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1/14 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 2ND DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.47/2017
BETWEEN :
THE PR. COMMISSIONER OF INCOME TAX, 5TH FLOOR BMTC BUILDING, 80 FEET, ROAD, KORMANGALA BENGALURU - 560 095
THE INCOME-TAX OFFICER, WARD -11(1), PRESENT ADDRESS CIRCLE – 3 (1) 2, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANAGALA, BENGALURU – 560 095
...APPELLANTS
(BY SRI.K V ARAVIND, ADV.)
AND:
M/S CORE OBJECTS INDIA PVT. LTD., SYMPHONY EXCELLENCE AND INNOVATION CENTRE SY.NO. NO.13/1, KADUBESANAHALLI VILLAGE, OUTER RING ROAD, VARTHUR HOBLI BENGALURU - 560 087 PAN: AACCC2040B
... RESPONDENT
(BY SRI.ANKUR PAI, ADV. FOR SRI. K R VASUDEVAN, ADV. )
Date of Judgment 02-08-2018, ITA No.47/2017 The Pr. Commissioner of Income Tax & another Vs. M/s. Core Objects India Pvt. Ltd.,
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THIS INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:15/07/2016 PASSED IN IT(TP)A NO.1229/BANG/2011, FOR THE ASSESSMENT YEAR 2007-2008 ANNEXURE –D. PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT(TP)A NO.1229/BANG/2011 DATED:15/07/2016 ANNEXURE - D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE INCOME –TAX OFFICER, CIRCLE- 3(1)(2), 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.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, ‘A’ Bench, Bangalore, in IT [TP] A No.1229/Bang/2011 dated 15.07.2016 relating to the Assessment Year 2007-08.
This Appeal has been admitted on 10.01.2018 to consider the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in
Date of Judgment 02-08-2018, ITA No.47/2017 The Pr. Commissioner of Income Tax & another Vs. M/s. Core Objects India Pvt. Ltd.,
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law in excluding comparables namely Avani Cimcon Technologies Limited, Celestial Labs Limited, Calls Information System Limited, Lucid Software Limited, Infosys Technology Limited and Wipro Limited and also E- Zest Solutions Limited, M/s Persistent Systems Limited on the ground of functional dissimilarity even when the TPO has chosen the same has all the qualitative and quantitative filters are satisfied and selection of comparables in a case depends on Assessee specific FAR analysis and specific facts brought on record by TPO in the case of Assesse?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding Ishar Infotech Limited as comparable by following earlier order instead of deciding the comparability of the company on basis of specific facts brought on record by TPO ?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to consider only segmental financials of M/s. Mega Soft Limited as comparable on the ground of Functional Dissimilarity by following earlier decision in case of M/s Hewlett Packard Global Soft Pvt. Ltd when
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it satisfies all qualitative and quantitates filters adopted by the TPO instead of deciding the comparability of the company on basis of specific facts brought on record by TPO?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under: “9. Now, we examine the claim of the assessee regarding each comparable companies for which exclusion is being requested by the ld.AR of the assessee. Regarding M/s Avani Cimcon Technologies Ltd., discussion is on pages 14-15 of the Tribunal order rendered in the case of M/s HPPLtd., (Supra), wherein the Tribunal has noted that based on information available in the company's website, it is revealed that this company has developed software product by the name 'DXchange" and therefore, the revenue of this company includes revenue from software product sales, apart from rendering of software services and therefore, this is functionally different from assessee company. In the present case also, the assessee company is rendering only software services and not engaged in
Date of Judgment 02-08-2018, ITA No.47/2017 The Pr. Commissioner of Income Tax & another Vs. M/s. Core Objects India Pvt. Ltd.,
