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1/14 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 18TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A.No.170/2017
BETWEEN : 1. Pr. COMMISSIONER OF INCOME TAX-IV
BMTC COMPLEX, KORAMANGALA
BANGALORE.
THE ASSISTANT COMMISSIONER
OF INCOME TAX, CIRCLE 4[1][2]
BANGALORE.
...APPELLANTS
(BY SRI JEEVAN J. NEERALGI, ADV.)
AND : M/s. MERCEDES-BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD., WHITEFIELD PALMS FLAT No.9 AND 10, EPIP ZONE, PHASE-1 WHITEFIELD ROAD BANGALORE-560066 PAN: AAACD 6261B.
…RESPONDENT
(BY SRI K.MALLAHARAO & SRI S.N.ARAVINDA, ADVS.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.06.2016 PASSED IN IT[TP]A No.427/BANG/2015, FOR THE ASSESSMENT YEAR 2010-11, PRAYING TO: 1]. DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER
Date of Judgment 18-07-2018, ITA No.170/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd.,
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QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT; 2]. SET ASIDE THE APPELLATE ORDER DATED 24.06.2016 PASSED BY THE ITAT, ‘A’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS No.IT[TP]A No.427/BANG/2015 FOR ASSESSMENT YEAR 2010-11 AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. Jeevan J. Neeralgi, Adv. for Appellants – Revenue. Mr. K.Mallaharao & Mr. S.N.Aravinda, Advs. 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.427/Bang/2015 dated 24.06.2016, relating to the Assessment Year 2010-11.
The appeal has been admitted on 03.01.2018 to consider the following substantial questions of law formulated in the memorandum of appeal, which reads thus:
Date of Judgment 18-07-2018, ITA No.170/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting three comparables, from list of comparables, namely, Kals Information System, Tata Elxi Ltd and Zylog System Ltd., on the basis of functional dissimilarity even when the TPO applied 2 kinds of filters when culling out comparables, namely, quantitative filters and qualitative filters?
Whether on the facts and in the circumstances of the case, the Tribunal was right in including comparables, namely, Thinksoft Global Services Ltd., and Infosys Ltd., even when all the filters were not satisfied to make such addition?
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in directing the assessing authority / Transfer Pricing Officer to exclude M/s. Persistent Systems Ltd., as its RPT is 15.47 and to include Thinksoft Global Services Ltd., even without proper application of principles for adopting the same?
Whether on the facts and in the circumstances of the case, the Tribunal was right
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in law in directing the TPO not to restrict working capital adjustment and allow the appropriate actual capital adjustment as per the working in case of each comparable by following its earlier decision in the case of Bearing Point Business Consulting Pvt. Ltd., which has not reached finality?
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that M/s. Sasken Communication Technology Ltd., cannot be treated as comparable by following Delhi Tribunal decision in the case of M/s. ION Trading India Pvt. Ltd.,?
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in directing the TPO to allow risk adjustment by following its earlier decision in the case Intellinet Technologies India Pvt. Ltd., even when the said order has not reached finality and as, such erred in granting benefit of proviso to section 92-C of the Act?
Whether on the facts and in the circumstances of the case, the Tribunal was erred in law in directing the TPO to consider foreign
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exchange or loss as operating revenue or cost while computing the operating margin of the assessee as well as the comparable by following its earlier decision in the case of SAP Labs India Pvt. Ltd., which has not reached finality?”
Learned Counsel for the Appellants-Revenue does not press substantial question No.2.
Submission is taken on record.
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: “(i) KALS Information System :
12.3 We have considered the rival submissions as well as the relevant material on record. At the outset we note that for the assessment years 2007- 08 and 2008-09 the Tribunal in assessee's own case found that this company is not comparable. Further in the case of Obopay Mobile Technology India Pvt. Ltd. Vs.
Date of Judgment 18-07-2018, ITA No.170/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd.,
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DCIT vide its decision dt.8.1.2016 in ITA No.469/Bang/2015 for the Assessment Year 2010-11 has again examined the functional comparability of this company with software development services provider in para 37, as under :
“xxxxx”
In view of the finding of this Tribunal in assessee's own case as well as in the case of Obopay Mobile Technology India Pvt.Ltd. (supra), we hold that this company cannot be considered as functionally comparable with the assessee as this company was found to be engaged in the software product development. Accordingly, we direct the A.O/TPO to exclude this company from the list of comparables.
