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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 6TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.382/2017
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[2] PRESENT ADDRESS: CIRCLE-2(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD., ELECTRONIC CITY TOWER 2, 95/1 AND 95/2, ELECTRONIC CITY PHASE 1 (WEST), BENGALURU-560066.
…RESPONDENT
(BY SRI SANDEEP HUILGOL, ADV. AND SRI T.SURYANARAYANA, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
Date of Judgment 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants Pvt. Ltd.,
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DATED 21/09/2016 PASSED IN ITA No.1446/BANG/2010, FOR THE ASSESSMENT YEAR 2006-2007, ANNEXURE-D, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BENGALURU IN IT(TP)A No.1446/BANG/2010 DATED 21/09/2016, ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Sandeep Huilgol, Adv., and Mr. T.Suryanarayana, Advs. 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 ‘A’, Bangalore, in IT[TP]A No.1446/Bang/2010 dated 21.09.2016, relating to the Assessment Year 2006-07.
The appeal has been admitted on 28.02.2018 to consider the following substantial questions of law:
Date of Judgment 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants Pvt. Ltd.,
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“1. Whether the ITAT has directed the AO/TPO to accept certain comparables and reject the remaining comparables without cogent reasons and without necessary findings?
Whether the TPO had chosen proper comparables by applying qualitative and quantitative tests and such comparables could not have been excluded on alleged functional dissimilarity?
Whether selection of comparables in a case depends in transfer pricing on specific data analysis; and the transfer pricing officer had passed the order on the basis of the specific facts available on record?
Whether the ITAT was justified in fixing a Related Party Transaction filter at 15% of total revenue and deleting certain comparables with reference to its decision in other cases without going into the specific facts of the present case and without considering that in other cases of software services, the application of RPT of 25% of sales was held proper?”
Date of Judgment 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants Pvt. Ltd.,
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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 to 4: • “Six companies at sl.No.2, 4, 5, 10, 11, 16 and 20 may be rejected as being functionally dissimilar as per this Hon’ble Tribunal’s decision in LSI Technologies India Pvt. Ltd., Vs. ITO in IT[TP]A No.1380/Bang/2010 [para to 21 to 30 at pages 16 to 34 of the order]
• Three companies at Sl.Nos.1, 2 and 18 may be rejected as they have more than 15% related party transactions as per this Hon’ble Tribunals decision in LSI Technologies India Pvt. Ltd., Vs. ITO in IT[TP]A No.1380/Bang/2010 [para 20 at page 16 of the order]
• One company at Sl.No.7 may be rejected as being functionally dissimilar as per this Hon’ble Tribunal’s decision in Hewlett- Packard India Software Operation [Pvt.] Ltd.,
Date of Judgment 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants Pvt. Ltd.,
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Vs. ACIT in IT[TP]A No.1456/Bang/2010 [paras 14.1 to 14.3 at page 14 of the order]”
We direct the AO/TPO to accept the following 10 comparables and reject the remaining comparables from the list selected by the TPO enumerated at page 10 of the order. SN Name of the Company Margin Unadj. [%] Margin – WC adj. [%] 1. R Systems International Ltd., 22.20 21.43 2. Mediasoft Solutions P. Ltd., 6.29 5.60 3. R S Software [India] Ltd. 15.69 16.47 4. SIP Technologies Ltd. [seg] 3.06 2.57 5. Bodhtree Consulting Ltd., 15.99 16.18 6. Accel Transmatics Ltd., [Seg] 44.07 43.05 7. Lanco Global Solutions Ltd. 5.27 6.28 8. iGAte Global Solutions Ltd., [Seg] 15.61 14.91 9. Mindtree Consulting Ltd., 14.67 14.68 10. Sasken Communication Ltd., [Seg] 13.90 14.49 ARITHMETIC MEAN 12.33 12.13
The following are the particulars for computation of net margin.
Particulars Margin [%] Net Margin of the assessee 8.18 Arithmetical mean of margins of comparables 12.13 +5% of the assessee’s margin 13.59 - 5% of the assessee’s margin 2.77
Date of Judgment 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants 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 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants 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 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants 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 06-08-2018, ITA No.382/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems and Management Consultants 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.