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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 20TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.989/2017
BETWEEN : 1. THE PR. COMMISSIONER
OF INCOME-TAX
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
THE DEPUTY COMMISSIONER
OF INCOME-TAX, CIRCLE-11[1]
PRESENT ADDRESS ACIT, C-1[1][1] 2ND FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
...APPELLANTS
(BY SRI ARAVIND.K.V., ADV.)
AND : M/s. ABB GLOBAL SERVICES PVT. LTD., 2ND FLOOR, EAST WING, KHANIJA BHAVAN 49, RACE COURSE ROAD BENGALURU-560001 PAN: AADCA 3217B.
…RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05.05.2017 PASSED IN IT[TP]A No.97/BANG/2014, FOR THE ASSESSMENT YEAR 2009-10, VIDE ANNEXURE-E, PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd.,
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STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT[TP]A No.97/BANG/2014 DATED 05.05.2017 VIDE ANNEXURE-E CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1[1][1], BENGALURU.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, 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 ‘B’, Bangalore, in IT[TP]A No.97/Bang/2014 dated 05.05.2017, relating to the Assessment Year 2009-10.
The substantial question of law framed by the Revenue in the Memorandum of Appeal is as under: “1. Whether, on the facts and circumstances of the case, the Tribunal has erred in directing the exclusion of comparable companies having RPT transactions more than 15% ignoring the TPO’s observation that the basis
Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd.,
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for determining the threshold limit for eliminating companies having RPT transactions more than 25% was through the determination of Indian companies with foreign shareholding greater than 26% and, therefore, had its basis in the provisions of the Act and the accounting standards AS-18?
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 functional dissimilarity by following its earlier judgment which has not reached finality and even when the Transfer Pricing Officer has considered the comparables on the basis of qualitative and quantitative filters?”
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.1 & 2: “13. We have considered the rival submissions. First we examine the profile of the assessee and the assessee in these two cited
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cases. As per page 2 of the order of the TPO, the present assessee is engaged in rendering software development services to AE engaged in Product Development and integration also in addition to three other activities. In our considered opinion, since the assessee is rendering only software development services to its AE, who may be doing Product Development, it has to be accepted that the assessee is engaged in rendering software development services to AE and Product Development by AE is of no relevance because the assessee is not the owner of those products. In Para 13 of the Tribunal order rendered in the case of Infinera India Pvt. Ltd., vs. ITO [supra], it is noted by the Tribunal that the assessee is engaged in rendering software development services to AE and hence, the functional profile of the present assessee and that assessee is same. Similarly, in the case of VMware Software India Pvt. Ltd., vs. DCIT [Supra] also it is noted by the Tribunal in Para 7 that the assessee is engaged in providing software development services in addition to ITES and market support services but the dispute in that case was only about providing of software development services and there was no dispute about ITES and market support services. Hence,
Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd.,
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the functional profile of the present assessee and that assessee is also same. In the case of Infinera India Pvt. Ltd., vs. ITO [supra], it is held by the Tribunal that in addition to Infosys Technologies Ltd., already excluded by CIT [A] in the present case, four companies i.e., 1] KALS Information Systems Ltd., 2] Bodhtree Consulting Ltd., 3] Tata Elxsi Ltd., and 4] Persistent Systems Ltd., are not good comparable on account of functional dissimilarity. Respectfully following this Tribunal order, we direct the AO/TPO to exclude these 4 companies from the list of comparables in the present case also. We also direct AO/TPO to exclude one company i.e., Akshay Software Technologies Limited because it is hit by Lower Turnover filter. In addition to this, we also direct AO/TPO to exclude one more company i.e., Sasken Communication Tech Ltd., by Respectfully following this Tribunal order rendered in the case of VMware Software India Pvt. Ltd., vs. DCIT [Supra] because it was held by the Tribunal in this case in Para 17 that this company is not a good comparable by following another Tribunal order rendered in the case of Novell Software Development India Pvt. Ltd., vs. DCIT vide order dated 31.08.2015 in IT[TP]A No.1287/Bang/2011 and this finding is given in
Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd.,
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that order dated 31.08.2015 that this company owns IPR and has branded products also. Regarding L & Tribunal Infotech Limited, we restore the matter back to AO/TPO for a fresh decision with the direction that he should verify the correct RPT % of this company and to exclude it if the same is more than 15%. In respect of Working Capital Adjustment claim also, we restore the matter to AO/TPO for a fresh decision by following the Tribunal order rendered in the case of VMware Software India Pvt. Ltd., vs. DCIT [supra] because it was held by the Tribunal in this case in paras 34 and 35 that AO/TPO should recomputed the working capital adjustment by taking the actual data without putting any upper limit. In the present case also, the AO/TPO should recomputed the working capital adjustment by taking the actual data without putting any upper limit.”
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
Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd.,
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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 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
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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 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
Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd.,
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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- Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
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Copy of this Order be sent to the Respondent- Assessee forthwith.
Sd/- JUDGE
Sd/- JUDGE
NC.