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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 30th DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.506/2016
BETWEEN:
PRINCIPAL COMMISSIONER OF INCOME TAX-4, C.R. BUILDING, QUEENS ROAD, BANGALORE-560001.
THE INCOME TAX OFFICER, CIRCLE-11(2), BANGALORE.
…APPELLANTS (By Mr.E.I.SANMATHI, ADV.)
AND:
M/S. LSI TECHNOLOGIES INDIA PRIVATE LIMITED, GLOBAL TECHNOLOGY PARK, BLOCK C, MARATHAHALLI OUTER RING ROAD, DEVARABEESANAHALLI, BANGALORE-560103.
…RESPONDENT (By Mr. SANDEEP HUILGOL, ADV FOR Mr. T. SURYANARAYANA, ADV.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO DECIDE THE FOREGOING QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED:13/05/2016 PASSED BY THE ITAT, ‘B’ BENCH,
Date of Judgment 30-07-2018 I.T.A.No.506/2016
Principal Commissioner of Income Tax-4 & Anr. Vs. M/s. LSI Technologies India Private Limited
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BENGALURU, IN APPEAL PROCEEDINGS NO. IT (TP) A NO. 1380/BANG/2010 FOR THE ASSESMENT YEAR 2006-07 ANNEXURE A AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT IN THE INTEREST OF JUSTICE & ETC.
THIS I.T.A. COMING ON FOR HEARING THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E. I. Sanmathi Adv. for Appellants- Revenue Mr. Sandeep Huilgol Adv. for Mr. T.Suryanarayana Adv. for Respondent - Assessee
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 13.05.2016 passed in IT(TP)A No.1380/Bang/2010 (M/s.LSI Technologies India Pvt. Ltd. vs. The Income Tax Officer) for A.Y.2006-07.
This appeal has been admitted on 19.04.2018 to consider the following substantial questions of law framed by the learned counsel for the Appellants- Revenue:-
Date of Judgment 30-07-2018 I.T.A.No.506/2016
Principal Commissioner of Income Tax-4 & Anr. Vs. M/s. LSI Technologies India Private Limited
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“1. Whether the Tribunal was right in fact and in law in seeking exact comparability, while searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require seeking similar comparables companies?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to exclude M/s. Kals Information Systems India Ltd., Tata Elxi Ltd., Lucid Software Ltd., Accel Software Ltd., and M/s. Infosys Technologies Ltd, as comparables in the case of the taxpayer even with the assessing authority has chosen the same considering the functions, FAR analysis and applying the required tests?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to re-adjudicate and re- examine the comparability of Flextronics Software Ltd, even when the TPO has considered the same as comparable after verification and due application of mind?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in
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directing the TPO to exclude certain comparables on the ground of having RPT in excess of 15% of the total sales/Revenue ignoring the TPO’s observation that the basis for determining the threshold limit for eliminating companies having RPT transactions 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 IT Act, 1961, and the Accounting Standards As-18?”
In so far as the substantial questions of law Nos.1 to 3 raised by the Revenue are concerned, learned counsel for the Revenue submitted that the learned ITAT in its Order dated 13/05/2016 has given the findings, the relevant portion of which is quoted below for ready reference:- “ 15. Having considered the rival submissions as well as relevant material on record, we find that the functional comparability of these 3 companies have been examined by this Tribunal in a series of decisions and therefore once these companies are found to be functionally not comparable to that of software development services provider in the capacity of captive service
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Principal Commissioner of Income Tax-4 & Anr. Vs. M/s. LSI Technologies India Private Limited
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provider, then mere inclusion of these companies in the TP study analysis would not bar the assessee from raising such a plea before the DRP as well as this Tribunal. Accordingly, following the decision of the Special Bench in the case of DCIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 (CHD) (SB,) we admit the additional ground raised by the assessee for adjudication on merits.
Flextronics Software System Ltd.
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Since the functional comparability of 5 companies which are in dispute before us have been discussed by the coordinate Bench of this Tribunal in case cited supra for the assessment year under consideration, therefore in view of the finding of the coordinate Bench of this Tribunal, we direct the AO/TPO to exclude 4 companies from the list of comparables for determination of ALP and re-examine the comparability of Flextronics Software Ltd. in the light of the directions given by the coordinate Bench”.
In so far as the fifth substantial question of law raised by the Revenue is concerned, learned counsel for the Revenue submitted that the learned ITAT in its
Date of Judgment 30-07-2018 I.T.A.No.506/2016
Principal Commissioner of Income Tax-4 & Anr. Vs. M/s. LSI Technologies India Private Limited
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Order dated 13/05/2016 has given the findings, the relevant portion of which is quoted below for ready reference:- “ 19. We have considered the rival submissions as well as material on record. At the outset, we note that an identical issue of applying RPT filter at 15% or 25% has been considered by the coordinate Bench of this Tribunal in the case of Textron India Pvt. Ltd. (supra) in paras 12 & 13 as under:-
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In view of the consistent opinion of this Tribunal on this issue, we concur with the view of the coordinate Bench that when a sufficient number of comparable companies are available for determination of arm’s length price (ALP), then the tolerance limit of RPT at 15% is proper in the case of assessee. Accordingly, we direct the AO/TPO to exclude the following three companies from the list of comparables having more than 15% RPT.
Aztec Software Ltd.
Geometric Software Ltd. (Seg.)
Megasoft Ltd”.
Date of Judgment 30-07-2018 I.T.A.No.506/2016
Principal Commissioner of Income Tax-4 & Anr. Vs. M/s. LSI Technologies India Private Limited
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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 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
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(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.
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
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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 counsels for the parties, 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 liable to be dismissed and it is dismissed accordingly. No costs.
Sd/- JUDGE
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JUDGE Srl.