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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.68/2016
BETWEEN :
Pr. COMMISSIONER OF INCOME TAX C.R.BUILDING, QUEENS ROAD, BANGALORE-560001.
THE DEPUTY COMMISSIONER OF INCOME TAX OFFICER, CIRCLE-11(5), BANGALORE.
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND :
M/s KODIAK NETWORKS (INDIA) PVT.LTD ., NO.401, 4TH FLOOR, PRESTIGE SIGMA, NO.3, VITTAL MALLYA ROAD, BANGALORE-560001. PAN:AACCK0978 J.
…RESPONDENT
(BY SRI TATA KRISHNA, ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30.07.2015 PASSED IN C.O.NO. 119/BANG/2015 IN IT(TP)A NO.532/BANG/2013, FOR THE ASSESSMENT YEAR 2005-06. PRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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FORMULATED BY THE HON'BLE COURT AS DEEMED FIT & SET ASIDE THE APPELLATE ORDER DATED 30.07.2015 PASSED BY THE ITAT, 'C' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN C.O.NO.119/BANG/2015 IN IT(TP)A NO. 532/BANG/2013 FOR A.Y. 2005-06 & GRANT SUCH OTHER RELIEF AS DEEMED FIT.
THIS APPEAL COMING ON FOR HEARING, 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. Tata Krishna, 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, ‘C’ Bench, Bangalore, in C.O.NO.119/BANG/2015 in IT [TP] A.No.532/Bang/2013 dated 30.07.2015 (M/s Kodiak Networks India Pvt. Ltd. –v- Deputy Commissioner of Income tax ), relating to the Assessment Year 2005-06.
The admitted substantial questions of law framed by the Revenue in the Memorandum of Appeal is as under:
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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“1 Whether, on the facts and circumstances of the case, the Tribunal is right in law in holding that the following comparables have to be excluded from the list of comparables as they are functionally different forum than that of the assessee (i) Exensys Software Solutions Ltd., (ii) Thirdware Solutions Ltd (iii) Tata Elxsi (iv) Bodh tree consulting ltd., (v) Sankya Infotech Ltd. when all the companies satisfies the tests required for determining qualitative and quantitative filters and when selection of comparables in a case depends on FAR analysis ?
Whether, on the facts and circumstances of the case, the Tribunal is right in law in fixing the RPT filters at 15% of total revenue and deleting Foursoft Ltd and Goemetric Software Solutions Ltd., as comparable without going into the specific facts in the case of the tax payer and without adducing the basis for arriving at 15% cut off for RPT filter, in the case of tax payer?
3) Whether, on the facts and circumstances of the case, the Tribunal is right
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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in law in holding that size, turnover, brand value and research and development activity of the company are deciding factors for treating a company as a comparable and consequently erred in excluding the (i) Flxtronics Software Services Ltd. (ii) I Gate Global Solutions Ltd (iii) Infosys Technologies Ltd (iv) L&T Infotech Ltd (v) Satyam Computer Services Ltd., as comparables in the case of tax payer ?”
The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned a findings as under: “ 15. Respectfully following the aforesaid decision of the Tribunal in the case of Triology E-business Software India Pvt. Ltd. (supra), we hold that the CIT(A) was justified in applying the turnover filter and excluding companies whose turnover was beyond Rs.200 Crores.
As regards ground No.7, TATA Elxsi Ltd., has to be excluded as this company was held to be not comparable with an Assessee such as the Assessee in the present case providing software development services by the
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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ITAT Hyderabad Bench in the case of CNO IT Services (India) Pvt. Ltd. (Formerly known as Conseco Data Services (India) Pvt. Ltd) Hyderabad Vs. DCIT, Circle 1(2) Hyderabad, in ITA No.1280/Hyd/2010 Assessment Year 2005-2006 order dated 12.2.2014. The ITAT Hyderabad Bench on identical facts, held on comparability of TATA Elxsi Ltd. as follows: Xxxxxx
In view of the aforesaid decision rendered on identical facts and circumstances, we of the view that TATA Elxsi Ltd., was rightly excluded from the list of comparable companies.
Having heard both the parties and having gone through the material on record, we find that the TPO at page 37 of his order has brought out the differences between a product company and a software development services provider. Thus, it is clear that he is aware of the functional dissimilarity between a product company and a software development service provider. Having taken not of the difference between the two functions, the Assessing
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available. Even if he has adopted the filter of more than 75% of the revenue from the software services for selecting a comparable company, he ought to have taken the segmental results of the software services only. The percentage of expenditure towards the development of software products may differ from company to company and also it may not be proportionate to the sales from the sale of software products. Under section 133(6) of the I.T. Act, the TPO has the power to call for the necessary details from the comparable companies. It is seen that the Assessing Officer/TPO as exercised this power to call for details with regard to the various companies. As seen from the annual report of Foursoft Limited which is reproduced at page 7 of the TPO’s Order, the said company has derived income from software licence also and AMCs.”
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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For the similar reasons, the Tribunal has excluded other comparables also.
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- 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
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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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 Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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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.”
Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd.
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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 Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
ln.