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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 28TH DAY OF JUNE 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.96/2017
BETWEEN :
Pr. COMMISSIONER OF INCOME TAX-2 BMTC COMPLEX, KORAMANGALA BENGALURU
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12 (1) MANGALORE CORRECT ONE IS CIRCLE, 4(1)(2), BMTC COMPLEX, KORAMANGALA, BENGALURU
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND :
M/s MAGMA DESIGN AUTOMATION INDIA PVT. LTD., (NOW M/s SYNPOSIS INDIA PVT. LTD.,) JUPITER (2A) BLOCK, 2ND FLOOR, PRESTIGE TECH PARK, SARAJAPUR, MARATHAHALLI RING ROAD, KADABEESANAHALLI VILLAGE BANGALORE, PAN NO : AADCM4542M …RESPONDENT
(BY SRI MALLAHARAO K., & SRI SANDEEP S. KARHAIL, ADVS.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.08.2016
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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PASSED IN ITA(TP) NO.1214/BANG/2011, FOR THE ASSESSMENT YEAR 2007-2008. PRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. 2. TO SET ASIDE THE APPELLATE ORDER DATED 29.08.2016 PASSED BY THE ITAT, 'B' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS NO. ITA(TP) NO.1214/BANG/2011 FOR AY 2007-08 GRANT SUCH OTHER RELIEF AS DEEMED FIT.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. E.I. Sanmathi, Adv. for Appellants – Revenue Mr. K. Mallaharao K., & Mr. Sandeep S. Karhail, 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 ‘B’, Bangalore, in ITA[TP] No.1214/Bang/2011 dated 29.08.2016, relating to the Assessment Year 2007-08.
The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal is as under:
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the TPO to exclude 14 comparable out of 26 comparable selected by the TPO for calculating the transfer pricing adjustment in software development services segment of the company by relying upon its own decision in case of M/s Marvel India Pvt. Ltd., which has not yet reached finality and even when the TPO has chosen proper comparable considering all the aspects?
Whether on the facts and in the circumstances of the case, the Tribunal was justified in law directing the TPO to exclude 15 comparable out of 27 comparable selected by the TPO for calculating the transfer pricing adjustment by relying upon its own decision in case of M/s AOL Online India Out Ltd. which has not yet reached finality and even when the TPO has chosen proper comparable considering all the aspects?
Whether on the facts and in the circumstances of the case, the Tribunal was justified in law directing the TPO to exclude Mega Soft Ltd. and should be considered for inclusion
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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for segmental results only as the assessee is a pure service provider by following its own decision in the case of M/s First Advantage off shore services Pvt. Ltd. which has not yet reached finality and even when the TPO has chosen proper comparable considering all the aspects?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under:
“7. We have considered rival submissions. First, we take up software services segment. In this segment the TPO had adopted 26 comparables out of which the assessee is seeking exclusion of 14 Marvel India Pvt. Ltd. Vs ACIT in IT(TP)A No.1033(B)/2011 dated 17.06.2016. Copy of this order is furnished along with the chart and it has been pointed out that Para 5 to 7 of this Tribunal order on pages 6 to 9 of this Tribunal order are relevant for exclusion of this comparable. Hence, for the sake of ready
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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reference, we reproduce para-5 to 7 of this Tribunal order as under:
xxxxx
From the above paras reproduced from the Tribunal order rendered in the case of M/s Marvel India Pvt. Ltd. (supra), it is seen that in that case, the company was engaged in software services and it was held by the Tribunal in that case that following 14 comparables should be excluded and for one comparable i.e., M/s Megasoft Ltd. it was directed that this company should be considered for inclusion as per its segmental results only. Theses 14 companies for which exclusion was directed in that case which are as follows:
xxxxx
After exclusion of these 14 comparables companies and after considering the correct operative margin of M/s Megasoft Ltd. (Seg.), net margin of the remaining 13 comparables should be worked out and TP adjustment
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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should be made if required as per law after granting benefit as per law in respect of +-5% benefit as per law in respect of software service segment.
Now we take up the second segment i.e., Customer Support service segment. For this segment, the assessee is seeking exclusion of 15 comparables out of 27 comparables selected by the TPO on the basis of Tribunal order i.e., M/s AOL Online India Pvt. Ltd. (supra) in IT(TP)A No.1036(B)/2011 dated 18.03.2016, copy available on pages 2362 to 2381 of the paper book. As per this Tribunal Order, it was held by the Tribunal that the following companies should be excluded from the list of final comparables.
xxxxx
Respectfully following this Tribunal order, because the Id. DR of the revenue could not point out any difference in facts, we hold that these 14 companies should not be considered in the final list of comparables.”
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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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 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
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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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 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.
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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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.”
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.
Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd.,
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Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
A copy of this Order shall be sent to the Respondent-Assessee.
Sd/- JUDGE
Sd/- JUDGE
AN/-