Karnataka High Court
Pr Commissioner Of Income Tax vs M/S Seimens Information Processing on 10 August, 2018
Bench: Vineet Kothari, S.Sujatha
1/14
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 10th DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.294/2017
BETWEEN:
1. PR. COMMISSIONER OF INCOME-TAX
BANGALORE-6, BMTC COMPLEX
KORAMANGALA, BANGALORE.
2. DEPUTY COMMISSIONER OF INCOME-TAX
CIRCLE-12(3), BANGALORE
BMTC COMPLEX, KORMANGALA
BANGALORE.
...APPELLANTS
(By Mr. JEEVAN J. NEERALGI, ADV.)
AND:
M/S. SEIMENS INFORMATION PROCESSING
SERVICES PVT. LTD,
OZONE MANAY TECH PARK
BLOCK A, 6TH FLOOR, No.56/18 & 55/9
G.B. PALYA, HOSUR ROAD
BANGALORE-560068.
...RESPONDENT
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT
ACT, PRAYING TO DECIDE THE SUBSTANTIAL QUESTIONS OF
LAW FRAMED ABOVE AND/OR SUCH OTHER QUESTIONS OF
LAW AS MAY BE FORMULATED BY THIS HON'BLE COURT AS
DEEMED FIT IN THE INTEREST OF JUSTICE AND EQUITY. SET
ASIDE THE ORDER DATED 30-06-2016 PASSED BY THE ITAT 'B'
Date of Judgment 10-08-2018 I.T.A.No.294/2017
Pr. Commissioner of Income-Tax & Anr. Vs.
M/s. Seimens Information Processing Services Pvt. Ltd.,
2/14
BENCH, BANGALORE IN I.T.(TP)A No.1359/BANG/2011 VIDE
ANNEXURE-A BY ALLOWING THE APPEAL OF THE APPELLANT
IN THE INTEREST OF JUSTICE AND EQUITY & ETC.
THIS I.T.A. COMING ON FOR ADMISSION THIS DAY,
S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Jeevan J. Neeralgi, Adv. for Appellants- Revenue
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, Bangalore Bench 'B', Bangalore, dated 30.06.2016 passed in IT(TP)A No.1359/Bang/2011 (M/s.Siemens Information Processing Services Pvt. Ltd., vs. Dy.Commissioner of Income Tax ) for A.Y.2007-08.
2. The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:-
"1. Whether on the facts and circumstances of the case, the ITAT is right in Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 3/14 directing the exclusion of comparable companies having RPT transactions more than 15% without asking the TPO to make fresh TP study, since a quantitative filter, viz., RPT filter has been changed. Changing filter criteria changes the search process altogether and mandates a fresh TP study using updated filters?
2. Whether, on the facts and circumstances of the case, the ITAT is right in holding that few companies are functionally different from the respondent/assessee company when it satisfies all the qualitative and quantitative filters applied by the TPO?
3. Whether, the ITAT is right in using a narrower functionality filter than the TPO, without testing other comparables against the narrower functionality filter applied by it?
4. Whether change in any filter qualitative or quantitative by an appellate authority should be followed by fresh TP study or whether the ITAT can selectively apply their modified qualitative filter to only few comparables challenged by the assessee, or whether a fresh TP study has to be done?
Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 4/14
5. Whether, the ITAT is right in not remanding the matter to TPO for fresh TP study, after taking a new view on functional matrix which is narrower than functionality matrix originally used by TPO?
6. Whether, the ITAT is right in directing the Assessing Officer to exclude reimbursement of certain expenditure incurred in foreign currency, both from Export Turnover and Total Turnover, without appreciating the fact that the statute allows exclusion of such expenditure expressly only from the Export Turnover by way of specific definition of export turnover defined in the Act, while there is no specific provision in Section 10A warranting exclusion of the above expenses from the Total Turnover?".
3. Learned counsel for the Appellants -Revenue Mr.Jeevan J.Neeralgi submits that he does not press the substantial question of law No.5. His submission is placed on record.
4. He also submits that in so far as the sixth substantial question of law is concerned, the same is Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 5/14 covered by the decision of the Hon'ble Apex Court in the case of Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
The relevant portion of the judgment of the Hon'ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:-
"17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 6/14 'export turnover' must also be excluded from 'total turnover', since one of the components of 'total turnover' is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible.
18. XXXXXX
19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well".
Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 7/14
5. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:-
Regarding substantial question of law No.1:-
" 8. As regards the application of RPT filter at 15% it is to be noted that this Tribunal has been taking a consistent view on the tolerance range of RPT in the cases where the comparables selected for determination of ALP are sufficient in number and there is no difficulty in the search of the comparables. Therefore in view of the consistent approach of this Tribunal that in normal circumstances when there is no difficulty in selecting the comparables, the RPT filter should not exceed 15% of the sale/revenue. In the case on hand, the TPO has selected as many as 27 comparables which shows that there was no difficulty in finding the comparable companies and therefore we are of the considered opinion that the RPT filter shall not exceed 15% of the total sale instead of 25% filter applied by the TPO. Only in the exceptional cases where the comparable companies are not easily available and only few companies are found during the search then the tolerance range of RPT can be Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 8/14 relaxed to the maximum limit of 25%. Since the case on hand is not an exceptional case therefore in our view the extreme limit of 25% of RPT filter cannot be applied in this case. In view of the above facts, we admit the additional grounds raised by the assessee regarding the RPT filter at 15%.
10. Now we will take up the functional comparability of the various companies as objected by the assessee in the present appeal. Since we have taken a view that the RPT shall not exceed 15% of the total sales therefore some of the companies which are having more than 15% RPT shall be excluded from the list of comparables as under:
(i) Apollo Healthstreet Limited: In this case, the RPT as per the details recorded by the TPO is 17.77% therefore this company fails the RPT threshold limit of 15% and accordingly directed to be excluded.
(ii) Asit C Mehta Financial Services: This company has reported RPT at 15.76% and therefore it fails the filter of 15% RPT.
Accordingly, we direct the A.O./TPO to exclude this company from the set of comparables.
Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 9/14 Regarding substantial question of law Nos. 2, 3 and 4 :-
" 11. The next set of comparables which are having very low employee cost cannot be regarded as good comparable. The following companies have reported very low employee cost:
(i) Moldtek Technology Ltd as shown only 7.59% of employee cost to total sale.
(ii) Spanco Limited has reported the employee cost at 7.16%.
(iii) Vishal Information Technologies Ltd.
has recorded employee cost of 2.30%.
(iv) Accurate Data Converters Ltd has reported at 1.61% employee cost.
Principally, we are of the view that such a low employee cost shows a different business model and it appears that these companies are outsourcing their business however since the TPO has not examined this issue therefore we set aside this issue to the record of the TPO/A.O. for limited purpose of verification of the reasons for such a low employee cost and if it is found that low employee cost is due to a different business Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 10/14 model then these companies shall be excluded from the list of comparables.
12. Accentia Technologies Limited:
xxxxxxxxxxxxxx
14. We have considered the rival submissions as well as the relevant material on record. In the recent decision of this Tribunal, constituting both the Members of the present bench in the case of Pole to Win India Pvt. Ltd. Vs. DCIT in ITA No.1053/Bang/2011 for the same Assessment Year 2007-08 vide its order dt:8.6.2016 has considered the comparability of this company in para 13.3 as under:
xxxxxxxxxxxxxx In view of the above finding, we set aside this issue to the record of the A.O/TPO to decide the comparability of this company in the light of the above observations. Needless to say the TPO has to afford an opportunity of hearing to the assessee.
15. Bodhtree Consulting Ltd:
xxxxxxxxxxxxxx Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 11/14 15.4 We have considered the rival submissions as well as the relevant material on record. We note that the comparability of this company has been examined by this Tribunal in a series of decisions including the decisions relied upon by the learned Authorised Representative.
At the outset we find that in the recent decision in the case of Pole to Win India Pvt. Ltd. (supra), we had the occasion to examine the comparability of this company and given the finding in para 7.3 as under:
xxxxxxxxxxxxxxxxxxxx Since both of us are partly to the decision in the case of Pole to Win India Ltd. (supra), therefore we concur with our earlier view and accordingly direct the A.O/TPO to exclude this company from the list of comparables.
6. 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 that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 12/14 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 answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 13/14 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 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.
Date of Judgment 10-08-2018 I.T.A.No.294/2017 Pr. Commissioner of Income-Tax & Anr. Vs. M/s. Seimens Information Processing Services Pvt. Ltd., 14/14
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
7. Having heard the learned counsel for the Appellants-Revenue, 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.
Copy of this order be sent to the Respondent- Assessee forthwith.
Sd/-
JUDGE Sd/-
JUDGE Srl.