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1/14 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 11th DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.98/2013
Between:
The Commissioner of Income-tax, C.R. Building, Queens Road, Bangalore.
The Dy.Commissioner of Income-tax, Circle-11(3), C.R. Building, Queens Road, Bangalore.
…Appellants (By Mr. Aravind K.V. Advocate)
And:
M/s. Google India Pvt. Ltd., 1st Floor, Prestige Sigma, No.3, Vittal Mallya Road, Bengaluru-560 001.
…Respondent
(By Mr. Sandeep Huilgol for Mr. T. Suryanarayana, Advocate)
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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This I.T.A. is filed under Section 260-A of Income Tax Act 1961, praying to: 1. Formulate the substantial questions of law stated therein. 2. Allow the appeal and set aside the orders passed by the ITAT, Bangalore in ITA No.1368/Bang/2010 dated 19-10-2012 Annexure–D and confirm the order of the Appellate Commissioner confirming the order passed by the Deputy Commissioner of Income Tax, Circle-11(3), Bangalore, in the interest of justice & equity etc.
This I.T.A. coming on for Admission, this day S. Sujatha J. delivered the following:-
J U D G M E N T
Mr. K.V. Aravind. Adv. for Appellants - Revenue Mr. Sandeep Huilgol for Mr.T.Suryanarayana. Adv. for Respondent-Assessee
The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bangalore Bench “B”, Annexure D dated 19/10/2012 in ITA.No.1368/Bang/2010 for AY 2006-07. 2. The Revenue has suggested five substantial questions of law, which are quoted below for ready reference:
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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“1. Whether the Tribunal was correct in holding that on the facts and in the circumstances of the assessee’s case, was correct, in allowing relief to the assessee without correctly appreciating the fact that it has ignored the working of the TPO which lead to the computation of 65% with regard to the capacity utilization of the comparable company? 2. Whether the Tribunal was correct in holding that on the facts and in the circumstances of the assessee’s case was correct, in allowing relief to the assessee by excluding Asit C Mehta Financial Services Limited and Goldstone Infratech Ltd from the comparables without correctly appreciating the fact that the ALP determination involves comparable analysis through average mean margin which ipso facto cannot exclude the companies lying on either side of the continuum? 3. Whether the Tribunal was correct in holding that justified, on the facts and in the circumstances of the case, in allowing relief to the assessee by directing the AO to
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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exclude Vishal Information Technologies Limited from the list of comparables relying on the decision of the Mumbai Tribunal, wherein it held that Vishal Information Technologies Limited has to be excluded from the list of comparables ITES company as it has outsourced its services? 4. Whether the Tribunal was correct in holding that on the facts and in the circumstances of the assessee’s case, was correct, in allowing relief to the assessee by excluding Apex Knowledge Solutions Pvt Ltd from the list of comparables for the reason that they are not in the same line of business, when, the taxpayer himself had gone into the verticals of the ITES Industry in its comparability study? 5. Whether the Tribunal was correct in holding that on the facts and in the circumstances of the assessee’s case, was correct, in remanding the comparability of Datamatics Financial Services Limited to the AO to consider the adjustments to be made to these comparables before arriving at the ALP, when in fact no such extra-ordinary events
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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have taken place and without mentioning the extra-ordinary event which requires adjustment and how the same would affect the comparability level?”
In so far as the first substantial question of law raised in the present appeal is concerned, the learned counsel for the Revenue, Mr.K.V. Aravind submitted that the learned ITAT in its Order dated 19/10/2012 has given the findings, the relevant portion of which is quoted below for ready reference:-
“The learned DR also agreed that an error has been committed while making the adjustment under utilization of capacity of the comparables. As this is only a mistake apparent from record, we deem in fit and proper to direct the assessing authority to rectify the mistake by computing the correct adjustment in under utilizing capacity by taking the capacity utilization of the comparable companies at 80% instead of 65% mentioned in the order of the DRP.”