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software product as such and therefore, by respectfully following this Tribunal order, we direct the AO/TPO to exclude this company i.e. M/s Avani Cimcon Technologies Ltd., from the final list of comparables. 10. The next company for which exclusion is being requested is M/s Celestial labs Ltd. and the relevant discussion regarding this company is available on pages 16 to 19 of the Tribunal's order rendered in the case of M/s HPPLtd., (Supra). The Tribunal has noted on these pages that this company was basically/admittedly in clinical research and manufacture of bio-products and other products. Under these facts, we find no reason to have a contrary view in the present case, and therefore, by respectfully following this Tribunal's order, we direct the AO/TPO in the present case also to exclude this company i.e. M/s Celestial Labs Ltd., (Supra) from the final list of comparables. 11. The third company for which exclusion is being requested is M/s E-Zest Solutions Ltd, and the discussion about this company is available on pages 19-20 of the Tribunal order rendered in the case of M/s HPP Ltd., (Supra). It is noted by the Tribunal on page-20 of the Tribunal order that M/s E-Zest Solutions Ltd., is rendering product development services and high end technical
Date of Judgment 02-08-2018, ITA No.47/2017 The Pr. Commissioner of Income Tax & another Vs. M/s. Core Objects India Pvt. Ltd.,
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services which come under the category of KPO services. It has been held by the Co-ordinate Bench of this Tribunal in the case of M/s Capital I-Q Information Systems (India) (P) Ltd., in ITA No.1961/Hyd/2011 dated 23-11-2012 that KPO services are not comparable to software development services. In the present case, ld. DR of the revenue could not pint out any difference in facts and therefore, by respectfully following this Tribunal order, we direct the TPO/AO in the present case also that this company i.e. M/s E- Zest Solutions Ltd. should not be excluded from the list of final comparables. 12. The next company for which exclusion is being requested is M/s Flextronics Software Systems Ltd (Seg.) and the discussion about this company is available on pages 37 to 38 of Tribunal's order rendered in the case of M/s HPP Ltd., (Supra). On page-38 of the Tribunal's order, it is noted by the Tribunal that in the case of M/s Flextronics Software Systems Ltd. (Seg.), the annual report for the year ending 31-03-2007 is only for nine months period and no reconciliation was attempted by the lower authorities between the figures given in such annual report with the figures which were made available by the said company to the TPO pursuant to notice issued to them u/s 133(6) of the Act. Under these facts, it was held by the Tribunal in that case that M/s
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Flextronics Software Systems Ltd., (Seg.) (Supra) could not be considered as a proper comparable. In the present case also, the assessment year is same i.e. AY: 2007-08 and therefore, respectfully following the Tribunal's order, we direct the AO/TPO in the present case also that this company i.e. Ms/s Flextronis Software Systems Ltd.,(Seg.)(Supra) should be excluded from the list of final comparables. 13. The next company for which exclusion is being requested is M/s Infosys Ltd. and the discussion about this company is available on pages 20 to 22 of the Tribunal's order rendered in the case of M/s HPP Ltd., (Supra). In this case, it is noted by the Tribunal that this company owns significant intangibles and has huge revenues from software products and therefore, by respectfully following this tribunal order, we hold that this company i.e. M/s Infosys Ltd., (Supra) also should be excluded from the list of final comparables. 14. The next company for which exclusion is being requested is M/s Ishir Infotech Ltd. and the discussion about this company is available on pages 23-24 of the tribunal's order rendered in the case of M/s HPOP Ltd., (Supra). It is noted by the Tribunal on these pages that M/s Ishir Infotech Ltd., is outsourcing its work and has not
Date of Judgment 02-08-2018, ITA No.47/2017 The Pr. Commissioner of Income Tax & another Vs. M/s. Core Objects India Pvt. Ltd.,
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satisfied 25% employee cost filter and thus has to be excluded from the list of comparables. Respectfully following this Tribunal order, we direct the TPO/AO in the present case also to exclude this company from the list of final comparables. 15. The next company for which exclusion is being requested is M/s Kals Information Systems Ltd., Regarding this company, it was submitted by the ld. AR of the assessee that relevant discussion is on page 25 to26 of the Tribunal order rendered in the case of M/s HPP Ltd., (Supra). On these pages, it is noted by the Tribunal that this company was developing software products and not purely or mainly software development service provider. Therefore, respectfully following this Tribunal's order, we direct the AO/TPO in the present case also that this company i.e. M/s Kals Information Systems Ltd (Supra) should be exclude from the list of final comparables. 16. The next company for which exclusion is being requested is M/s Lucid Software Ltd. Regarding this company also, it was submitted by the ld. AR of the assessee that the discussion about this company is available on pages 23-24 of the Tribunals order rendered in the case of M/s HPP Ltd., (Supra). On these pages, it is noted by
