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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 17TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.395/2015
BETWEEN:
THE PR. COMMISSIONER OF INCOME-TAX, CENTRAL.REVENUE.BUILDINGS, QUEENS ROAD, BANGALORE-560 001.
THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -11(3), BANGALORE.
…APPELLANTS
(By Mr. E.I. SANMATHI, ADV.)
AND:
M/s. NTT DATA FA INSURANCE SYSTEMS (INDIA) PRIVATE LIMITED, (FORMERLY KNOWN AS FIRST APEX SOFTWARE TECHNOLOGY PRIVATE LIMITED) C/o RISHI MADHUR & CO, CHARTERED ACCOUNTANTS, 1ST FLOOR, HVM HOUSE, 106, AMARJYOTHI LAYOUT, OFF. INTERMEDIATE RING ROAD DOMLUR,
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BANGALORE- 560071. PAN: AAACF 9123A.
…RESPONDENT
THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED AND SET ASIDE THE APPELLATE ORDER DATED 20/03/2015 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT- ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO. 1311/BANG/2010 FOR ASSESSMENT YEAR 2006-2007 ANNEXURE-A.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I. Sanmathi, Adv. for Appellants-Revenue
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore (for short ‘Tribunal’) dated 20.03.2015 passed in I.T(TP)A No.1311/Bang/2010 for the A.Y.2006-2007.
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This appeal has been ADMITTED on 23.06.2016 to consider the following substantial questions of law framed by the learned counsel for the Appellants-Revenue. “1. Whether on the facts and in the circumstances of the case, the Tribunal erred in fixing the RPT filter at 15% of total revenue, by superimposing the decisions of Tribunal in other cases, including those of other Benches of Tribunal, without going into specific facts in the case of the taxpayer and without adducing the basis for arriving at the 15% cut off for RPT filter, in the case of tax payer”?
Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding M/s.igate Global Solutions Ltd., Flextronics Software Systems Ltd., and L & T Infotech Ltd.,”?
Whether on the facts and in the circumstances of the case, the Tribunal has erred in not appreciating the functional similarity of the
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taxpayer with that of Tata Elxsi Ltd., and Sankhya Infotech Ltd.,?
“Whether on the facts and in the circumstances of the case, the Tribunal has erred in excluding Tata Elxsi Ltd., and Sankhya Infotech Ltd., on the basis of decision in a different case for a different case for a different FY while the comparable is qualifying all the qualitative and quantitative filters applied by the TPO”?
“Whether on the facts and in the circumstances of the case, the Tribunal erred in including Melstar Information Technologies Ltd., on the basis of mere submission of the taxpayer”?
“Whether on the facts and in the circumstances of the case, the Tribunal erred in not appreciating that the restructure of the business has an effect on the margins of the Melstar”?
Mr.E.I.Sanmathi, learned counsel for the appellants-Revenue does not press the substantial question of law Nos.5 and 6. His submission is taken on record.
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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:
“14. The learned counsel for the Assessee submitted that one of the comparable out of the 20 comparable companies chosen by the TPO viz., Megasoft Ltd., has related parties transaction exceeding 15% and therefore should not be regarded as comparable and in this regard drew our attention the following observations of the ITAT Bangalore Bench in the case of Tektronix Engineering Devt. (supra): xxxxx xxxxx
Following the aforesaid decision of the Tribunal, we hold that Megasoft Ltd., be excluded from the final list of 20 comparable companies chosen by the TPO”.
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Regarding substantial question of law No.2:
“9. We have considered the submission of the learned counsel for the Assessee and the learned DR. In the case of Triology E-Business Software India (P) Ltd. (supra), this Tribunal on application of the turnover filter while selecting comparable companies for comparability analysis held as follows:
xxxx
Respectfully following the aforesaid decision of the Tribunal in the case of Triology E-Business Software India Pvt.Ltd. (supra), we hold that the following companies
(1) Flextronics Software Systems ltd. 595.12 crores
(2) Infosys Technologies Ltd 9028.00 crores
Whose turnover is above Rs.200 Crores should be excluded from the list of comparable companies. The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable”.
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Regarding substantial question of law Nos.3 and 4:
“11. Improper selection of comparables: It was submitted by the learned counsel for the Assessee that the following 2 companies are not functionally comparable with that of the Assessee. a) KALS Information Systems Limited b) TATA Elxsi c) Accel Transmission Limited. In this regard our attention was drawn to the decision of the Hon’ble ITAT Bangalore Bench in the case of Tektronix Engineering Dvt. India P.Ltd. Vs. DCIT IT (TP)A No.1465/Bang/2010 order dated 20.02.2015 wherein the above companies were held to be not functionally comparable with that of a pure software developer like the Assessee.
The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Tektronix Engineering Dvt. India P.Ltd. (supra): xxxxx
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xxxxx xxxxx xxxxx
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 Tektronix Engineering (supra). Respectfully following the decision of the Tribunal referred to above in the case of Tektronix Engineering (supra), we direct that KALS Infosystems Ltd. And Accel Transmatic Ltd. AND TATA Elxsi be excluded from the list of 20 comparable arrived at by the TPO.”
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
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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 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.
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
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In the circumstances, having heard the learned Counsel appearing for the appellants-Revenue, 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.
Copy of this order be sent to the Respondent- assessee forthwith.
Sd/- JUDGE
Sd/-
JUDGE