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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 23rd DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.674/2015
BETWEEN:
PR. COMMISSIONER OF INCOME TAX-IV CENTRAL REVENUE BUILDINGS QUEENS ROAD, BANGALORE-560001.
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(2), BANGALORE.
…APPELLANTS (By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. BROADCOM COMMUNICATIONS TECHNOLOGIES PRIVATE LIMITED 4TH FLOOR, EMBASSY STAR No.8, PALACE ROAD VASANTH NAGAR, BANGALORE-560052 PAN: AACCB 8136B.
…RESPONDENT
THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T. 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 & SET ASIDE THE APPELLATE ORDER DATED 11/6/2015 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS No.IT(TP)A No.1276/BANG/2011 FOR ASSESSMENT YEAR 2007- 08 ANNEXURE-A AS SOUGHT FOR IN THIS APPEAL AND GRANT
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SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS I.T.A. COMING ON FOR ORDERS, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I. Sanmathi, Adv. for Appellant- Revenue
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, ‘B’ Bench, Bangalore, dated 11.06.2015 passed in IT(TP)A No.1276/Bang/2011 (Broadcam Communications Technologies Private Limited, vs. the Deputy Commissioner of Income-tax) for A.Y.2007-08.
This appeal has been admitted on 14.06.2016 to consider the following substantial questions of law framed by the learned counsel for the Appellants- Revenue:-
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“1. Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding (i) Accel Transmatic Limited (seg.); (ii) Avani Cincom Technologies Ltd., (iii) Celestial Labs Limited; (iv) Kals Information Systems Ltd., (v) Ishir Infotech Ltd; (vi) Lucid Software Ltd; (vii) Infosys Technologies Ltd; (viii) Tata Elxsi Ltd (seg). (ix) Wipro Ltd; (x) E-Zest Solutions Ltd; (xi) Persistent Systems Ltd; (xiii) Quintegra Solutions Ltd; (xiii) Thirdware Solutions Ltd; (xiv) Helios & Matheson Information Technology Ltd., from the list of comparables, holding that they are functionally different, without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparables in a case depends on assessee specific FAR analysis & by relying on various decisions of ITAT Benches and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO & without considering the assessee specific information collected u/s. 133(6) of the Act from the comparables, wherein clear facts were submitted to state that the comparables, are all into software development services in one way or the other and all are functionally similar to that of the assessee?
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Whether the ITAT was right in directing to consider only the segmental margin of Megasoft Ltd., without considering the assessee specific information received from M/s. Megasoft Ltd., wherein it was stated that the entire total operating income is out of its software development services only and not appreciating the acceptance of the enterprise level financials of Megasoft Ltd., as proper uncontrolled comparable when the enterprise level financials were adopted after a detailed analysis supplemented by information obtained u/s. 133(6)?
Whether, on the facts and circumstances of the case, the ITAT was correct in not appreciating the facts that if any filter or criteria applied by the assessee for search of comparables is accepted or any filter or criteria applied by the TPO is relaxed, the entire accept/reject matrix changes resulting in a new comparable set including those companies which are neither taken by the assessee nor by the TPO in his final comparable set and which may not be finding place in the TP order under section 92CA?
Whether the Tribunal was justified, on the facts and in the circumstances of the case in directing the assessing officer to allow the
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entire expenditure incurred on purchase of software without appreciating that such expenditure, though it is on acquiring the right to use the software, such right would result in enduring benefits of capital nature to the assessee and when the expenditure towards software item is capital in nature having enduring benefit eligible for depreciation at 60% & decision of ITAT, Bangalore Bench in the case of M/s. ING Vysys Bank, in ITA No.1143/Bang/2010 has not accepted by the Revenue and the issue has not reached finality?.”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to ‘Transfer Pricing’ and ‘Transfer Pricing Adjustments’ made by the concerned authorities below. We consider it appropriate to quote the relevant portions hereunder:- “11. As far as comparable companies listed at Sl.No.1,2, 3 and 12 of the final list of
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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 07-08held 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). 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). xxxxxxxxxx
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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.
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 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) is 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).
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xxxxxxxxxxxxxxx 14. Respectfully following the decision of the Tribunal referred to above, we direct the AP/TPO to exclude the aforesaid companies from the final list of comparable companies for the purpose of determining ALP”.
However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. The relevant portion of the said 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
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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 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
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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 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.”
Having heard the learned counsel for the Appellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is
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liable to be dismissed and it is dismissed accordingly. No costs.
Copy of this order be sent to the Respondent- Assessee forthwith.
Sd/- JUDGE
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JUDGE
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