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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 1ST DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.188/2016
BETWEEN:
PR. COMMISSIONER OF INCOME TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE.
DEPUTY COMMISSIONER OF INCOME TAX RANGE-11(2), BANGALORE.
…APPELLANTS
(By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. SAP LABS INDIA PRIVATE. LIMITED, (SUCCESSOR IN INTEREST OF BUSINESS OBJECTS SOFTWARE INDIA PVT. LTD.,) 138, EXPORT PROMOTION INDUSTRIAL PARK, WHITEFIELD, BANGALORE-560066.
…RESPONDENT
(V/O DTD. 07/10/2017 SERVICE OF NOTICE TO RESPONDENT IS HELD SUFFICIENT]
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, 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 23/09/2015 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN ITA No.1118/BANG/2011 ANNEXURE-A.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY S.SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I. Sanmathi, Adv. for Appellants-Revenue
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, Bangalore Bench ‘B’, Bangalore (for short ‘Tribunal’) dated 23.09.2015 passed in I.T (TP)A No.1118/Bang/2011 for the A.Y.2007-08.
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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The proposed substantial questions of law framed in the memorandum of appeal by the appellants- Revenue is quoted below for ready reference:
“1. Whether on the facts and in the circumstances of the case, the is right in law in directing the TPO to exclude 10 comparables, viz., Accel Transmatics Ltd., Avani Cimcon Technology Ltd., Celestial Labs Ltd., KALS Information Systems Ltd., Ishir Infotech Ltd., Lucid Software Ltd., Infosys Technologies Ltd., Tata Elxsi Ltd., Wipro Ltd and Thirdware Solutions Ltd., by following its earlier order which has not reached finality and when the TPO has chosen the same in accordance with law?
Whether the Tribunal was right in super-imposing the decision of other Benches of the Tribunal in the case of the assessee to reject these comparables when selection of comparables in a case depends in transfer pricing on assessee-specific FAR analysis?
In the facts and circumstances of the case, whether the Tribunal was justified in holding that few companies are functionally different from the assessee when it satisfies all
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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the qualitative and quantitative filters applied by the TPO. The Tribunal had used a narrower functionality filter than the TPO, but had not tested other comparables against the narrower functionality filter applied by it?.”
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 No.1:
“8. As far as comparable companies listed at Sl.No.1,2,3 and 12 of the final list of comparable companies chosen by the TPO viz., M/S.Accel Transmatic Limited (seg.), Avani Cincom Technologies Ltd., Celestial labs Limited and KALS Infosystems Ltd., are concerned, this Tribunal in the case of First Advantage Offshore Services Pvt.Ltd. Vs. DCIT IT (TP) No.1086/Bang/2011 for AY 07-08 held that the aforesaid companies are not comparable companies in the case of software development services IT(TP)A No.1118/Bang/2011 Page 7 of 30 provider. The nature of services rendered by the Assessee in this appeal and the Assessee in
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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the case of First Advantage Offshore Services Pvt.Ltd.(supra) are one and the same. This fact would be clear from the fact that the very same 26 companies were chosen as comparable in the case of the Assessee as well as in the case of First Advantage Offshore Services Pvt.Ltd.(supra). In coming to the aforesaid conclusion, the Tribunal in the case of First Advantage Offshore Services Pvt.Ltd.(supra) followed the decision rendered in the case of Trilogy E-Business Software India Pvt.Ltd. Vs. DCIT ITA No.1064/Bang/2011 for AY 07-08 order dated 23.11.2012. The following were the relevant observations in the case of First Advantage Offshore Services Pvt.Ltd.(supra): xxxx xxxx
Avani Cimcon Technologies Ltd. xxxx xxxx Celestial Labs Ltd. xxxx xxxx xxxx
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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xxxx Kals Information Systems Ltd. xxxx xxxx Accel Transmatic Ltd. xxxx xxxx xxxx xxxx 09. Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to exclude the aforesaid companies from the final list of comparable companies for the purpose of determining ALP.”
Regarding substantial question of law No.2:
“10. As far as comparable companies listed at Sl.No.11 & 14 of the final list of comparable companies chosen by the TPO viz., M/S. Ishir Infotech Ltd. And Lucid Software Ltd., is concerned, this Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. Vs. DCIT
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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IT(TP) No.1086/Bang/2011 for AY 07-08 held that the aforesaid companies are not comparable companies in the case of software development services provider. The nature of services rendered by the Assessee in this appeal and the Assessee in the case of First Advantage Offshore Services Pvt. Ltd.(supra) are one and the same. This fact would be clear from the fact that the very same 26 companies were chosen as comparable in the case of the Assessee as well as in the case of First Advantage Offshore Services Pvt.Ltd (supra). The following were the relevant observations in the case of First Advantage Offshore Services Pvt.Ltd. (supra): xxxx 11. Respectfully following the decision of Tribunal referred to above, we direct the AO/TPO to exclude the aforesaid companies from the final list of comparable companies for the purpose of determining ALP.”
Regarding substantial question of law No.3:
“Megasoft Ltd.:
xxxx xxxx
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to compute the correct margin of Mega Soft Ltd., as directed by the Tribunal in the case of First Advantage Offshore Services Pvt.Ltd.(supra).”
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/s. 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 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
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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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 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.
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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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.” 5. In the circumstances, having heard the learned Counsel appearing for the appellants-Revenue, we are of the considered opinion that no substantial question of law arises for consideration in the present case.
Date of Judgment 01-08-2018 I.T.A.No.188/2016 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Sap Labs India Private Limited.,
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Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Copy of this order be sent to the Respondent –assessee forthwith.
Sd/- JUDGE
Sd/-
JUDGE