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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 9TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.413/2017
BETWEEN : 1. PR. COMMISSIONER OF INCOME TAX-7 C.R. BUILDINGS QUEENS ROAD BANGALORE-560001.
DEPUTY COMMISSIONER
OF INCOME TAX
CIRCLE-5[1][1]
BANGALORE.
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND : M/s. TARGET CORPORATION OF INDIA PVT. LTD., S.No.2/1, 2/2, 2/3, 5/1 FOUNTAIN EMBASSY GOLF LINK BUSINESS PARK INDIRANAGAR, KORMANGALA IRR BANGALORE-560071 PAN: AAECA8999N.
…RESPONDENT
(BY SRI ANKUR PAI, ADV. FOR SRI K.R.VASUDEVAN, ADV.)
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.12.2016 PASSED IN C.O.No.103/BANG/2015 IN IT[TP]A No.343/BANG/2015, FOR THE ASSESSMENT YEAR 2010-11, ANNEXURE-A, PRAYING TO: DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OHTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT; SET ASIDE THE APPELLATE ORDER DATED 29.12.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS C.O.NO.103/BANG/2015 IN No.IT[TP]A No.343/BANG/2015 FOR THE ASSESSMENT YEAR 2010-11, ANNEXURE-A AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. E.I.Sanmathi, Adv. for Appellants – Revenue. Mr. Ankur Pai, Adv. for Mr. K.R.Vasudevan, Adv. for Respondent – Assessee.
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 C.O. No.103/BANG/2015 in IT[TP]A No.343/Bang/2015 dated 29.12.2016, relating to the Assessment Year 2010-11.
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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The appeal has been admitted on 14.11.2017 to consider the following substantial questions of law formulated in the appeal memorandum: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that certain comparable cannot be taken as comparables on the basis of facts of a different case for different assessee without making any specific FAR analysis vis-à-vis the assessee – company in contrast to the fact that Tata Elxsi Limited satisfy all the qualitative and quantitative filters applied by the TPO?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to apply RPT filter of 15% by superimposing the decisions of Tribunal in other cases without going into specific facts of the taxpayer and without adducing the basis for arriving at the 15% cut off for RPT filter?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting few companies chosen by Transfer Pricing Officer as comparables on the
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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basis of functional dissimilarity by following its earlier order which has not reached finality even when the same satisfied qualitative and quantitative tests in the case of the assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in directing the Assessing Authority/Transfer Pricing Officer to consider risk adjustment claimed by the assessee on the basis of the details provided by the assessee by following its earlier order which has not reached finality even when the TPO the same cannot be considered as there is no reliable method to convert the qualitative difference into qualitative difference and to make adjustment on account of risk level and without applying Rule 10B[3] of I.T. Rules?”
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 & 3: “We have heard the learned Authorised Representative as well as learned Departmental
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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Representative and considered the relevant material on record. At the outset, we note that the comparability of four companies out of six have been considered by the co-ordinate bench of this Tribunal vide order dated 24.02.2016 in the case of DCIT Vs. Electronics for Imaging India [P.] Ltd., in IT[TP]A No.212/Bang/2015 & C.O.No.94/Bang/2015 in paras 21 to 33 as under:
“xxxxx”
Following the earlier orders of this Tribunal, we direct the Assessing Officer/TPO to exclude these four companies from the set of comparables.
[vi] As regards, L&T Infotech Ltd., the assessee has not advanced any argument as to how this company is not functionally comparable. Accordingly in the absence of any substantial functional difference brought to our notice, we do not find any reason to interfere with the order of the TPO in selecting this company.
Since we have directed the A.O/TPO to exclude five companies from the set of comparables selected by the TPO therefore the
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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TPO is required to recomputed the ALP from the remaining comparable companies. Needless to say the benefit of proviso to section 92C[2] shall also be considered while considering the ALP.”
Regarding Substantial Question of Law No.2: “7.1 Since the CIT [Appeals] has rejected the comparable companies by applying 0% RPT filter as well as other criteria which are not acceptable to the revenue as this Tribunal in a series of decisions have held that the tolerance range of RPT in normal circumstances is 15% and in extreme circumstances it can be relaxed up to 25%. Since in the case of the assessee there is nothing to suggest that sufficient comparable companies are not available therefore, we are of the view that the tolerance range of RPT at 15% is considered to be proper and reasonable as held by the co-ordinate bench of this Tribunal vide order dated 25.05.2016 in the case of ITO Vs. Net Devices India Pvt. Ltd., in IT[TP]A No.1099/Bang/2011 in para 7.3 as under:
“xxxxx”
Accordingly, we modify the impugned order of the CIT[Appeals] on the issue of applying the Related Party filter at 15% instead of 25% applied
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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by the TPO and 0% offered by CIT[Appeals]. Accordingly, we decide this issue in favour of the revenue.”
Regarding Substantial Question of Law No.4: “9. We have heard the learned Department Representative as well as learned Authorised Representative and considered the relevant material on record. The ld. DR has referred to the directions of the DRP on this issue and submitted that the DRP has directed the TPO to follow the guidance of 1% risk adjustment which cannot be applied universally ignoring the facts and circumstances of the case and comparables.
On the other hand, the ld. AR has submitted that the assessee has no objection if the TPO is directed to allow the risk adjustment by considering the claim of the assessee independently without following such guidance. Accordingly, we modify the finding of the DRP on this issue and direct the TPO/A.O to consider the risk adjustment claimed by the assessee to be calculated by analyzing the FAR independently.”
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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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.
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
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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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.
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
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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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.
The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsels appearing for the parties, we are therefore of the opinion
Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd.,
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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
NC.