PR COMMISSIONER OF INCOME TAX-7 vs. M/S TE CONNECTIVITY GOLBAL

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ITA/266/2017HC KarnatakaKAHC01049842201703 August 2018Bench: S.SUJATHA,VINEET KOTHARI8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that appeals concerning the selection of comparables in transfer pricing cases do not raise substantial questions of law. Such appeals are not maintainable under Section 260-A of the Income Tax Act.

What were the facts?

The Revenue appealed against the ITAT's order concerning transfer pricing issues for AY 2008-09. The appeal raised questions about the exclusion of comparables and the TPO's functional matrix.

What were the issues?

Whether disputes regarding the selection of comparable companies and functional matrix in transfer pricing assessments constitute substantial questions of law warranting High Court intervention.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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1/8 IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 03rd DAY OF AUGUST 2018

PRESENT

THE HON'BLE Dr.JUSTICE VINEET KOTHARI

AND

THE HON’BLE Mrs.JUSTICE S.SUJATHA

I.T.A.No.266/2017 BETWEEN:

1.

PR. COMMISSIONER OF INCOME TAX-7 BMTC COMPLEX, KORAMANGALA BANGALORE.

2.

THE INCOME TAX OFFICER WARD-11(1), BANGALORE.

…APPELLANTS (By Mr. E.I. SANMATHI, ADV.)

AND:

M/S. TE CONNECTIVITY GLOBAL SHARED SERVICES INDIA PVT. LTD. FORMERLY KNOWN AS ADC (INDIA) COMMUNICATION AND INFOTECH PVT. LTD No.52, GURUDAS HERITAGE, BLOCK-B KADARENAHALLI (100) FT. RING ROAD BSK 2ND STAGE, BANGALORE-560070.

…RESPONDENT (By Ms. MANASA ANANTHAN, ADV., FOR Mr. T. SURYANARAYANA, ADV.,)

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 AND SET ASIDE THE APPELLATE ORDER DATED 18/10/2016

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PASSED BY THE ITAT, ‘A’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS IN IT(TP)A No.512/BANG/2013 FOR ASSESSMENT YEAR 2008-09 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 HEARING THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWIN:

JUDGMENT

Mr. E.I. Sanmathi, Adv. for Appellants- Revenue Ms. Manasa Ananthan, Adv. for Mr. T. Suryanarayana, Adv. for Respondent - Assessee

1.

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

passed in IT(TP)A No.512/Bang/2013 (M/s. TE Connectivity Global Shared Services India Pvt. Ltd., vs. The Income-tax Officer) for A.Y.2008-09.

2.

This appeal has been admitted on 14.11.2017 to consider the following substantial questions of law

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framed by the learned counsel for the Appellants- Revenue:-

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that few companies are functionally different from assessee when it satisfies all the qualitative and quantitative filters applied by the TPO and further not setting aside the matter to the TPO for fresh transfer pricing study after taking a new view of functional matrix which is narrower than the functionality matrix originally used by the TPO?

2.

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in directing the AO/TPO to exclude E-Zest Solutions as comparable-company by following its earlier order in case of DCIT V/s Quark Systems Pvt. Ltd which has not reached finality and even when this company was selected as comparable after receiving reply under section 133(6) of the Act from the company and the TPO at time of assessment had ascertained that the said company is engaged in software development services and qualifies all filters applied by the TPO?”

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3.

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:-

“ 22. With respect to ground 2, we direct the TPO to follow the decision in the case of M/s McAfee Software (India) Pvt. Ltd., in IT(TP)A No.04/Bang/2012 dated 18/3/2016.

23.

With respect to 3, 4, 5, 6 and 7 have already been discussed in ITA No.521/Bang/2013 in the assessee’s appeal for the asst. year 2008-09”.

Regarding substantial question of law No.2:- “ 17. After considering the averments of the counsel with regard to admission of additional grounds, we find force in the contention of the ld AR that by virtue of Spl. Bench decision in the case of M/s Quark Systems Pvt. Ltd (Supra), assessee can raise additional grounds seeking exclusion of comparables selected by it or not objected by it before the lower authorities. However, the Hon’ble Punjab & Haryana High Court in (2011) 62 DTR 0182

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had upheld he Special Bench decision in the case of M/s Quark Systems Pvt. Ltd., (Supra) specifically noting that the Special Bench had remitted the issue of comparability of such companies to the AO/TPO for verification afresh. Hence, we are admitting the additional grounds. However, the comparability of the companies assailed in such additional grounds will be dealt by us, considering the judgment of the Hon’ble Punjab & Haryana High Court judgment in the case of CIT Vs. M/s. Quark Systems India (P) Ltd., (2011) 62 DTR 0182.

18.

We set aside the issue of comparability to the TPO to rework the Arms Length Price after following the directions with respect to the inclusion and exclusion of comparables as discussed by us”.

4.

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

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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 (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

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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.

57.

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.

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58.

The appeals filed by the Revenue are therefore dismissed with no order as to costs.”

5.

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.

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