PR COMMISSIONER OF INCOME TAX - 6 vs. M/S SYNOPSIS INDIA PVT LTD

The proposed substantial questions of law framed in the Memorandum of appeal by the

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the basis of RPT filter without applying 25% considered by the Transfer Pricing Officer. The Tribunal ought to have followed its own orders in case of Katera Software India Pvt. Ltd., and also in the case of M/s. United Engineers, Malaysia, Berhad?

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the recomputation made by the assessing authority with regard to section 10A of the Act by setting aside the reduction of expenditure incurred in foreign currency from export turnover only without reducing the same

Learned counsel for the Appellants-Revenue Mr.E.I.Sanmathi submits that in so far as the third substantial question of law is concerned, the same is covered by the decision of the Hon’ble Apex Court in the case of Commissioner of 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

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”.

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:- “16. We have heard the rival submissions and perused the material on record. The comparability of this company has come before the coordinate bench in the case of Trilogy wherein it has been held that since the company was engaged in clinical research and manufacture of other products. This company cannot be compared with that of assessee company which is engaged in the software development business. The relevant para is as under:

The learned DR had not brought any evidence on record contradicting the findings given by the coordinate bench in the above decision. Thus, we hold that this company cannot be considered as comparable with that of assessee company and therefore, we uphold the findings of the CIT (A). Hence, this ground of appeal by the revenue is dismissed.

In the result, the appeal filed by the Revenue is partly allowed.

KALS Information System: This comparable was included by the TPO and objected by the assessee company before the TPO itself and before the CIT (A) it was contended that this company derived significant revenues from sale of the products and no segmental details were available. However, CIT (A) has included this in the final list of comparables. Even before us, the same submissions were reiterated and the assessee has placed reliance on the following decisions:

The learned DR had not brought any evidence on record contradicting the findings given in the above cited decisions. Hence, respectively following the decision, we direct the AO/TPO to exclude this company from the list of comparables.

As regards Lucid Software Ltd., this company was introduced by the TPO and contested by the assessee company. However, the assessee company accepted for inclusion before the CIT (A). It is only before us that the assessee company is seeking exclusion of this company on the ground of functional dissimilarity.

It is the contention of the assessee that it is engaged in the development of products and should be excluded. We find that there is no findings of the CIT (A) on this comparable. We therefore restore this issue back to the file of the TPO for fresh adjudication in accordance with law”.

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: “ 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

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 no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is