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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In so far as the second substantial question of law raised in the present appeal is concerned, the learned ITAT in its Order dated 19/10/2012 has given the findings, the relevant portion of which is quoted below for ready reference:- “Having heard both the parties and having considered the rival contentions, we find that the only dispute before us is with regard to the comparables adopted by the TPO. The assessee vide its TP study had arrived at four comparable companies, out of which three have been rejected by the TPO as not comparable. Thereafter, the TPO after conducting his own search from the available data base provided arrived at certain other comparables and after calling for assessee’s objections has adopted the final list of comparables. The assessee have accepted some of the comparables adopted by the TPO while it raised objections to the others. The assessee’s objection regarding two companies
(1) Asit C Mehta Financial Services Ltd., and
(2) Goldstone Infratech Ltd., is on the issue of
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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abnormally higher margin. In our view, this objection is justified on the basis of various decisions of the Tribunal wherein it has been held that super profit making companies have to be excluded from the list of comparable before making transfer pricing adjustment. In the case before us, only these two companies showing profit of more than 100% as compared to the other comparables taken by the TPO. In view of the decisions of the Co- ordinate Benches of the Tribunal, we direct the AO to exclude these two companies from the list of comparables for the purpose of making the transfer pricing adjustment.”
In so far as the third substantial question of law raised in the present appeal is concerned, the learned ITAT in its Order dated 19/10/2012 has given the findings, the relevant portion of which is quoted below for ready reference:- “As regards the issue of (8) Vishal Information Technologies LTd., we find that, it is adopted by the TPO. The DRP held that Vishal Information Technologies has
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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outsourced its call centre work and, therefore, the employee cost is less than 25% as is the common practice among other ITES services. The TPO as well as the DRP have recorded that in the ITES sector, employees filter of less than 25% alone is not applicable for the reason that in addition to the ample costs, the commission costs are also important. When company has outsourced its ITES services, it cannot be said that its business results would be comparable to any other ITES service provider rendering the services entirely on its own. In such circumstances, the net margins of the two comparables cannot be on the same basis. The decisions relied upon by the learned counsel for the assessee also held that the employee cost filter is important filter to be adopted for the purpose of computing ALP. In the case of Maersk Global Services Centre (India) Pvt. Ltd., in ITA No.3774/M/2011, the Tribunal at Mumbai has held that Vishal Information Technologies Ltd. has to be excluded from the list of comparables of ITES company as it has outsourced its services. In view of the same,
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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we direct the AO to exclude this company also from the list of comparables.”
In so far as the fourth and fifth substantial questions of law raised in the present appeal are concerned, the learned ITAT in its Order dated 19/10/2012 has given the findings, the relevant portion of which is quoted below for ready reference:- “As far as (4) Apex Knowledge Solutions Pvt. Ltd., is concerned, we find that the assessee had taken objections before the TPO that it is functionally different, as it is provides services such as E-publishing knowledge based services etc. But TPO has rejected the objection on the ground the assessee has not considered the verticals or functional lines during the search process conducted by it and therefore, it is not proper to make any objection on this basis now. We are not able to agree with the finding of the TPO as confirmed by the DRP on this issue. Merely because, the assessee itself has not considered the said filter while making its TP study; it cannot be said that it cannot raise
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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such an objection before the TPO. It is the TPO who has adopted this company as comparable. On such adoption, the assessee has every right to raise the objections as regards the functional differences between the assessee and comparable. IT is the bounden duty of the TPO to consider the said objections in accordance with law. As brought out by the assessee, the assessee is in the TT enabled services, whereas the said company Apex Knowledge Salutation Pvt. Ltd., is in the business of E-publishing which cannot be said to be in the same line of business. The functional differences are likely to affect the profit marking capacity of both the companies. In view of the same, we are of the opinion that this company is also to be excluded from the list of comparables. As regards the other two comparables i.e. (5) Datamatics Financial Services Ltd. and (6) Allsec Technologies Ltd., we find that merely because there were extraordinary events during the financial year, without demonstrating as to how these extraordinary events have influenced the profit margin of the company, they cannot be
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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excluded from the list of comparables, but the adjustments for such extraordinary events have to be made to the profits of the companies to bring them on par with the assessee before comparing them with the assessee. Therefore, we remand this issue to the file of the AO to consider the adjustments to be made to these two comparables before arriving at the ALP. Needless to mention that the assessee shall be given a fair opportunity of hearing.”
However, this Court in a recent judgment in I.T.A.No.536/2015 c/w. I.T.A.No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) rendered on 25-06-2018, 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
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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maintainable and 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
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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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 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
Date of Judgment 11-07-2018 I.T.A.No.98/2013 The Commissioner of Income-Tax, & Anr. Vs. M/s. Google India Pvt. Ltd.,
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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.” 8. Having heard the learned counsel for the appellant – Revenue, this Court is satisfied that no substantial question of law would arise in the present case and the appeal filed by the Revenue is therefore, liable to be dismissed. Accordingly, it is dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
BMV*