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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 24TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A.No.382/2015
BETWEEN : 1. THE Pr. COMMISSIONER OF INCOME TAX CENTRAL REVENUE BUILDINGS, QUEENS ROAD, BANGALORE-560 001.
THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12(4), BANGALORE.
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND : M/s. TEKTRONIX ENGINEERING DEVT. INDIA P.LTD SAMRAH PLAZA, 1ST FLOOR, 4/2, ST.MARKS ROAD, BANGALORE-560 001 PAN No. AAACT 7289F.
…RESPONDENT
(BY SRI SANDEEP HUILGOL, ADV. FOR SRI T.SURYANARAYANA, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20/02/2015 PASSED IN ITA NO.1465/BANG/2010, FOR
Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd.,
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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 FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (2) SET ASIDE THE APPELLATE ORDER DATED: 20/02/2015 PASSED BY THE ITAT, 'A' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN ITA NO.1465/BANG/2010 FOR A.Y.2006-07, ANNEXURE-A.
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. Sandeep Huilgol, Adv. Mr. T.Suryanarayana, 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 ‘A’, Bangalore, in IT[TP]A No.1465/Bang/2010 dated 20.02.2015, relating to the Assessment Year 2006-07.
The appeal has been admitted on 01.03.2016 to consider the following substantial question of law Nos.1 and 3, framed by the Appellants- Revenue in the memorandum of appeal:
Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in adopting turnover filter of Rs.200 Crore in absence of turnover criteria in Rule 10B of the I.T. Rules and also the size of the turnover and profit margins are not linked in the software industry unlike intensive comparables?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to apply RPT filter of 15% by following earlier orders which have not reached finality and without appreciating the materials available on record?”
However, learned counsel for the Revenue seeks to consider the substantial question of law No.2 also, which is quoted hereunder: “2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that KALS Information Systems Ltd., Accel Transmatic Ltd., and Tata Elxsi Limited cannot be taken as comparables on specific FAR analysis vis a vis assessee company in contrast to the fact that these companies
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satisfy all the qualitative and quantitative filters applied by the TPO?”
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: “6.3.1 We have heard both the learned Authorised Representative of the assessee and the learned Departmental Representative for revenue and perused and carefully considered the material on record. In the case of Triology E- business Software India Pvt. Ltd. (supra), cited by the assessee, the co-ordinate bench of this Tribunal on the issue of the application of the turnover filter while selecting comparable companies for comparability analysis has held as follows :-
xxxxx
6.3.2 Following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Triology E-business Software India Pvt. Ltd.(supra), we hold the aforesaid 6 companies
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listed at para 6.1 of this order should be excluded from the list of comparable companies as their turnover is in excess of Rs.200 Crores. The Assessing Officer is accordingly directed to re- compute the arithmetic mean of the comparable companies after excluding the aforesaid 6 companies from the list of comparables.”
Regarding Substantial Question of Law No.2: “8.2.1 We have heard the rival contentions of both the learned Authorised Representative and the learned Departmental Representative, perused and carefully considered the material on record; including the judicial decision cited and placed reliance upon by the assessee. On a perusal of the decision of the co- ordinate bench of the Tribunal in the case of Agile Software Enterprises Pvt. Ltd. (supra) for Assessment Year 2006-07, relied upon by the assessee, we find that the following three companies were excluded from the TPO’s list of comparables as they were held to be functionally different from the assessee, who was into pure software development services :- i] KALS Information Systems Ltd., ii] Tata Elxsi Ltd. [Seg.] iii] Accel Transmatics Ltd., [Seg.] and
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8.2.2 In this context, the relevant observations and findings of the co-ordinate bench in the case of Agile Software Enterprises Pvt. Ltd. (supra) at para 8.7 to 8.9.3 thereof are extracted hereunder :-
xxxxx
8.2.3 Following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Agile Software Enterprises Pvt. Ltd. for Assessment Year 2006-07 (supra), we hold that the above mentioned three companies i.e. i) KALS Information Systems Ltd. ii) Tata Elxsi Ltd. (Seg). and iii) Accel Transmatics Ltd. (Seg.) should be excluded from the TPO’s final list of comparables. The Assessing Officer is directed to re-compute the ALP of the assessee's international transactions after excluding these three companies.”
Regarding Substantial Question of Law No.3: “7.1 In respect of the following 3 comparable companies selected by the TPO, the learned Authorised Representative of the assessee has objected to their inclusion in the list
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of comparables on the grounds of that their RPT is in excess of 15%. The three comparables are – S.No. Name of company RPT % [i] Aztec Software Ltd. 17.78 [ii] Geometric Software Ltd. (Seg) 19.34 [iii] Megasoft Ltd. 17.08
In support of their exclusion, the learned Authorised Representative has placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Agile Software Enterprises Pvt. Ltd. in IT(TP)A No.1172/Bang/2010 dt.26.9.2014; which is also for Assessment Year 2006-07; the period under consideration. The learned Authorised Representative prayed that in view of the above, these three comparables be excluded from the list of comparable companies to the assessee.
7.2 We have heard the rival contentions of both the learned Authorised Representative and learned Departmental Representative, perused and carefully considered the material on record; including the judicial decision cited and placed reliance upon by the assessee. The fact is that the RPT in the case of the above three comparable companies listed at para 7.1 (supra)
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exceed 15%. The co-ordinate bench of this Tribunal in the case of Agile Software Enterprises Pvt. Ltd. (supra) for Assessment Year 2006-07, as in many other decisions of this Tribunal, has held that where the RPT exceeds 15%, such companies should not be taken as comparables. The operative portion of this order of the coordinate bench (supra) in paras 8.11 and 8.12 at pages 16 & 17 thereof is extracted hereunder :-
xxxxx
7.3 Following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Agile Software Enterprises Pvt. Ltd. (supra), we hold that the aforesaid three companies listed at para 7.1 of this order be excluded from the list of 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/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
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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
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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.
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
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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.
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 Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
NC.