which has been challenged by the revenue, the Tribunal has now taken a consistent view that an appropriate turnover filter can be applied by taking 10 times of the assessee’s turnover on both sides and therefore while selecting the comparable companies those are having more than 10 times and less than 1/10 time of assessee’s turnover shall be excluded. Further the high profit ratio or loss cannot be a criteria of inclusion and exclusion of a comparable company in the set of comparables however if the high profit or loss has been earned or incurred due to some abnormal circumstances or event occurred in a comparable company then
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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the said abnormal circumstances or event can be a reason for exclusion of the said company from the set of comparables. In the absence of such abnormal or extraordinary even resulting high profit these companies cannot be excluded solely on the reason of high profit margin.”
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
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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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.
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
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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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.”
Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the present case also. The Appeal filed by the Appellants-
Date of Judgment 29-08-2018, ITA No.1051/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s LSI India Research & Pvt. Ltd.
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Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
Copy of this Order be sent to the Respondent- Assessee forthwith.
Sd/- JUDGE
Sd/- JUDGE
PMR