Loading judgment…
No AI summary yet for this case.
1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 09th DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.491/2017
BETWEEN:
THE PR. COMMISSIONER OF INCOME-TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095.
THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), PRESENT ADDRESS ACIT, C-2(1)(2), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. EVRY INDIA PVT. LTD., (FORMERLY KNOWN AS SPAN INFOTECH (INDIA) PVT.LTD.,) 18/2, VANI VILAS ROAD, BASAVANAGUDI, BENGALURU. PAN:AAJCS 8352F.
…RESPONDENT (By Mr.NARENDRAKUMAR J. JAIN, ADV.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
2/9
OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A No.181/BANG/2014 DATED 25-01-2017, ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), BENGALURU.
THIS I.T.A. COMING ON FOR ORDERS THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellant- Revenue Mr.Narendra Kumar J.Jain, Adv. for Respondents-Assessee
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, Bangalore Bench ‘B’, Bangalore, dated 25.01.2017 passed in IT(TP)A No.181/Bang/2014 (Dy.Commissioner of Income Tax vs. M/s.Evry India Pvt. Ltd.,) for A.Y.2009-10.
This appeal has been admitted on 24.01.2018 to consider the following substantial questions of law framed by the learned counsel for the Appellants- Revenue:-
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
3/9
“1. Whether on the facts and in the circumstances of the case, the Tribunal erred in directing the TPO to exclude certain comparable by relying on its earlier decisions which has not reached finality and even when the TPO has rightly chosen the said comparable considering the functions and as the said comparable satisfies all the required tests?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to allow actual adjustment towards the differences in the working capital position between assessee and companies selected as comparable by relying on its earlier decision in case of Moong Controls India Pvt.Ltd in ITA No.551/Bang/2015 dated 27/11/2015 even when the assessee had not produced any material with regard to demonstrate such claim and without appreciating that actual working capital employed by the comparable during the year is not provided by the assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to exclude certain comparable on the basis of
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
4/9
turnover filter by following its earlier order in case of M/s. Society General in ITA(TP)A No.1188/Bang/2011 even when the TPO has rightly chosen the comparable to determine Arm’s Length Price of international transactions in software development services?.”
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:- “ 9. We have considered the rival submissions as well as the relevant material on record. The decision relied upon by the ld. DR is on the point that this turnover filter in the shape of a slab of Rs.1 Crore to Rs.200 Crores is not a proper filter however subsequent to the said decision the Tribunal after considering the decision of Hon’ble Bombay High Court has taken a view that though the slap of Rs.1 Crores to Rs.200 Crores of turnover is not a proper filter but since the turnover is a relevant factor to be considered for the purpose of selecting the comparable companies, filter of 10 times of the turnover of assessee was considered proper and reasonable. Accordingly, by taking into account
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
5/9
the assessee’s turnover of Rs.56 Crores, the companies which are less than Rs. 5.6 Crores of turnover as well as more than Rs.560 Crores of turnover are required to be excluded. By applying this parameter of turnover are required to be excluded. By applying this parameter of turnover, following 5 companies are directed to be excluded from the set of comparables. 1. KALS Information System Ltd. 2. Zylog System Ltd. 3. Mindtree Limited (Seg.) 4. L & T Infotech Ltd. 5. Infosys Limited.
Regarding substantial question of law No.2:-
“ 24. We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant material on record. The TPO/A.O. has worked out the working capital adjustment in negative by ignoring the advance of Rs.3.89 Crores was received by the assessee from its AE. The DRP has directed the TPO/A.O. to carry out the working capital adjustment as per the actual figures and not to put any cap on it. Even otherwise we find that when the assessee has received the advance from the AE then it has a
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
6/9
direct bearing on the working capital of the assessee and therefore the comparative working capital requirement of the comparable companies has to be considered and if the comparables are allowing the credit period to the clients then the working capital adjustment has to be computed by adjusting both from the advance received from the AE as well as the credit period allowed by the comparable companies. Accordingly, we do not find any error or illegality in the directions of the DRP.
Regarding substantial question of law No.3:-
“12. Having considered the rival submissions as well as the relevant material on record, we note that the co-ordinate bench of this Tribunal in the case of DCIT Vs. Nvidia Graphic Pvt. Ltd. (supra) has considered the comparability of these three companies in paras 22, 25 to 28 as under:
xxxxxxxxxxxxxxxxx
Following the order of this Tribunal, we direct the TPO/A.O. to exclude these three companies from the set of comparables”.
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
7/9
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 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
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
8/9
(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 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
Date of Judgment 09-08-2018 I.T.A.No 491/2017 The Pr. Commissioner of Income-tax & Anr.Vs. M/s. Evry India Pvt. Ltd.,
9/9
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 counsels for the parties, 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.
Sd/- JUDGE
Sd/-
JUDGE Srl.