Karnataka High Court
The Pr. Commissioner Of vs M/S Huawei Technologies India Pvt. ... on 5 July, 2018
Bench: Vineet Kothari, S.Sujatha
1/12
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 05TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.492/2017
BETWEEN:
1. THE PR. COMMISSIONER OF INCOME-TAX, CIT(A)
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560 095.
2. THE INCOME-TAX OFFICER
WARD-11(2), PRESENT ADDRESS
ACIT, C-3(1)(2), 2ND FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA, BENGALURU-560095.
...APPELLANTS
(By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. HUAWEI TECHNOLOGIES INDIA PVT. LTD.,
No.23, 3RD FLOOR, LEELA GALLERIA
THE LEELA PALACE, OLD AIRPORT ROAD
BENGALURU-560 008
PAN: AAACH 8599L.
...RESPONDENT
(By Mr. SHARATH S, ADV., FOR
Mr. CHYTHANYA K.K. ADV.,)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL
Date of Judgment 05-07-2018 I.T.A.No.492/2017
The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd.,
2/12
QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND
SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN
IT(TP)A No.265/Bang/2014 DATED 17/02/2017 AND CONFIRM
THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING
THE ORDER PASSED BY THE ASST. COMMISSIONER OF
INCOME TAX, CIRCLE-3(1)(2), BENGALURU & ETC.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY
Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants- Revenue Mr. Sharath S, Adv. for Mr. Chythanya K.K. for Adv. Respondent - Assessee
1. 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, Bengaluru Bench 'A', Bengaluru, dated 17.02.2017 passed in IT(TP)A No.265/Bang/2014 (Income Tax Officer vs. M/s.Huawei Technologies India P.. Ltd.,) for A.Y.2009-10.
2. The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:-
Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 3/12 "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to exclude certain comparables by following its earlier decisions which have not reached finality even when the said comparable satisfies qualitative and quantitative filters?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to exclude FCS Software Services Pvt. Ltd., and Thinksoft Global Services Pvt Ltd., by relying upon its earlier orders which has not reached finality even when the TPO had considered the said comparables after satisfying all the required tests?".
3. Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the substantial question of law No.2. His submission is recorded.
'
4. Regarding substantial question of law No.1- Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 4/12 The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to 'Transfer Pricing' and 'Transfer Pricing Adjustments' made by the concerned authorities below. We consider it appropriate to quote the relevant portions hereunder:-
"5. The AR pleaded for exclusion of 6 comparables and inclusion of 2 comparables. The gist of his submissions are dealt as under:
xxxxxxxxxxxxx
6. We heard the rival submissions and gone through this Tribunal order in ARM Embedded Technologies Private Limited IT(TP) A 1659 & 1560/Bang/2014 for a y 2009-10 dt: 31- 8-2015. The relevant portion is extracted as under:
xxxxxxxxxxxxxx Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 5/12 Thus, the assessee has clearly made out a case for exclusion of Kals Information Systems Ltd and Bodhtree Consulting Ltd & inclusion of F C S Software Solutions Ltd & Thinksoft Global Services Ltd, as comparables. Accordingly, we direct the TPO to exclude/include them as comparable, as the case may be.
7. With regard to Tata Elxsi Ltd (seg), the assessee contended before the TPO that the TPO has not gone into the verticals of the business and segmental information has been considered. However, the TPO included it. The CIT (A) upheld the TPO's stand for the reason that the TPO has considered the software development segment only. Before us, the assessee sought exclusion the reason that this company is functionally dissimilar as under:
xxxxxxxxxxxxx
8. On Persistent Systems Ltd, the assessee contended before the TPO that this company:
xxxxxxxxxxxxxx The CIT (A) upheld the TPO's stand for the reason that this company is functionally similar Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 6/12 as it provides software development services. Before us, by filing an additional ground, the assessee seeks exclusion of this company for the following reasons:
1. Developing software product and sale of software products and relies on:
xxxxxxxxxxxxx
2. Change in business activities -
partnered with customers leading to ownership of applications, attending to outsourced business needs.
xxxxxxxxxxxx
9. We heard the rival submissions and gone through this Tribunal order in Unisys India Private Ltd IT(TP)A Nos.67 & 70/Bang/2015 for a y 2009-10 dt 30-09-2015. The relevant portion is extracted as under:
xxxxxxxxxxxx Thus the assessee has clearly made out a case for the exclusion of Tata Elxsi and Persistent Systems Ltd, as comparables. Accordingly, we direct the TPO to exclude them as comparable.
Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 7/12
10. On Larsen & Toubro Infotech Ltd, the assessee contended before the TPO that this company's RPT is 16.61% and it has huge scale of operations. The CIT (A) did not accept this company for the reason that this company is functionally similar, doing software development services. Before us, by filing an additional ground, the assessee seeks exclusion for the following reasons:
Functionally dissimilar • The Company continues to focus on the chosen verticals viz. Manufacturing, Banking Financial Services and Insurance, Energy and Petrochemicals, Product- Engineering Services (comprising of Communications and Embedded Software) • The Company's service offerings are in the areas of Application Maintenance and Development, Enterprise Resource Planning and specialized services like Data Warehousing and Business Intelligence, Testing Services and Infrastructure Management Services and took us through pages 850 & 851 of the Annual report Compendium and relied on M/s. CISCO Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 8/12 Systems (India) Private Ltd IT(TP)A No.271/Bang/2014 AY 2009-10.
Without prejudice to the functional dissimilarity, the assessee also pleaded that the mark-up computation was erroneous and needs to include Depreciation and amortization expense while arriving at the operating margin earned by L & T. Further, it pleaded that the RPT filter is 16.61% as per page 879 of the Annual report Compendium.
11. We heard the rival submissions and considered the facts and material on record. This Tribunal in M/s. CISCO Systems (India) Private Ltd IT(TP)A No.271/Bang/2014 for a y 2009-10 dt 14-08-2015 held that Larsen & Toubro Infotech Lt is a global IT Services and solutions provider and it cannot be compared with that assessee. We do hold that this company is functionally different from the assessee and hence deserves to be deleted from the comparables and accordingly direct the TPO to exclude it. Since, this company is directed to be excluded on functional dissimilarity; the order issues became academic and hence not dealt.
Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 9/12
12. On Sasken Communication Technologies Ltd (seg), the assessee contended before the TPO that this company cannot be a comparable for the reasons that its computation of margin is erroneous and it is a product company. The CIT (A) upheld the TPO's stand for the reason that only software development segment has been considered by him. Before us, by an additional ground, the assessee is seeking exclusion of this company for the following reasons:
xxxxxxxxxxxxxxxxxxxx We heard the rival submissions and considered the facts and material on record. Since Sasken Communication Technologies Ltd owns products, IPRs etc, it cannot be compared with this assessee and hence we direct the TPO to exclude it. Since, this company is directed to be excluded on functional dissimilarity, the other issues became academic and hence not dealt".
5. This Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 10/12 M/s. Softbrands India Pvt. Ltd.,) has held 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 Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 11/12 260-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.
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 Date of Judgment 05-07-2018 I.T.A.No.492/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Huawei Technologies India Pvt. Ltd., 12/12 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."
6. 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.
Sd/-
JUDGE Sd/-
JUDGE Srl.