Karnataka High Court
The Pr Commissioner Of Income Tax vs M/S Broadcom India Research Pvt Ltd on 7 August, 2018
Bench: Vineet Kothari, S.Sujatha
1/11
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 7th DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.331/2017
BETWEEN:
1. THE PR. COMMISSIONER OF INCOME-TAX,
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORMANGALA,
BANGALORE-560 095.
2. THE ASST. COMMISSIONER OF INCOME-TAX,
CIRCLE-2(1)(1),
2ND FLOOR, BMTC BUILDING,
80 FEET ROAD KORMANGALA,
BANGALORE-560095.
...APPELLANTS
(By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. BROADCOM INDIA RESEARCH PVT. LTD.,
(Now Merged with Broadcom Communication
Technologies Pvt. Ltd.,)
CAMPUS 3A. 4TH FLOOR, RMZ ECOSPACE,
BELLANDUR VILLAGE, VARTHUR HOBLI,
BENGALURU-560 037.
PAN: AACCB 6307L.
...RESPONDENT
(By Mr. SANDEEP HUILGOL, ADV., FOR
Mr. T. SURYANARAYANA, ADV.,)
Date of Judgment 07-08-2018 I.T.A.No.331/2017
The Pr. Commissioner of Income-tax & Anr.
Vs. M/s. Broadcom India Research Pvt. Ltd.,
2/11
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT
ACT, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS
OF LAW. ALLOW THE APPEAL AND SET ASIDE THE ORDERS
PASSED BY THE ITAT, BENGALURU IN IT(TP)A
No.348/BANG/2015 DATED 13-07-2016, ANNEXURE-D AND
CONFIRMING THE ORDER OF THE DRP AND CONFIRM THE
ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME-
TAX, CIRCLE-2(1)(1), BENGALURU & ETC.
THIS I.T.A. COMING ON FOR HEARING THIS DAY,
S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants- Revenue Mr. Sandeep Huilgol, Adv. for Mr. T. Suryanarayana, Adv. for Respondent - Assessee
1. The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly one substantial question of law arising from the order of the ITAT, 'B' Bench, Bangalore, dated 13.07.2016 passed in IT(TP)A No.348/Bang/2015 (Asst.Commissioner of Income-tax vs. M/s.Broadcom India Research Pvt. Ltd.,) for A.Y.2010-11.
Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 3/11
2. This appeal has been admitted on 24.01.2018 to consider the following substantial question of law framed by the learned counsel for the Appellants-
Revenue:-
"1. Whether on the facts and circumstances of the case, the Tribunal is right in law in directing the TPO to exclude comparables such as M/s.ICRA Techno Analytics Ltd, Sasken Communication Tech Ltd, Infosys Ltd, Kals Information Systems Ltd, Persistent Systems Ltd, Persistent Systems and Solutions Ltd, R.R.Software Ltd as comparables by following its earlier orders which has not reached finality and even when the TPO had chosen the comparables on the basis of its functional similarity and by application of qualitative and quantitative tests?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the AO/TPO to rework the margins of the comparables finally selected after adjustment of working capital adjustment without affording any reasons as to quantum of eligible working capital adjustment?"
Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 4/11
3. 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:-
"13.1 ICRA Techno Analytics Ltd., The DRP deleted this company from the list of comparable on the ground that no segmental information were available. The relevant finding of the DRP is as under:
xxxxxxxxxxxxxxxxx Similar finding was recorded by the co- ordinate bench in the case of Ikanos Communication India Pvt. Ltd. in IT (TP)A No.137/2015 dated 10/11/2015. Respectfully following the decisions of the co-ordinate bench, we hold that this company cannot be included in the list of comparable and uphold the order of the DRP in deleting this company.
13.2 Persistent Systems & Solutions Ltd., The DRP deleted this company from the list of comparable on the ground that no segmental Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 5/11 information were available. The relevant finding of the DRP is as under:
xxxxxxxxxxxxx The revenue had not brought any evidence on record rebutting the above factual findings of the Hon'ble DRP. Now, the law is quite settled to the extent that a software development service company cannot be compared with software product company. In the absence of segmental details between two segments, this company cannot be included in the list of comparables. Accordingly, we hold that this company cannot be held to be comparable with that of a software development company.
13.3 Sasken Communications Technologies Ltd., The DRP deleted this company from the list of comparable on the ground that no segmental information was available. The relevant finding of the DRP is as under:
xxxxxxxxxxxxxxx The revenue had not brought any evidence on record rebutting the above factual findings of Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 6/11 the Hon'ble DRP. Therefore, we have no option but to confirm the findings of the Hon'ble DRP.
13.4 Persistent Systems Ltd. and R S Software Ltd:
The DRP deleted these companies from the list of comparables on the ground that no segmental information was available. The relevant finding of the DRP is as under:
xxxxxxxxxxxxxxxx The revenue had not brought any evidence on record rebutting the above factual findings of the Hon'ble DRP. Therefore, we have no option but to confirm the findings of the Hon'ble DRP.
13.5 Infosys Ltd., The direction of the Hon'ble DRP is in consonance with the decision of the co-ordinate bench cited supra. No information was brought on record by the revenue rebutting the above findings of the co-ordinate benches. Hence, we uphold the action of the Hon'ble DRP.
13.6 KALS information Systems Ltd.
Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 7/11 The DRP deleted this company from the list of comparables on the ground that segmental information is not reliable. The relevant finding of the Hon'ble DRP is as follows:
xxxxxxxxxxxx The co-ordinate bench in the case of DCIT vs. M/s. Electronics for Imaging India Pvt. Ltd., [IT (TP) A No.212/Bang/2015 dated 24/2/2016] to which one of us viz., the Judicial Member was a party, also considered this company and held as follows:
xxxxxxxxxxxxxx Therefore, this company cannot be compared both on the functionality as well as on the non-availability of segmental information. Accordingly, we uphold the action of the Hon'ble DRP in deleting this company from the list of comparable grounds of appeal Nos. 7, 8, 9 & 10 are dismissed".
Regarding substantial question of law No.2:-
" 12. Ground No.4, 5 & 6 relates to the grant of working capital adjustment. From the perusal of the order of the DRP, it is clear that the Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 8/11 DRP only directed to re-work the margins of the comparable finally selected after the adjustment of working capital adjustment. The DRP had not rendered any finding as to the quantum of eligible working capital adjustment. Hence, the grounds of appeal raised by the revenue and do not survive and hence, dismissed as such".
4. 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 Tribunal is established by the appellants, 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 Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr.
Vs. M/s. Broadcom India Research Pvt. Ltd., 9/11 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 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 Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 10/11 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.
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
5. 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 Date of Judgment 07-08-2018 I.T.A.No.331/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Broadcom India Research Pvt. Ltd., 11/11 liable to be dismissed and it is dismissed accordingly.
No costs.
Sd/-
JUDGE Sd/-
JUDGE Srl.