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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 3rd DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.201/2016 Between:
The Pr. Commissioner of Income-tax, 5th Floor, BMTC Building, 80 Feet Road, Kormangala, Bengaluru-560 095.
The Asst. Commissioner of Income-Tax, Circle-11(4), 2nd Floor, BMTC Building, 80 Feet Road, Kormangala, Bengaluru-560 095. .
…Appellants (By Mr. Aravind K.V. Advocate)
And:
M/s. Hewlett-Packard (India) Software Operation Pvt. Ltd., Survey No. 192, Whitefield Road, Mahadevapura, Bangalore-560 048. PAN: AAACH 7164B.
…Respondent (By Mrs. Manasa Ananthan, for Mr. T.Suryanarayana, Advocate)
Date of Judgment 03-08-2018 I.T.A.No.201/2016 The Pr. Commissioner of Income-Tax, & Anr. Vs. M/s. Hewlett-Packard (India) Software Operation Pvt. Ltd.,
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This I.T.A. is filed under Section 260-A of Income Tax Act 1961, praying to: 1. Formulate the substantial questions of law therein; 2. Allow the appeal and set aside the orders passed by the ITAT, Bengaluru in ITA No.1682/Bang/2012 dated 26-08-2015 Annexure – E and confirm the order of the Appellate Commissioner of Income Tax, Circle-11(4), Bengaluru & etc.
This I.T.A. coming on for Hearing, this day S. Sujatha J. delivered the following:-
J U D G M E N T
Mr. Aravind K.V. Adv. for Appellants – Revenue Mrs. Manasa Ananthan for Mr. T. Suryanarayana Adv. for Respondent - Assessee
The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bangalore Bench “C”, Annexure E dated 26/08/2015 in IT(TP)A.No.1682/Bang/2012 for AY 2008-09.
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This appeal of the Revenue has been admitted on 12/09/2017 to consider the following substantial questions of law:-
“1. Whether on the facts and in the circumstances of the case, the Tribunal erred in excluding comparables such as Bodh Tree Ltd, Avani Cimcon Technologies Ltd, Celestial Labs Ltd, kals Information Systems Ltd, Infosys Technologies Ltd., Softsol India Ltd, Tata Elxsi Ltd., Wipro Ltd, E-Zest Solutions Ltd, Persistent Systems Ltd, Quintegra Solutions Ltd, Lucid Software Ltd, Thirdware Solutions Ltd, R.Systems when the comparables chosen by TPO satisfies all the required tests and rejecting comparables on a filter which was not applied by the assessee themselves and TPO had based comparables on quantitative filter when company was similar?
Whether on the facts and in the circumstances of the case, the Tribunal is right in directing the TPO to apply turnover
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filter without any evidence in support of correlation between turnover and the profitability?
3.. Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that the size and turnover of the company are deciding factors for treating a company as a comparables and accordingly erred in excluding the comparables?”
In so far as the aforesaid substantial questions of law raised in the memorandum of appeal are concerned, the learned counsel for the Revenue submitted that the learned ITAT in its Order dated 26/08/2015 has given the findings, the relevant portion of which is quoted below for ready reference:- “18. We have perused the orders and heard the rival contentions. In the list of 20 comparables considered by the TPO as proper for analyzing the ALP of the assessee, there are eight numbers coming from assessee’s
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own TP study. Out of these eight companies, assessee is seeking exclusion of four companies namely, Bodhtree Consulting Ltd, Quintegra Solutions Ltd, R Systems International (seg) and Tata Elxsi Ltd (seg). We find that additional ground has been filed by the assessee in this regard. We have also admitted such additional ground considering the view taken by the Special Bench in the case of DCIT v. Quark Systems Pvt. Ltd. [42 DTR 414]. It is not disputed that with regard to Avani Cimcon Technologies Ltd, Celestial Biolabs Ltd, E-Zest Solutions Ltd, Infosys Technologies Ltd, Kals Information Systems Ltd (seg). Persistent Systems Ltd, Thirdware Solutions Ltd, Wipro Ltd (seg), Softsol India Ltd and Lucid Software Ltd assessee had raised objections before the TPO as well as DRP citing functional differences. These were the companies selected by the TPO itself and not the assessee. For exclusion of these assessee has placed reliance on the decision of this Tribunal in M/s. Broadcom Communications Technologies P. Ltd (supra) which was also for the very same assessment
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year, namely 2008-09. The segment considered for study there was also software development services. In out opinion functional profile compares favorable and therefore the decision of M/s. Broadcom Communications Technologies P. Ltd v. DCIT [IT(TP)A.No.1587/Bang/2012, dt.26.06.2015] can be taken as a good precedent for deciding on the exclusion sought by the assessee out of the number of comparables.
19.
Vis-à-vis Avani Cimcon Technologies Ltd., findings of the Tribunal in the case of M/s. Broadcom Communications Technologies P.Ltd.(supra), appears at para 5 of the order which is reproduced hereunder: Avani Cincom Technologies Ltd Xxxx xxxx xxxx Xxxx xxxx xxxx 5.4.2 Following the above decision of the co- ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09, we direct the Assessing
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Officer/TPO to exclude this company, i.e. Avani Cincom Technologies Ltd. from the list of comparables in the case on hand. Bodhtree Consulting Ltd. Xxxx xxxx xxxx Xxxx xxxx xxxx 6.3.2 In view of the above mentioned decision of the co-ordinate bench of this Tribunal in the case of NXP Semi-conductors India P.Ltd.(supra) for A.Y.2008-09. We direct the Assessing Officer/TPO to omit this company from the set of comparables to be applied to the assessee. Celestial Biolabs Ltd. Xxxx xxxx xxxx Xxxx xxxx xxxx 7.4.2 Following the above decision of the co- ordinate bench of this Tribunal on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software
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Solutions Ltd. (supra) for A.Y.2008-09, we direct the Assessing Officer/TPO to omit this company from the list of comparables in the case on hand. Xxxx xxxx xxxx Xxxx xxxx xxxx Accordingly following the above decision we are of this opinion that M/s. Avani Cimcon Technologies Ltd, Bodhtree Consulting Ltd, M/s. Celestial Labs Ltd, E-Zest Solutions Ltd, M/s. Infosys Technologies Ltd, M/s. Kals Information Systems Ltd (seg), Thirdware Solutions Ltd, M/s. Wipro Ltd (seg), M/s. Softsol India Ltd and M/s. Lucid Software Ltd are to be excluded from the list of comparables considered by the TPO. Ordered accordingly.”
Similarly, the learned Tribunal has considered and excluded the other comparables also.
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However, this Court in a recent judgment in I.T.A.No.536/2015 c/w. I.T.A.No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) rendered on 25-06-2018, 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 and 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
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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. 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
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsel for the parties, this Court is satisfied that no
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substantial question of law would arise in the present case and the appeal filed by the Revenue is therefore, liable to be dismissed. Accordingly, it is dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
BMV*