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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 31ST DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.60/2016
BETWEEN :
THE PR. COMMISSIONER OF INCOME TAX C.R. BUILDINGS BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE.
... APPELLANTS
(BY SRI.E. I. SANMATHI, ADV.)
AND:
TESCO HINDUSTHAN SERVICE CENTRE PVT. LTD., NO.81 & 82, EPIP AREA, WHIEFIELD, BANGALORE - 66 PAN: AABCT8915B
... RESPONDENT
(BY SRI.S SANKARA NARAYANAN, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:26/05/2015 PASSED IN IT(TP)A NO.1317/BANG/2010, FOR THE ASSESSMENT YEAR 2006-2007 ANNEXURE - A. PRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. 2. SET ASIDE THE APPELLATE ORDER DATED:26/05/2015 PASSED IN IT(TP)A NO. 1317/BANG/2010 FOR A.Y.2006-07 ANNEXURE-A, BY THE ITAT, 'A' BENCH, BENGALURU AS SOUGHT FOR, IN THE ABOVE CASE. 3. GRANT SUCH OTHER RELIEF AS DEEMED FIT, INTEREST OF JUSTICE.
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. S.Sankara Narayanan, 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.1317/Bang/2010 dated 26.05.2015 relating to the Assessment Year 2006-07.
This Appeal has been admitted on 12.09.2017 to consider the following substantial questions of law:
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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“ 1) Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Flextronics Software, Igate Global Solutions, Mindtree Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd, Infosys Technologies Ltd, Tata Elxi, Kals Information Systems Ltd from the list of comparables holding that this company is functionally different and by relying on its earlier decision without appreciating that the comparable satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparable in a case depends on assessee specific FAR analysis.?
2) Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Geometric Software Ltd and Mapple Esolution Ltd, Datamatics Financial Services Ltd, Vishal Information Technological Services, Asit C. Mehta Financial Services Ltd and Gold Stone Infratech Ltd by relying on its earlier decision when selection of the comparable in
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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each case depends on the basis of specific facts brought on record by the TPO?
3) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding comparable such as Kals Information Systems Ltd, Accel Transmission Ltd and Megasoft Ltd by relying its earlier decision without considering the facts of the instant case?”
The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1:
“9. We have considered the submission of the learned counsel for the Assessee and the learned DR. In the case of Trilogy E-Business Software India (P) Ltd. (supra), this Tribunal on application of the turnover filter while selecting comparable companies for comparability analysis held as follows: Xxxxxxxxx
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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Respectfully following the aforesaid decision of the Tribunal in the case of Trilogy E-Business Software India Pvt.Ltd. (supra) and Assessee's case for AY 06-07, we hold that the aforesaid companies should be excluded from the list of comparable companies. The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable.”
Regarding Substantial Question of Law No.2:
“14. As far as comparable company viz., Geometric Software Ltd. (Seg.) & Aztech Software Ltd., are concerned, it is not in dispute before us that the related party transaction in the case of this company exceeds 15% ( 19.98 % in the case of Geometric Software Ltd. & 17.78% in the case of Aztech Software Ltd.) and in view of the decision of the Tribunal in the case of 24 X 7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010, followed by this Tribunal in the case of Logica Private Ltd. (supra) wherein it was held that where the RPT exceeds 15%, such companies should not be taken as comparable companies. Following the said decision, we hold that said companies referred to above be
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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excluded from the list of comparable companies while working out the ALP.
We have considered the rival submissions. As far as comparable companies chosen by the TPO at S.No.1,3,6,7 & 8 viz., Maple ESolution Ltd., Datamatics Financial Services Ltd., Vishal Information Technological Services Ltd., Asit C.Mehta Financial Services Ltd., and Gold Stone Infratech Ltd., in the list of comparable companies chosen by the TPO, we find that the Hyderabad Bench of the ITAT in the case of HSBC Electronic Data Processing India Ltd. Vs. ACIT, ITA No.1624/Hyd/2010 by order darted 28.6.2013 considered comparability of these companies in the case of a company engaged in rendering IT enabled services to its AE similar to that of the Assessee in the present case. The tribunal held that the aforesaid companies are not comparable. The following were the relevant observations of the Tribunal.
xxxxxxxxxxx
The facts and circumstances and the Assessment year for which the aforesaid companies were not considered as comparable are identical to the case decided by the
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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Hyderabad Bench of ITAT and that of the case of the Assessee. Respectfully following the decision of the Hyderabad Bench of ITAT, we direct the TPO to exclude the aforesaid companies from the list of comparable while arriving at the arithmetic mean of comparable. The relevant grounds of appeal of the Assessee are allowed.”
Regarding Substantial Question of Law No.3: “12. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Trilogy E- Business Software India Pvt.Ltd.(supra), which was followed by the ITAT Bangalore Bench in the case of 3DPLM Software Solutions Ltd. IT (TP)A.No.1109/Bang/2010 for AY 2006-07 order dated 10.5.2013: xxxxxxxxxx 13. The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Trilogy E- Business Software India Pvt.Ltd. (supra). Respectfully following the decision of the Tribunal referred to above in the case of Trilogy E- Business Software India Pvt.Ltd.(supra), we
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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direct that the said companies be excluded from the list of 22 comparable arrived at by the TPO.”
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 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
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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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.”
In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the
Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd.
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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.