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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.239/2017 BETWEEN:
PR. COMMISSIONER OF INCOME TAX-7 BMTC COMPLEX KORAMANGALA, BANGALORE
THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(1) BANGALORE
... APPELLANTS
(BY SRI.SANMATHI E I, ADV.) AND:
M/S. MICROCHIP TECHNOLOGY (INDIA) PVT. LTD., NO.149-B, 1ST PHASE, INDL AREA , WHITEFIELD BANGALORE PAN:AABCM9868J
... RESPONDENT
(BY SRI. SANDEEP HUILGOL, ADV. FOR SRI. T.SURYANARAYANA, ADV.)
THE INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:31/10/2016, PASSED IN IT(TP)A NO.1247/BANG/2011, FOR THE ASSESSMENT YEAR 2005-2006 ANNEXURE – A. PRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAW
Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd.
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AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. 2. SET ASIDE THE APPELLATE ORDER DATED:31/10/2016 PASSED IN IT(TP)A NO. 1247/BANG/2011 FOR A.Y.2005-06 ANNEXURE – A, BY THE ITAT, 'B' BENCH, BENGALURU.
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. Sandeep Huilgol, Adv., for Mr. T. Suryanarayana, 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’, in IT[TP]A No.1247/Bang/2011 dated 31.10.2016, relating to the Assessment Year 2005-06.
This Appeal has been admitted on 17.01.2018 to consider the following substantial questions of law. “(1) Whether, the Tribunal, on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting the comparables such as Bodhtree Consulting Ltd, Exensys Software Solutions Ltd, Sankhya Infotech Ltd, Foursoft Ltd,
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Thirdware Solution Ltd and other comparables on the ground of functions dissimilarity by relying on its earlier orders which has been challenged before this Hon’ble Court and even when the TPO had rightly chosen the said comparison after applying all the required tests in accordance with the provisions of the act?
(2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable on basis of turnover filter by following its earlier orders which has not reached finality even when Transfer Pricing Order has chosen the comparable as per norms prescribed under the provisions of the Act.”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question of law No.1: “9.
Having
considered the rival submissions, we note that the co-ordinate bench of this Tribunal in the case of McAfee Software India Pvt. Ltd. Vs. ITO (supra) has considered the functional comparability of the five companies as under:
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xxxxxxx By following the order of the co- ordinate bench, we direct the A.P./TPO to exclude these five companies namely (i) Bodhtree Consulting Ltd., (ii) Exensys Software Solutions Ltd., (iii) Sankhya Infotech Ltd., (iv) Four Soft Ltd., and (v) Third ware Solutions Ltd. After exclusion of 10 companies on the ground of having turnover more than 10 times than the assessee and 5 companies as functionally not comparable only two companies are left which are as under: i) Lanco Global Systems Ltd. ii) Sasken Communication Technologies Ltd. (seg) Accordingly, the TPO/A.O. is directed to recomputed the ALP by considering the benefit as per the proviso to section 92C.”
Regarding Substantial Question of law No.2: “5. We have considered the rival submissions and relevant material on record. It is pertinent to note that the TPO has applied turnover slab of Rs.1 crore to Rs.200 crores for excluding some of the companies, whereas there is an inherent difficulty in applying such a turnover slab of Rs.1 crore to Rs.200 crores because the said
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classification on the basis of slab of the turnover gives unrealistic results, as an entity having Rs.1 crore turnover can be compared with any entity having Rs.200 crores turnover, but at the same time an entity having Rs.200 crores turnover cannot be compared with an entity having Rs.201 crores turnover. Thus, as it is clear from the above illustration that it gives ambiguous result as two entities having difference of Rs.1 crore cannot be considered as comparable, whereas on the other hand difference of Rs.199 crores can be considered as comparable company. Therefore, such classification of comparables on the basis of Rs.1 Crore to Rs.200 Crores of turnover is not appropriate and acceptable. The turnover, no doubt, is a relevant factor to be taken into account, but there should be some proper and reasonable parameter to apply the difference of turnover between the assessee and the comparable which may be a reasonable multiple. This Tribunal in case of ITO Vs. Maxim India Integrated Circuit Design Pvt. Ltd. (supra) has taken a similar view as under. Accordingly, by applying the turnover filter of 10 times to the turnover of the assessee's on both sides the following 10 companies are directed to be excluded from the set of comparables as not
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satisfying the turnover filter of 10 times of the turnover of the assessee. Sl. No. Name of Company
R S Software (India) Ltd. 2. Geometric Software Solutions Co. Ltd. 3. Tata Elxsi Ltd. (Seg.) 4. Visual Soft Technologies Ltd. (Seg.) 5. Sasken Communication Technologies Ltd. (Seg.) 6. iGate Global Solutions 7. Flextronics (Seg.) 8. L&T Infotech Ltd. 9. Satyam 10. Infosys”
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
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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 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
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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 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
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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 appearing 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
AN/-