Loading judgment…
No AI summary yet for this case.
1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 2ND DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A.No.498/2017
BETWEEN : 1. THE Pr. COMMISSIONER OF INCOME-TAX, CIT[A]
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
THE INCOME-TAX Officer
WARD-11[2]
BENGALURU.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. IDS SOFTWARE SOLUTIONS INDIA PVT. LTD., 6TH FLOOR, TOWER D, DIAMOND DISTRICT AIRPORT ROAD, BENGALURU-560066 PAN: AABCI 2430G.
…RESPONDENT
(BY SRI ANKUR PAI, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 16.12.2016 PASSED IN IT[TP]A NO.179/BANG/2014, FOR THE ASSESSMENT YEAR 2008-2009 AT ANNEXURE-D, PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT[TP]A No.179/BANG/2014 DATED 16.12.2016
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
2/10
AT ANNEXURE-D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE- 3[1][1], BENGALURU AND ETC.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Ankur Pai, Adv. 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 ‘B’, Bangalore, in IT[TP]A No.179/Bang/2014 dated 16.12.2016, relating to the Assessment Year 2008-09.
The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the re-computation of 10A deduction made by the assessing authority by
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
3/10
following the decision of this Hon’ble High Court in the case of CIT V/s. M/s. Tata Elxy [349 ITR page 98] even when the said decision has not reached the finality?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing the set-off of the loss of non EOU unit with the profits of the EOU unit before allowing the deduction under section 10A of the Act by following the decision of this Hon’ble Court even when the Hon’ble Supreme Court has not decided the issue in SLP disposed of by the Supreme Court wherein the Supreme Court has only said where it has to be shown in written of income?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that certain comparables are functionally different and liable to be excluded from the list of comparables by following its earlier orders which has not reached finality and even when the Transfer Pricing Officer has chosen the comparables as qualitative and quantitative filters are fully satisfied in the case of each comparables?
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
4/10
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to grant Market Risk Adjustment without appreciating that risk adjustment involves two vital pre- conditions i.e., with regard to difference in risk level exist between tested party and the uncontrolled comparables which is possible to calculate in terms of numbers and the adjustment can be made in such circumstances only and in the present case both the aspects were not established by the assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting comparable namely, Celestial Biolabs by following its earlier order in case of M/s. INfineon Technologies India Pvt. Ltd., even though the said order not reached finality?”
Learned Counsel for the Appellants-Revenue does not press substantial question Nos.1, 2, 3 and 5.
Submission is taken on record.
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
5/10
Regarding fourth substantial question of law:- 5. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under: “8. Market Risk Adjustment should be allowed During the year under consideration, the Appellant is a captive contract software development service provider to its AEs. Being a captive service provider, the Appellant is devoid of any significant risks relating to its business operations. Further, the Appellant would like to submit that the significant business and entrepreneurial risks are borne by the AE as it owns all the valuable intellectual property rights [know-how, copyrights etc.] and other commercial or marketing intangibles and provides mere services based on the requirements of the AEs in return for a fixed mark up on cost incurred in rendering of services.
For the purpose of Economic Analysis, the cost plus mark-up of the Appellant is compared against that of uncontrolled companies engaged in similar services. Your Honours would appreciate that such independent comparable
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
6/10
uncontrolled companies, who operate under uncontrolled conditions, bear risks during the course of its operations including market risk, research and development risk, technology risk, credit risk, currency fluctuation risk, liquidity risk, default risk etc. As a result, the resultant profitability of such comparable uncontrolled companies is directly related to the level of risk borne, which is not so in the case of a captive service provider similar to the Appellant, as it assumes minimal risks and being an entity with a fixed mark up on the cost earn steady return year on year.
In this regard, the Appellant would like to place reliance on the following Tribunal judgments, wherein comparability/ economic adjustments are also mandated by the Tribunal: Sony India [P] Limited [114 ITD 448] E-Gain Communication Pvt. Ltd., [118 ITD 243] Mentor Ruling Motorola Solutions India Private Limited V/s. ACIT [ITA No.5637/Del/2011]
Further, in addition to the above rulings, the principle has also been upheld by the recent High Court ruling in the case of Chryscapital
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
7/10
Investment Advisors [India] Pvt. Ltd., V/s. DCIT [ITA 417/2014], wherein the Hon’ble Court has held that appropriate adjustments should be carried out in situations where there are differences between the tested parties and comparables and in case such differences perceptible in the comparables cannot be eliminated on account of adjustments or otherwise, then such comparables have to be rejected.
We direct the TPO to rework the appropriate Market Risk Adjustments. The TPO is directed to incorporate the findings given by us with respect to comparables and arrive at the PLI in accordance with law.”
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
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
8/10
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 arriving at the
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
9/10
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. 57. 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
Date of Judgment 02-07-2018, ITA No.498/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
10/10
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.”
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.