Loading judgment…
No AI summary yet for this case.
1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 10th DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.232/2017
BETWEEN:
PR. COMMISSIONER OF INCOME TAX-5, BMTC COMPLEX, KORMANGALA, BANGALORE.
DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(2), BANGALORE.
…APPELLANTS (By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD, BAGMANE TECH PARK, ‘D’ BLOCK, NO.65/2, C.V.RAMANNAGAR, ‘LAUREL’, BLOCK-D, BAGMANE TECH PARK, C.V.RAMAN NAGAR, BYRSANDRA POST, BANGALORE-560 093. PAN: AAACN 6992K/NA-112.
…RESPONDENT
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. SET
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
2/12
ASIDE THE APPELLATE ORDER DATED 29-11-2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. IT (TP] A NO. 1483/BANG/2010 FOR ASSESSMENT YEAR:2006-07, 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 ORDERS THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I. Sanmathi, Adv. for Appellant- 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, Bangalore Bench ‘A’, Bangalore, dated 29-11-2016 passed in IT(TP)A No.1483/Bang/2010 (M/s.Novell Software Development (Ind.) Pvt. Ltd., vs. The Deputy Commissioner of Income Tax ) for A.Y.2006-07.
The proposed substantial questions of law framed in the Memorandum of appeal by the
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
3/12
Appellants-Revenue are quoted below for ready reference:- “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that few companies are functionally different from the assessee when it satisfied all the qualitative and quantitative filters applied by the TPO. The Tribunal has used a narrower functionality filter than the TPO, but has not tested other comparables against the narrower functionality filter applied by it?
Whether on the facts and in the circumstances of the case, the Tribunal was right in not setting aside the matter to the TPO for fresh TP study after taking a new view on functional matrix which is narrower than the functionality matrix originally used by the TPO?
Whether on the facts and in the circumstances of the case, the Tribunal was right in excluding comparables such as M/s.Aztec Software Ltd, M/s. Geometric Software Ltd and M/s. Megasoft Ltd on the ground of having RPT in excess of 15% by following its earlier decision which has not reached finality and TPO has
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
4/12
rightly applied 25% related party transaction filter?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding comparables namely Infosys Ltd, Kals Information Systems Ltd, Tata Elxsi Ltd., Lucid Software Ltd, M/s. Accel Transmatics Ltd by following its earlier decision in the case of M/s. LSI Technologies India Pvt. Ltd, Persistent Systems Ltd and M/s. Flextronics Software Systems Ltd, M/s.Aztec Software Ltd, M/s.Geometric Software Ltd and M/s.Megasoft Ltd by following its earlier decisions which has not reached finality?.”
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 Nos.1, 2 and 4:- “ 8. Now we decide the issue about the claim of the assessee for exclusion of 10 comparables. We examine the applicability of these two judgments cited by the ld. AR of the
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
5/12
assessee. In the case of M/s LSI Technologies India Pvt.Ltd., (supra), the Tribunal has examined and decided the issue in respect of following nine comparable companies.
M/s Infosys Ltd.,. 2. M/s Kals Information Systems Ltd., 3. M/s Tata Elxsi Ltd. (Seg.) 4. M/s Lucid Software Ltd., 5. M/s Aztec Software Ltd. 6. M/s Accel Transmatics Ltd. (Seg.) 7. M/s Geometric Software Ltd. (Seg.) 8. M/s Megasoft Ltd. 9. Flextronics Software Systems Ltd.
In para-31 of this Tribunal order, the Tribunal has directed for exclusion of eight companies and for re-examination of one company i.e. M/s Flextronics Software Ltd. In this case also, in para-5 of the Tribunal order, the Tribunal has noted that the issue is regarding bench marking of international transactions in respect of software services provided to the AE. The present assessee is also rendering software services and therefore, functional profile of the present assessee and M/s LSI Technologies India Pvt. Ltd., (Supra) is similar and therefore,
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
6/12
respectfully following this Tribunal order, we hold that in the present case also, eight companies out of the above nine companies noted above are to be excluded except M/s Flextronics Software Systems Ltd. (Supra) for which the ld. AR of the assessee placed reliance on a different Tribunal order rendered in the case of M/s HPP Ltd., (Supra).
Now we examine the issue in respect of two comparables i.e. M/s Persistent Systems Ltd. and M/s Flextronics Software Systems Ltd. by considering the Tribunal order rendered in the case of M/s HPP Ltd. (Supra). We have seen that this company i.e. M/s HPP Ltd. is also engaged in rendering software development services and therefore, the functional profile of this company and the present assesses is similar and hence this Tribunal order is applicable in the present case also. In para-11, the tribunal held that M/s Flextronics Software Ltd. (Seg.) is not a good comparable because of several reasons. One reason noted by the Tribunal in this Para is that there were extraordinary events of amalgamation during the year under consideration and further this company provides and is engaged in wide range of services and does not report separate
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
7/12
segmental results. The third reason noted by the Tribunal is that this company is also a product oriented company. The Tribunal further noted that this issue is covered by the Tribunal order rendered in the case of CES (P) Ltd., Vs DCIT (2014) as reported in 41 Taxmann.com 409 and the finding of the Tribunal has been confirmed by the Hon’ble High Court of Andhra Pradesh & Telangana in ITA No. 442 of 2014. Hence, by respectfully following this Tribunal order, we direct the AO/TPO to exclude M/s Flextronics Software Ltd. (Seg.) from the list of final comparables.
Regarding M/s Persistent Systems Ltd., it is noted by the Tribunal in para-15.3 of this Tribunal order that functional comparability of this company has been examined by the Tribunal in a number of decisions. In the case of M/s Agnity India Technologies (P) Ltd., 219 Taxman 26, the matter was carried to the Hon’ble Delhi High Court and the Hon’ble Delhi High Court has confirmed the finding of this Tribunal regarding exclusion of this comparable. Accordingly, in the present case also, we direct the AO/TPO to exclude M/s Persistent Systems Ltd. also from the list of final comparables.
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
8/12
As per the above discussion, we have directed the AO/TPO to exclude 10 comparable companies out of 20 comparables selected by the TPO. The TPO should work out the ALP on the basis of remaining 10 comparables and after deciding the claim for Depreciation adjustment after providing adequate opportunity of being heard to the assessee and then pass necessary orders as per law.
Regarding substantial question of law No.3:-
“ 7. Regarding the argument of the learned DR of the revenue in respect of 15% RPT filter, we are of the considered opinion that in the facts of the present case, when after excluding three comparables by applying 15% RPT filter, 10 comparable companies are left out of 20 comparables selected by the TPO, applying of 15% RPT filter is proper because, ideally, for a uncontrolled comparable, the RPT should be nil but because of non finding of enough comparables by applying 0% filter, the tribunal is accepting some RPT percentage, which may be 25% in some cases but in the facts of the present case, 15% RPT filter is proper. Regarding his objection for allowing depreciation adjustment,
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
9/12
we find that in assessee’s own case in A.Y.2005- 06 in IT (TP)A No.1105 & 1047/B/2011 dated 13.02.2015, the tribunal remanded the matter to the TPO for consideration of the assessee’s claim for a depreciation adjustment. Hence, in the present year also, we restore this aspect of the matter to the AO/TPO for consideration of the assessee’s claim for a depreciation adjustment”.
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:
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
10/12
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 Revenue do not give rise to any substantial
Date of Judgment 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
11/12
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 10-08-2018 I.T.A.No.232/2017 Pr. Commissioner of Income Tax-5 & Anr. Vs. M/s. Novell Software Development (India) Pvt. Ltd.,
12/12
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
Srl.