Date of Judgment 02-08-2018, ITA No.47/2017 The Pr. Commissioner of Income Tax & another Vs. M/s. Core Objects India Pvt. Ltd.,
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the Tribunal that M/s Lucid Software Ltd.,(Supra) is involved in the development of software as compared to the assessee which is only into software services. Therefore, in the present case also, by respectfully following this Tribunal order, we direct the AO/TPO to exclude this company i.e. M/s Lucid Software Ltd., from the list of final comparables. 17. The next company for which exclusion is being requested is M/s Megasoft Ltd. It is submitted by the ld.AR of the assessee that about this company, the discussion is available on pages 34 to 36 of the Tribunal order rendered in the case of M/s HPP Ltd., (Supra). We find that in this case, it was held by the Tribunal that M/s Megasoft Ltd. should be considered as a good comparable after segmentation and therefore, in the present case, we direct the AO/TPO to consider this company i.e. M/s Megasoft Ltd., (Supra) as a comparable after segmentation of its result. 18. The next company for which exclusion is being requested is M/s R Systems International Ltd.,(Seg.). It was submitted by the ld. AR of the assessee that the discussion about this company is available on pages 38-39 of the Tribunal's order rendered in the case of M/s HPPLtd. (Supra). In para-30 of the Tribunal order, it is
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noted by the Tribunal that as per the annual report of the said company placed by the assessee in paper book , it is seen that final accounts are being prepared on calendar year basis and the P&L account is for calendar year ending 31-12-2008 and under these facts, by respectfully following this Tribunal order, it was held that this company cannot be considered as a proper comparable. 19. The ld. DR of the revenue could not point out as to how the Tribunal order on this issue is not to be followed in the present case and therefore, by respectfully following this Tribunal order, we direct the AO/TPO that this company i.e. R Systems International Ltd.,(Seg.) should be excluded from the list of final comparables. 20. The next company for which exclusion is being requested is M/s Wipro Ltd., It is submitted by the ld. AR of the assessee that discussion about this company is available on pages 32 to33 of the Tribunal order rendered in the case of M/s HPP Ltd., (Supra). On these pages, it is noted by the Tribunal that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. Therefore, respectfully following this Tribunal order, we direct the AO/TPO that in the present case also, this company i.e. M/s Wipro Ltd.,
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should be excluded from the final list of comparables. 21. The next company for which exclusion is being requested is M/s Persistent Systems Ltd., It was submitted by the ld. AR of the assessee that the discussion about this company is available on pages 26 to 27 of the Tribunal order rendered in the case of M/s HPP Ltd. (Supra). On page 27 of this Tribunal order, it is noted by the Tribunal that this company is engaged in product development and product design services, while the assessee is a software development service provider. Facts being similar, respectfully following this Tribunal order, we direct the AO/TPO that in the present case also, this company i.e. M/s Persistent Systems Ltd., should be excluded from the list of final comparables.”
The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 (Prl. Commissioner of Income Tax & Anr. –v- M/s Softbrands India Pvt. Ltd.,) wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is
Date of Judgment 02-08-2018, ITA No.47/2017 The Pr. Commissioner of Income Tax & another Vs. M/s. Core Objects India Pvt. Ltd.,
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not maintainable. The relevant portion of the 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 picked up or not, Filters for arriving at the correct list of
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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 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
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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.”
In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case. Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
ln.