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1/14 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 19TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.657/2015
BETWEEN:
THE COMMISSIONER OF INCOME-TAX,
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORMANGALA,
BANGALORE-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX,
CIRCLE – 11(2), 2ND FLOOR,
BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. BROADCOM INDIA PVT. LTD., 5TH FLOOR, CAMPUS 3A, RMZ ECOSPACE, BELLANDUR VILLAGE, VARTHUR HOBLI, BANGALORE-560 037 PAN: AACCB 6063E.
…RESPONDENT
THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA No.1164/Bang/2011 DATED 11/06/2015 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
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CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(2), BENGALURU.
THIS I.T.A. COMING ON FOR ORDERS, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr.K.V.Aravind, Adv. for Appellants - 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.1164/Bang/2011 (Broadcom India Private Limited vs. The Deputy Commissioner of Income-Tax) for A.Y.2007-08.
This appeal has been admitted on 29.03.2016 to consider the following substantial questions of law framed by the learned counsel for the Appellants- Revenue:-
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
3/14
“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.; (xii) 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?
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.; (xii) Quintegra Solutions
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
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Ltd.; (xiii) Thirdware Solutions Ltd.; (xiv) Helios & Matheson Information Technology Ltd., from the list of comparables, by relying on various decisions of Tribunal Benches and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO ?
Whether the Tribunal was right in directing to exclude M/s.Ishir Infotech Ltd., M/s. Tata Elxsi Ltd., M/s.Wipro Ltd., M/s.Thirdware Solutions Ltd., Persistent Systems Ltd., by placing reliance on other benches of Tribunal, without considering the assessee specific information collected under section 133(6) of the Act, based on which the TPO had concluded that it satisfies all the filters including employee cost filter ?
Whether the Tribunal 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 ?
Whether the Tribunal, on the facts and in the circumstances of the case, was right in not appreciating the acceptance of the enterprise level
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
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financials of Megasoft Ltd., as proper uncontrolled comparable when the enterprise level financials were adopted after a detailed analysis supplemented by information obtained under section 133(6)? 6. Whether, on the facts and circumstances of the case, the Tribunal 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 Transfer Pricing Officer in his final comparable set and which may not be finding place in the TP order under section 92 CA? Substantial question of law No.7 framed by the Revenue is quoted hereunder: 7. Whether, the Tribunal is justified in directing the assessing officer to recomputed the deduction under section 10A after reducing those expenses that were reduced only from export turnover, to reduce from the total turnover also, without appreciating that there is no provision in section 10A to the effect that such expenses should also be reduced from the total turnover, as clause (iv) of the Explanation to section 10A
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
6/14
provides that such expenses have to be reduced only from the export turnover ?”
The learned counsel appearing for the Appellants – Revenue Mr.K.V.Aravind submitted that in so far as the seventh substantial question of law is concerned, the same is covered by the decision of the Hon’ble Apex Court in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:- “17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
7/14
should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
XXXXXX
In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
Even in common parlance, when the object of the formula is to arrive at the profit from
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
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export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well”.
In so far as the substantial question of law Nos. 1, 2 and 3 raised by the Revenue are concerned, learned counsel for the Revenue submitted that the learned ITAT in its Order dated 11.06.2015 has given the findings, the relevant portion of which is quoted below for ready reference:-
“ 11. As far as comparable companies listed at Sl.No.1, 2, 3 and 12 of the final list of 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 07-08 held that the aforesaid companies are not comparable companies in the case of software development
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
9/14
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):-
xxxxxxxxxxxxxx
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”.
For other comparable companies, the learned Tribunal has given the similar findings.
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
10/14
In so far as the substantial question of law Nos. 4 and 5 raised by the Revenue are concerned, learned counsel for the Revenue submitted that the learned ITAT in its Order dated 11.06.2015 has given the findings, the relevant portion of which is quoted below for ready reference:-
“ 15. As far as comparable companies listed at Sl.No.16 of the final list of comparable companies chosen by the TPO viz., M/s. Megasoft Limited is concerned, this Tribunal in the case of First Advantage Offshore Services Pvt., Ltd., DCIT IT (TP) No.1086/Bang/211 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) 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
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
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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):
xxxxxxxxxxx Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to compute the correct margin of Mega Soft Ltd., as directed by the Tribunal in the case of First Advantage Offshore Services Pvt. Ltd., (supra)”.
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
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
12/14
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 (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
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
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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 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.
Date of Judgment 19-07-2018 I.T.A.No.657/2015
The Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Pvt. Ltd.,
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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 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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