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1/8 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.477/2016 BETWEEN:
THE PR. COMMISSIONER OF INCOME-TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA,
BENGALURU - 560 095.
THE INCOME-TAX OFFICER CIRCLE-11(2) PRESENT ADDRESS DCIT, C-3(1)(1), 5TH FLOOR,
BMTC BUILDING, 80 FEET ROAD, KORMANGALA,
BENGALURU - 560 095.
... APPELLANTS
(BY SRI.ARAVIND K V. ADV.)
AND:
M/S FCG SOFTWARE SERVICES (INDIA) PVT. LTD., (NOW MERGED WITH COMPUTER SCIENCES CORPORATION INDIA PRIVATE LIMITED) 2ND AND 3RD FLOOR, 3 SJR IPARK, EPIP-ZONE, 1, WHITEFIELD ROAD, BENGALURU - 560 066 PAN: AABCP 5094K
... RESPONDENT
(BY MRS.M.R.VANAJA, ADV.)
Date of Judgment 26-07-2018, ITA No.477/2016 The Pr. Commissioner of Income-Tax & Another Vs. M/s FCG Software Services (India) Pvt. Ltd.,
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THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/01/2016 PASSED IN IT(TP)A NO.1447/BANG/2010, FOR THE ASSESSMENT YEAR 2006-2007 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. 1447/BANG/2010 DATED: 08/01/2016 ANNEXURE - D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), 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. Mrs. M.R. Vanaja, 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, Bangalore Bench ‘B’, Bangalore in IT[TP]A No.1447/Bang/2010 dated 08.01.2016, relating to the Assessment Year 2006-07.
This Appeal has been admitted on 13.12.2017 to consider the following substantial questions of law.
Date of Judgment 26-07-2018, ITA No.477/2016 The Pr. Commissioner of Income-Tax & Another Vs. M/s FCG Software Services (India) Pvt. Ltd.,
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“1. Whether on the facts and circumstances of the case and law, the Tribunal is right in law in excluding comparables namely, M/s. Kals Information Systems Ltd, M/s. Accel Transmatic Ltd and M/s. Tata Elxsi Ltd on the ground of functional dissimilarity even when Transfer Pricing Officer has rightly chosen the same considering its functions which are similar to assessee’s and has satisfied all the required tests and without doing an FAR analysis of the taxpayer with those other cases?
Whether on the fact and circumstances of the case and law, the Tribunal has erred in directing the exclusion of comparable companies having RPT transactions more than 15% ignoring the TPO’s observation that the basis for determining the threshold limit for eliminating companies having RPT transaction more than 25% was through the determination of Indian companies with foreign shareholding greater than 26% and therefore had its basis in the provisions of the Act and the accounting standard AS-13?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under:
Date of Judgment 26-07-2018, ITA No.477/2016 The Pr. Commissioner of Income-Tax & Another Vs. M/s FCG Software Services (India) Pvt. Ltd.,
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Regarding Substantial Question No.1: “ 19. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Triology E- Business Software India Pvt. Ltd. (supra) : (d) KALS Information Systems Ltd. xxxxxxxxx (e) Accel Transmatic Ltd., xxxxxxxx 20. 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 Triology E- Business Software India Pvt. Ltd. (supra). Respectfully following the decision of the Tribunal referred to above in the case of Triology E- Business Software India Pvt. Ltd. (supra), we direct that KALS InfoSystems Ltd. and Accel Transmatic Ltd. be excluded from the list of 20 comparable arrived at by the TPO.”
As far as comparable company chosen by the TPO viz., Tata Elxsi Ltd., is concerned, the comparability of the aforesaid company with that of the software service provider such as the Assessee was considered by the Mumbai Bench of this Tribunal in the case of Logica Pvt. Ltd. IT
Date of Judgment 26-07-2018, ITA No.477/2016 The Pr. Commissioner of Income-Tax & Another Vs. M/s FCG Software Services (India) Pvt. Ltd.,
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(TP) 1129/Bang/2011 AY 07-08) wherein on the comparability of the aforesaid company, the Tribunal held as follows:- xxxxxxxxxx
In view of the aforesaid decision, we hold that Tata Elxsi has to be excluded from the list of comparable chosen by the TPO.”
Regarding Substantial Question No.2: “21. As far as comparable companies chosen by the TPO viz., Aztec Software Limited and Geometric Software Ltd. (Seg.) and Megasoft Ltd., are concerned, it is not in dispute before us that the related party transaction in the case of companies exceeds 15% 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 the aforesaid companies referred to above be excluded from the list of comparable companies while working out the ALP.”
Date of Judgment 26-07-2018, ITA No.477/2016 The Pr. Commissioner of Income-Tax & Another Vs. M/s FCG Software Services (India) Pvt. Ltd.,
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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 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
Date of Judgment 26-07-2018, ITA No.477/2016 The Pr. Commissioner of Income-Tax & Another Vs. M/s FCG Software Services (India) Pvt. Ltd.,
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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.
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
Date of Judgment 26-07-2018, ITA No.477/2016 The Pr. Commissioner of Income-Tax & Another Vs. M/s FCG Software Services (India) Pvt. Ltd.,
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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 parties, 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 Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE AN/-