THE PR COMMISSIONER vs. M/S ANALOG DEVICES

1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 29th DAY OF JUNE 2018

PRESENT

THE HON'BLE Dr.JUSTICE VINEET KOTHARI

AND

THE HON’BLE Mrs.JUSTICE S.SUJATHA

I.T.A.No.24/2016

BETWEEN:

…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)

AND:

M/S. ANALOG DEVICES INDIA PVT. LTD., RMZ INFINITY, TOWER D LEVEL 6, No.3, OLD MADRAS ROAD BANGALORE-560 016 PAN:AABCA 1873F.

…RESPONDENT (RESPONDENT SERVED)

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 ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT,

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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BENGALURU IN ITA No.1288/Bang/2014 DATED 07/08/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(1), BENGALURU & ETC.

THIS I.T.A. COMING ON FOR HEARING, THIS DAY Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-

JUDGMENT

Mr. K.V. Aravind, Adv. for Appellants – Revenue

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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“(1) Whether on the facts and in the circumstances on the case, the Tribunal was right in excluding M/s. Bodhtree Consulting Ltd., from the list of comparables, holding that it is functionally different, without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparables in a case depends on assessee specific FAR analysis when decision in the case of M/s. Cisco Systems India) Pvt. Ltd., has not reached finality and not deciding the selection of comparables on the basis of specific facts brought on record by the TPO?

(2) Whether the Tribunal, was right in facts and law in remanding the issue to the file of the TPO to consider comparability and include M/s. SIP Technologies & Export Ltd, from the angle of RPT filter only, when it clearly fails other filters of the TPO?

(3) Whether, the Tribunal, on the facts and in the circumstances of the case was right in holding the foreign exchange gain on realization of consideration for rendering software development services to be regarded ardedas part of the operating revenue, without appreciating the fact that such loss/gain, though

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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linked to the operating activity is not derived from the operating activity and without ascertaining the nexus with the business activity of the assessee?”.

made by the concerned authorities below. We consider it appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:- “ Regarding substantial question of law No.1 - “6.4.1. We have considered the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited. We find that the coordinate bench of this Tribunal in the case of Cisco Systems (India) Pvt. Ltd. in IT(TP)A No.271/Bang/2014 for Assessment Year 2009- 10 has excluded this company from the

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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list of comparables on the ground that since it is in the business of software products and engaged in providing open and end to end web solutions, software consultancy and design and development of software using latest technology, it cannot be considered as comparable to a captive software service provider; as is the assessee in the case on hand. At para 26.1 of its order the co- ordinate bench has held as under :-

xxxxxxxxxxxx 6.4.2. Following the above decision of the co-ordinate bench of this Tribunal in the case of Cisco Systems (India) Pvt. Ltd. (supra) for Assessment Year 2009-10, we direct the Assessing Officer/TPO to exclude this company from the final list of comparables to the assessee”.

Regarding substantial question of law No. 2 -

8.2 We have heard both the parties and perused the material before us. We are of the view that it is not clear to us as to how and from what information the TPO drew the conclusion that this company had RPT in excess of 25% during this year. However, from the record before us, it appears that the

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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assessee's contrary claim to the effect that this company i.e. SIP Technologies & Exports Ltd. has reported NIL RPT during this year, has not been examined by the authorities below. In this view of the matter, we deem it fit to remand the matter back to the file of the TPO for a proper factual examination and verification of the issue of RPT filter and then decide the comparability of this company in the light of, inter alia, the decision of the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2011 wherein it was held that a company is to be excluded from the list of comparables in the event of its RPT being in excess of 15%. It is ordered accordingly.

Regarding substantial question of law No.3 -

9.2 We have heard both parties in the matter and perused and carefully considered the material on record; including the judicial pronouncement cited and placed reliance upon by the assessee. We find that the co- ordinate bench of the Tribunal in the case of Mindteck (India) Ltd. (supra) has considered the

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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issue and held as under at para 11 thereof:- :- xxxxxxxxxxxxxx

9.3 In the above order, the co-ordinate bench of the Tribunal has held that foreign exchange gain on realization of consideration for rendering software development services should be regarded as part of the operating revenue. Following the order of the co-ordinate bench in the case of Mindteck (India) Ltd. (supra), we also hold that foreign exchange gain on realization of consideration for rendering software development services is to be regarded as part of operating revenues. The Assessing Officer/TPO are directed to verify this aspect as to whether the foreign exchange gain is on account of realisation of consideration and if that is so, to then consider the same as operating in nature”.

delivered on 25.06.2018 (Prl.Commissioner of Income Tax & Anr. Vs. M/s.Softbrands India Pvt. Ltd.,) has held that in these

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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type of findings of the learned Tribunal remained final fact findings of the learned Tribunal and are binding on the lower authorities of the Department as well as this Court and unless an established ex-facie perversity is found in the findings of the learned Tribunal, the appeal u/s.260A of the Act is not maintainable. We do not find any such perversity in the aforesaid findings.

Date of Judgment 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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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 29-06-2018 I.T.A.No.24/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Analog Devices India Pvt. Ltd.,

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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.”

Sd/- JUDGE

Sd/-

JUDGE

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