Tata Elxsi Ltd.
15.4 We have considered the rival submissions as well as the relevant material on record. At the outset we note that the co-ordinate bench of this Tribunal in the case of Ion Trading India Pvt. Ltd (supra) has considered the comparability of this company in para 11 as under :
“xxxxx”
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The co-ordinate bench in the said case has followed the decision of the Tribunal of M/s. Cisco Systems Pvt. Ltd. dt.14.8.2014 in IT(TP)A No.271/Bang/2014 and directed the A.O/TPO to exclude this company form the list of comparables. We concur with the view of the co- ordinate bench of this Tribunal and accordingly direct the A.O./TPO to exclude this company from the list of comparables.
Zylog System Ltd.
16.3 We have considered the rival submissions as well as the relevant material on record. At the outset we note that the Delhi Benches of the Tribunal in the case of Equant Solutions India Pvt. Ltd. (supra) has considered the comparability of this company in para 16 as under :
“xxxxx”
No contrary view has been brought before us therefore following the order of the Delhi Bench of the Tribunal (supra), we direct the A.O/TPO to exclude this company from the list of comparables.”
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Regarding Substantial Question of Law No.3: “(ii) Persistent Systems Ltd. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. We find that the RPT in this case is 15.47%. In view of our finding on this issue raised by the revenue, the RPT limit shall not exceed 15% therefore we direct the A.O/TPO to exclude this company form the set of comparables.”
Regarding Substantial Question of Law No.4: “17.3 Having considered the rival submissions as well as the relevant material on record, we note that the TPO has worked out the working capital as per Annexure C to the order passed under Section 92CA however the TPO has restricted the working capital adjustment and not granted the actual computation in the case of each comparable. We note that in the case of Bearing Point Business Consulting Pvt. Ltd. (supra) in paras 5.4 to 5.4.2 held as under :
“xxxxx”
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Accordingly, by following the order of the co-ordinate bench of this Tribunal in the case of Bearing Point Business Consulting Pvt. Ltd. (supra), we direct the A.O/TPO to reconsider the issue and allow the appropriate actual working capital adjustment as per the working in case of each comparable.”
Regarding Substantial Question of Law No.5: “(iii) Sasken Communication Technology Ltd.
14.3 Having considered the rival submissions as well as the relevant material on record, we note that the Delhi Bench of the Tribunal in the case of Ion Trading India Pvt. Ltd. (supra) has considered this issue in paras 52 & 53 as under :
“xxxxx”
As it is clear from the finding of the Tribunal that the Tribunal has followed the decision in the case of Tibco Software (India) Pvt. Ltd. Vs. DCIT in ITA No.94/ PN/2014 Dt.10.4.2015 wherein the Tribunal found that this company failed export turnover filter of 75% and accordingly cannot be treated as comparable. It is not clear from the finding of the Tribunal in the
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case of Ion Trading India Pvt. Ltd. (supra) whether the finding in the case of Tibco Software (India) Pvt. Ltd. (supra) was for the same assessment year so that the turnover filter can be applied for the year under consideration. We find that the TPO has applied export turnover filter of 75% in this case. Accordingly, we set aside this issue to the record of the TPO/A.O to verify whether this company satisfies this export turnover filter of 75% or not and then decide the comparability of the same.”
Regarding Substantial Question of Law No.6: “24.1 We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset we note that the DRP has decided this issue by following various decisions of this Tribunal in para 14.5 and 14.6 as under :-
“xxxxx”
As it is manifest from the findings of the DRP it has given the cogent reasoning for allowing the risk adjustment and therefore we do not find any reason to interfere with the findings of the DRP on this issue.”
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Regarding Substantial Question of Law No.7: “25.1 We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset we note that an identical issue has been considered by the co-ordinate bench of this Tribunal in assessee's own case for the Assessment Year 2008-09 vide order dt.16.3.2015 in ITA No.1336/Bang/2012 in paras 8 & 8.1 as under :
“xxxxx”
Following the earlier order of the Tribunal in assessee's own case, we do not find any error in the directions of the DRP on this issue.”
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.