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1/13 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.525/2017
BETWEEN : 1. PR. COMMISSIONER
OF INCOME TAX-4
BMTC COMPLEX
KORAMANGALA
BANGALORE.
DEPUTY COMMISSIONER
OF INCOME TAX, CIRCLE-12[3] BANGALORE.
...APPELLANTS
(BY SRI SANMATHI.E.I., ADV.)
AND : M/s. SHARP SOFTWARE DEVELOPMENT INDIA [P] LTD., UNIT 5, LEVEL 3, INNOVATOR BLOCK INTERNATIONAL TECH PARK WHITEFIELD ROAD BANGALORE-560066 PAN: AAECS0269E.
…RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 25.01.2017 PASSED IN C.O. No.13/BANG/2012 IN IT[TP]A No.1109/BANG/2011, FOR THE ASSESSMENT YEAR 2005-2006, PRAYING TO: DECIDE THE FOREGOING QUESTION
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] 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 25.01.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS IN C.O. No.13/BANG/2012 IN IT[TP]A No.1109/BANG/2011 FOR ASSESSMENT YEAR 2005-2006, AS SOUGHT FOR IN THIS APPEAL AND ETC.
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 ‘C’, Bangalore, in C.O. No.13/BANG/2012 in IT[TP]A No.1109/Bang/2011 dated 25.01.2017, 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 in the circumstances of the case, the Tribunal is justified
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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in directing the assessing officer to exclude the expenses deducted from Export Turnover and from Total Turnover also whereas there is no such explicit provision in the Act to do so?
Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in removing Bodhtree Consulting Ltd., Extensys Software Solutions Ltd., Sankhya Infotech Ltd., Four Soft Ltd., Thirdware Solution Ltd., Geometric Software Solutions Company Ltd., Tata Elxsi Ltd., Visualsoft Technologies Ltd., Flextronics Software Ltd., Satyam Computer Services Ltd., Infosys Technologies Ltd., as comparable on functional dissimilarity and when it satisfies all the qualitative and quantitative filters applied by the TPO. The Tribunal was used a narrower functionally filter than TPO, but has not tested other comparables against the narrower functionality applied by it?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified regarding exclusion of one company which was selected by assessee itself?
Whether, on the facts and in the circumstances of the case, the Tribunal was
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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justified by not acknowledging its own orders where the Tribunal has held in stretching RPT % from 15 to 20% in case of Katera Software India Pvt. Ltd.?
Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in removing I-Gate Global Solutions Ltd., Sasken Communication Technologies Ltd., and L&Tribunal Infotech Ltd., as comparables by imposing turnover filter?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in not following the decision of its own bench rendered in the case of M/s. Societe Generale Global Solutions Centre Pvt. Ltd., in IT[TP]A No.1188/Bang/2011 and M/s. Vmoksha Technologies Pvt. Ltd., in IT[TP]A No.595/Bang/2013 dated 26.08.2016 for assessment year 2005-06 where the Tribunal has held that turnover is not a relevant criteria for deciding the comparability?”
Regarding Substantial Question of Law No.1: 3. The issue is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:- “17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
XXXXXX
In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well”.
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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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 Nos.2, 3, 5 & 6: “23. Our attention was also invited to the order of the Tribunal in the case of ITO v. Colt Technology Services India Pvt. Ltd., in ITA No.609/Bang/2011 in which these comparables were also examined by the Tribunal and Visual Soft Technologies Ltd., was excluded from the list of comparables. The relevant portion of the Tribunal’s order is extracted hereunder for the sake of reference:-
“xxxxx”
Having carefully examined the aforesaid orders of the Tribunal in the light of assessee’s contentions, we find that exclusion of Geometric Software Solutions Co. Ltd., Four Soft Limited, Tata Elxsi Ltd., [Seg.], Infosys Technologies Ltd., Flextronics Software Systems Ltd., Satyam Computer Services, Thirdware Solutions Ltd., and Exensys Software Solutions Ltd., made by the CIT[Appeals] is correct as these
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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companies are either functionally different or having huge turnover or incurred expenditure for selling products or having unreliable financial datas due to financial scam. Exclusion of these companies are also approved by the Tribunal in the aforesaid cases.
Bodhtree Consulting Ltd., Sankhya Infotech Ltd., and Visual Soft Technologies Ltd., though taken as comparables by the CIT[Appeals], but these companies are also functionally different with the assessee company and this aspect was examined by the Tribunal in the aforesaid orders. Therefore, we are of the view that these companies should be excluded from the list of comparables.”
Regarding Substantial Question of Law No.4: “22. From a perusal of the Tribunal orders, we find that the TPO has taken similar 17 comparables and had discussed all these comparables which were sought to be excluded by the assessee. The assessee also claims inclusion of LGS Global Ltd., [Lanco Global Solutions Ltd.,] R S Software [India] Ltd., Sasken Communication Technologies Ltd., Sasken Network Systems Ltd., L&T Infotech Ltd., iGate
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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Global Solutions Ltd., which were excluded by the CIT[Appeals]. The CIT[A] has excluded the same by applying the RPT filter at 0%, whereas the Tribunal has repeatedly held that RPT filter has to be applied between the range of 15% to 25%. The inclusion/exclusion of these comparables were examined by the Tribunal in the case of ACIT v. McAfee Software [India] Pvt. Ltd., [supra] for the same assessment year, i.e., AY 2005-06. For the sake of reference, we extract the relevant portion of the order of the Tribunal as under:-
The final list of 17 companies selected by TPO are as under:
Sl No.
Comparables selected by TPO NCP Margins as per TPO Order (%) (WC-Unadj) NCP Margins as per TPO Order (%) (WC – Adj) 1 Bodhtree Consulting Ltd., 24.85 22.35 2 Lanco Global Systems Ltd., 13.65 9.51 3 Exensys Software Solutions Ltd., 70.68 62.85 4 Sankhya Infotech Ltd., 27.39 21.14 5 Sasken Network Systems Ltd., 16.64 14.02 6 Four Soft Ltd., 22.98 21.35 7 Thirdware Solution Ltd., 66.09 63.97 8 R S Software (India) Ltd., 8.07 6.79 9 Geometric Software Solutions Company Ltd., 20.34 17.75
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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10 Tata Elxsi Ltd., 24.35 22.77 11 Visualsoft Technologies Ltd., 23.52 20.10 12 Sasken Communication Technologies Ltd., 14.42 13.24 13 Igate Global Solutions Ltd., 4.32 2.43 14 Flextronics Software Systems Ltd 32.19 29.42 15 L&T Infotech Ltd., 10.33 8.56 16 Satyam Computer Services Ltd 29.44 26.94 17 Infosys Technologies Ltd., 42.83 4.96
Arithmetical Mean 26.59 23.74
The analysis of each of the comparable company is as under.”
“xxxxx”
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.
Date of Judgment 29-08-2018, ITA No.525/2017 Pr. Commissioner of Income Tax-4 & Another Vs. M/s. Sharp Software Development India [P] Ltd.,
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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 (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
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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 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
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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- 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
NC.