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1/8 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 25th DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.495/2016
BETWEEN:
PRINCIPAL COMMISSIONER OF INCOME TAX-6 C.R. BUILDING, QUEENS ROAD BANGALORE-560 001.
DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-6(1)(2), BANGALORE.
…APPELLANTS (By Mr. SANMATHI E.I. ADV.)
AND:
M/S. SOFTWARE AG BANGALORE TECHNOLOGIES PVT. LTD. EXORA BUSINESS PARK WING B, 1ST FLOOR, ELECTRA MARATHAHALLI, SARJAPURA OUTER RING ROAD, BANGALORE PAN: AAA CW 5438M.
…RESPONDENT (By Mr. MALLAHARAO K & Mr. PARTH, ADVS.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS TO LAW AS MAY BE FORMULATED BY THE HON’BLE Court AS DEEMED FIT. SET ASIDE THE APPELLATE ORDER DATED 31/03/2016 PASSED BY
Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd.,
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THE ITAT, ‘B’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS No.IT(TP)A No.1628/BANG/2014 FOR THE ASSESSMENT YEAR 2010-11 ANNEXURE-A AS SOUGHT FORI IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS I.T.A. COMING ON FOR HEARING THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Sanmathi E.I. Adv. for Appellants- Revenue Mr. Mallaharao K & Mr. Parth, Advs. for Respondent - Assessee
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, ‘B’ Bench, Bangalore, dated 31.03.2016 passed in IT(TP)A No.1628/Bang/2014 (The Deputy Commissioner of Income tax vs. M/s.Software AG Bangalore Technologies Pvt. Ltd.,) for A.Y.2010-11.
This appeal has been admitted on 11.10.2017 to consider the following substantial questions of law framed by the learned counsel for the Appellants- Revenue:-
Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd.,
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“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing the TPO to consider the claim of risk adjustment even when there is no reliable method to convert the qualitative difference into quantitative difference and to make adjustment on account of risk level?. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in taking different stands on adjustments to comparables margins to make them comparable to the tested party, so that the assessee benefits both ways and Revenue looses both ways since it goes against the principles of quality and natural justice?.”
In so far as the first substantial question of law raised by the Revenue is concerned, learned counsel for the Revenue submitted that the learned ITAT in its Order dated 31.03.2016 has given the findings, the relevant portion of which is quoted below for ready reference:-
“ 11. We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee has
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not given the working of risk adjustment before the TPO. Therefore, the TPO did not work out any risk adjustment. On appeal, the CIT(Appeals) has directed the TPO to consider the case of risk adjustment if the working capital adjustment is found to be negative. We find that when the TPO has worked out the working capital adjustment on her own and not accepted the claim of the assessee, then by applying the principle of consistency, the risk adjustment of the assessee was also required to be considered by the TPO, though the assessee might have been asked to furnish the relevant details and working. Since in this case, the TPO herself has worked out the working capital adjustment, therefore, we direct the TPO to consider the claim of risk adjustment subject to filing of details by the assessee. Accordingly, we modify the finding of the CIT(Appeals), qua the decision.
In so far as the second substantial question of law raised by the Revenue is concerned, learned counsel for the Revenue submitted that the learned ITAT in its Order dated 31.03.2016 has given the findings, the
Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd.,
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relevant portion of which is quoted below for ready reference:- “ 15. Having considered the rival submissions and on careful perusal of the record, we find that the Hyderabad Bench of the Tribunal in the case of Adaptec (India) P. Ltd. (supra) has considered identical issue in paras 10 & 11 as under:- xxxxxxxxxxxxxx
There is no allegation in the case of the assessee that the assessee has used any borrowed fund for working capital or there is any risk of money lost in credit time provided to the customers. Accordingly, following the order of the coordinate Bench of the Tribunal cited above, we hold that negative working capital adjustment is not justified in the case of the assessee.
In the result, the appeal and the Cross Objection are partly allowed”.
However, this Court in a recent judgment 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
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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: “ 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
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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.
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
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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 counsels for the parties, we are therefore of the opinion that no 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.
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