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1/11 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.108/2018
BETWEEN:
PR. COMMISSIONER OF INCOME TAX-6 BMTC COMPLEX, KORAMANGALA BANGALORE.
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 6(1)(2), BANGALORE.
…APPELLANTS
(By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. SOFTTEK INDIA PVT LTD OZONE MANAY TECH PARK ‘A’ BLOCK, 2ND FLOOR NOS. 56/18 & 55/9 HOSUR MAIN ROAD BANGALORE-560 068.
…RESPONDENT
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek India Pvt Ltd.,
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THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, 1961, PRAYING TO DECIDE THE FOREGOING QUESTIONS 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: 31-08-2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. IT(TP)A No.396/BANG/2015 FOR A.Y.2010-11 VIDE ANNEXURE A AS SOUGHT FOR IN THIS APPEAL AND TO 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 certain substantial questions of law arising from the order of the ITAT, ‘A’ Bench, Bangalore, dated 31.08.2017 passed in IT(TP)A No.396/Bang/2015 (M/s.Softtek India Pvt. Ltd., vs. Dy. Commissioner of Income-tax ) for the A.Y.2010-11.
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek India Pvt Ltd.,
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The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- “1. Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in removing M/s. ICRA Techno Analytic Ltd., M/s. Infosys Ltd., M/s. Kals Information System Ltd., M/s. Persistent Systems Ltd., M/s.Sasken Communications Technologies Ltd., and M/s.Tata Elxsi Ltd., as comparables on functional dissimilarity without appreciating the fact that transfer pricing is not an exact science and no two entities can be exact replicas and trying to find out exact replica of the assessee for determining the Arm’s length price based on such replica, even when the law and the international jurisprudence itself recognized that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method?
Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in directing the TPO to apply
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek India Pvt Ltd.,
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RPT filter of 15% when different Tribunal’s including ITAT, Bengaluru, have considered 25% RPT as appropriate?”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:-
Regarding substantial question of law No.1:- “18. We have considered the rival submission as well as the relevant material on record. At the outset, we find that the functional comparability of the above 7 companies has been considered by the co-ordinate Bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India (P.) Ltd. (supra). However the learned Departmental Representative has raised an objection against the applicability of the precedent in the case of TP matters as held by this Tribunal in Sony Mobile Communications India Pvt. Ltd. Vs. ACIT (supra). In the case on hand, the functional profile of the assessee being a software development services provider to the AE has not been disputed by the department therefore the
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek India Pvt Ltd.,
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functional profile of the assessee can be safely accepted as software development captive service provider. The co-ordinate Bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India (P.) Ltd. (supra) has considered all these aspects of the functional profile of the tested party in the said case as well as various aspects and facts relevant for the functional comparability of the comparable companies and thereafter reach to the conclusion on the functional comparability of the said comparable companies selected by the TPO. Thus once the facts as pointed out by the assessee before us for functional dissimilarity of the comparable companies are not in dispute and by considering those facts, the co-ordinate bench of this Tribunal has given finding then in the absence of any contrary fact brought before us we have no reason to take a different view than taken by the co-ordinate bench in the case of DCIT Vs. Electronics for Imaging India (P.) Ltd. (supra) in paras 13 to 32 and paras 62 to 66 as under:
xxxx xxxx xxxx xxxx
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek India Pvt Ltd.,
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Accordingly following the decision of coordinate bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India (P.) Ltd., (supra) that these companies are not functionally comparable to the assessee and therefore the TPO/A.O is directed to exclude these companies from the set of comparables.”
Regarding substantial question of law No.2:- “8. We have considered the rival submissions as well as the relevant material on record. At the outset we note that in strict sense, the ALP has to be determined by considering uncontrolled comparable prices which means unrelated comparable prices has to be taken into account to bench mark the international transactions which are the control and RPTs. However, 0% RPTs of the comparable price is an impossible situation and therefore a reasonable tolerance range of the revenue from RPT can be considered for selecting the uncontrolled comparables. There cannot be a single criteria / parameter which can be applied as a general rule in all cases. There is no specified tolerance range in the Act or Rules under the Transfer Pricing provisions, however, in due course of discussion and adjudication of this issue in a series of decisions of this Tribunal,
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek India Pvt Ltd.,
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commonly accepted tolerance range of 5% to 25% of the total revenue from RPT has been considered as reasonable depending upon the facts and circumstances of each case. In the case on hand, the availability of the comparables is abundant in number as the TPO selected 17 comparables by applying the filter of 25% of revenue from related parties. Therefore, in this case, good number of comparables are available and there is no difficulty in searching the comparables. Accordingly, in order to determine the ALP by considering the comparable uncontrolled transactions, it should be kept in mind that the uncontrolled transactions should be least influenced by the RPT in the case of DCIT Vs. Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No.29/Bang/2012 & C.O. No.40/Bang/2012 Dt.20.3.2015 for the Assessment Year 2005-06 the Tribunal has held in para 17 as under:-
xxxx
In view of the facts and circumstances of the case when there is good number of comparables available then, we concur with the view of the co- ordinate bench that the RPT filter of 15% is proper
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek India Pvt Ltd.,
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in the case of the assessee. Accordingly we direct the Assessing Officer/TPO to exclude the comparable companies having the revenue of more than 15% from related parties. Since we have determined the RPT filter at 15% and the assessee has agreed not to apply any turnover filter, the only issue remained to be decided is functional comparability of various companies selected by the TPO and objected by the assessee”.
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:
Date of Judgment 29-08-2018 I.T.A.No.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek 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.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek 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.108/2018 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Softtek 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