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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 03rd DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.1081/2017
BETWEEN:
THE PR. COMMISSIONER OF INCOME-TAX, CIT(A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2(1)(1), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. CAPITAL ONE SERVICES (INDIA) PVT. LTD., ASCENDAS, ITPB-SEZ, 3RD FLOOR VOYAGER BUILDING, INTERNATIONAL TECH PARK, WHITEFIELD MAIN ROAD BENGALURU-560 066.
…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 INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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No.276/Bang/2016 DATED 28/07/2017 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU & ETC.
THIS I.T.A. COMING ON FOR ORDERS, THIS DAY Dr. VINEET KOTHARI 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 a substantial question of law arising from the order of the ITAT, Bangalore Bench ‘A’, Bangalore, dated 28.07.2017 passed in IT(TP)A No.276/Bang/2016 (M/s.Capital One Services (India) Pvt. Ltd., vs. Dy.Commissioner of Income Tax) for A.Y.2011-12.
The proposed substantial question of law framed in the Memorandum of appeal by the Appellants-Revenue is quoted below for ready reference:-
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the basis of functional dissimilarity by following its earlier judgment in the case of M/s. Swiss Re Shared & Services (India)Pvt.Ltd which has not reached finality and even when the Transfer Pricing Officer has considered the comparables on the basis of qualitative and quantitative filters?”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to ‘Transfer Pricing’ and ‘Transfer Pricing Adjustments’
made by the concerned authorities below. We consider it appropriate to quote the relevant portions hereunder:- “8. 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 M/s. Swiss Re Shared & Services (India) Pvt. Ltd. Vs.
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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ACIT (supra) has considered the functional comparability of this company with an assessee who was in the business of remote data processing and information technology enabled back office service for the same Assessment Year 2011-12 in paras 12 to 20 as under: xxxxxxxxxx
As regards the objections of the learned Departmental Representative in respect of applicability of the precedence on the issue of comparability in the subsequent case or not the learned Departmental Representative has mainly relied upon the decisions of the Delhi Benches of Tribunal in the case of
Virage Logic International-India Branch Office Vs. JDIT in ITA No. 6918/Del/2014 Dt,13.7.2016 and Sony Mobile Communications India Pvt. Ltd. vs. ACIT (supra) as well as Mumbai Bench of Tribunal decision dt.14.9.2016 in the case of ECI Telecom India Pvt.Ltd. Vs. ACIT in ITA No.7552/Mum/2012. The Tribunal in those cases has discussed the basic criteria of selection of comparable companies for determining the Arm’s Length Price (ALP) in respect of international transactions of the assessee. There is no quarrel that for selection of comparable prices, FAR
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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analysis is a must. The FAR analysis comprises of 3 aspects viz. Functional, Asset employed and Risk assumed by the comparable companies as well as the assessee. Therefore all three aspects are taken into consideration while considering the comparable price for the purpose of determining the ALP. However if a company which is taken for FAR analysis for the purpose of comparable price of the international transaction is found to be functionally not similar then the said company cannot be considered as functionally comparable to the tested party. Once a company is rejected on the ground of functional comparability then the other two aspects viz. assets employed and risk assumed becomes irrelevant. The asset employed and risk assumed are considered only when a company is found to be broadly functionally comparable to the tested party but if there is difference in the asset employed and risk assumed between the such selected company and the tested party then an appropriate adjustment on account of working capital and risk level is allowable in the operating margin of the comparables so selected. Hence the functional comparability is a pre-requisite for selection of a comparable price and the other two aspects i.e. assets employed and risk involved are generally
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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considered only for appropriate adjustment in the operating margins of the comparables. Therefore the functional comparability is a primary factor and if a company is functionally not comparable then the other two aspects of the FAR analysis become irrelevant. Following the earlier order of this Tribunal cited supra, we direct the Assessing Officer / TPO to exclude this company from the set of comparables”.
This Court 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:
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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“ 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. 56. We are therefore of the considered opinion that the present appeals filed by the
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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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.”
Having heard the learned counsel for the Appellants we are therefore of the opinion that no
Date of Judgment 03-07-2018 I.T.A.No.1081/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Capital One Services (India) Pvt. Ltd.,
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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
Sd/-
JUDGE
Srl.