Karnataka High Court
The Pr Commissioner Of Income Tax vs M/S Goldman Sacha Services P Ltd on 1 August, 2018
Bench: Vineet Kothari, S.Sujatha
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 1ST DAY OF AUGUST 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.470/2016
BETWEEN :
1. THE Pr. COMMISSIONER OF INCOME TAX
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANGALA,
BENGALURU - 560095
2. THE DEPUTY COMMISSIONER OF
INCOME TAX, CIRCLE - 11(3),
PRESENT ADDRESS CIRCLE -3(1) (2),
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANGALA,
BENGALURU - 560095 ...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND :
M/s GOLDMAN SACHA SERVICES P. LTD.,
CRYSTAL DOWNS,
EMBASSY GOLF LINKS, BUSINESS PARK,
OFF INTERMEDIATE RING ROAD,
BENGALURU - 560071
PAN: AACCG2435N ... RESPONDENT
(BY SRI SANDEEP HUILGOL, ADV. FOR
SRI T.SURYANARAYANA, ADV.)
Date of Judgment 01-08-2018, ITA No.470/2016
The Pr. Commissioner of Income Tax & another Vs.
M/s Goldman Sacha Services P. Ltd.
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THIS ITA IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, ARISING OUT OF ORDER DATED 06/05/2016
PASSED IN IT(TP)A NO.1163/BANG/2014, FOR THE
ASSESSMENT YEAR 2007-2008 ANNEXURE-D. PRAYING TO 1.
FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS
PASSED BY THE ITAT, BENGALURU IN IT(TP)A
NO.1163/BANG/2014 DATED 06/05/2016 ANNEXURE-D AND
CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER
PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,
CIRCLE-3(1)(2), BENGALURU.
THIS APPEAL 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. 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, 'A' Bench, Bangalore, in IT [TP] A No.1163/Bang/2014 dated 06.05.2016 relating to the Assessment Year 2007-08.
2. This Appeal has been admitted on 11.10.2017 to consider the following substantial questions of law:
Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.3/12
"1. Whether on the facts and in the circumstances of the case, the Tribunal erred in directing the TPO to exclude comparables such as as M/s.Asit C Mehta Financials, Accentia Ltd, Informed Technologies Ltd, Vishal Information Technologies Ltd, Spanco Ltd, Eclerx Servie Ltd, Mold-Technologies Ltd, Wipro Ltd, Infosys BPO Ltd, Bodhtree Consulting Ltd by following its earlier orders which have not reached finality even when the TPO has rightly chosen the said comparables by applying all the required tests ?
2. Whether on the facts and in the circumstances of the case, the Tribunal erred in directing the TPO to exclude comparables such as M/s Avani Cimcom Technology, M/s Celestial Labs Ltd, M/s Mega Soft Ltd, Tata Elxsi, by following its earlier orders which have not reached finality even when the TPO has rightly chosen the said comparables by applying all the required tests ?"
3. The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned the findings as under:
Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.4/12
Regarding Substantial Question of Law No.1:
"27. Before us assessee is seeking exclusion of 12 comparables out of the list of 27 companies considered by the TPO. At the out set, Ld. AR of the assessee has submitted that while selecting the comparable companies in the software development services segment, TPO applied employee cost filter, whereas in the ITES segment, TPO has ignored the low employee cost in respect of various companies which were included in the lit of comparables. Ld. AR has submitted that these companies having employee cost of less than 25% of the total cost should not be part of the comparable companies. He has pointed out that five companies at Sl.Nos.1 to 5 of the list of TPO do not fulfill this requirement of minimum employee cost of 25%. Thus the Ld. AR has submitted that these five companies, namely Accentia Technologies Ltd., (seg), Asit C. Mehta Financial Services ltd., informed Technologies India Ltd., Spanco Ltd., (seg), and Vishal Information Technologies Ltd., (now known as Coral Hub) should be excluded from the list of comparables, as these companies are having very low employee cost ranging from 2% to 24% and therefore, do not comply with the filter of 25% applied by the TPO in software development Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.5/12
segment. Ld. AR has relied upon the decision of this Tribunal in the case of First Advantage Offshore Services P. Ltd. v. DCIT in ITA No.1806/Bang/2011 dated 30.04.2013 and submitted that the Tribunal has held that the employee cost filter is to be same for ITES segment as it was considered for software developemtn services segment.
28. On the other hand, Ld. DR has submitted that the software development segment requires skilled employees and therefore the TPO applied the employee cost filter whereas in the ITES segment, the requirement of skilled employees is less and therefore the TPO has not applied the employee cost filter.
29. We have considered the rival submissions as well as the relevant material on record. We find that while selecting the comparable companies in the software development segment, TPO has applied employee cost filter of 25% and thereby excluded the companies which were having less than 25% employees cost for the purpose of determining the ALP. On the contrary, the TPO did not apply such employees cost filter while selecting the comparable in respect of ITES segment. At the out Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.6/12
set we note that an identical issue was considered by the coordinate bench of this Tribunal in the case of First Advantage Off-shore Services P. Ltd. (supra) vide order dt.30.04.2013 in para 35, as under:
xxxxxx
30. We further note that in assessee's own case for A.Y. 2006-07 the Tribunal vide order dated 07.09.2015 in ITA.1423/Bang/2010 in paras 13 to 13.4.2 has accepted the employee cost filter and accordingly directed the exclusion of the set of comparables from the list of comparables as under:
xxxxxx
31. In view of the finding of the coordinate bench of this Tribunal as well as the undisputed fact that the TPO has applied employee cost filter of 25% while selecting the comparable companies for the purpose of determining the ALP of international transactions in software development segment and to maintain the consistency as well as the functional comparability of the business module similar to that of the assessee, we direct the AO / TPO to Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.7/12
exclude the companies from the list of comparables where the employee cost is less than 25% of the total cost."
Regarding Substantial Question of Law No.2:
"12. Before us, assessee is seeking exclusion of ten companies from the final list of comparables considered by the TPO. At the time of hearing Ld. AR of the assessee has submitted that it would confine its argument for exclusion of only three comparables, namely, Avani Cimcon Technologies Ltd., Celestial Labs Ltd., and Megasoft Ltd., [seg]. We will take up the functional comparability of three companies one by one as under:
13. Avani Cimcon Technologies Ltd, and Celestial Labs Ltd,:
Ld. AR of the assessee has submitted that this company is functionally dissimilar to that of the assessee as these companies are product driven company and having a different functional profile. Ld. AR submitted that by considering the business profile of this company the coordinate bench of this Tribunal in the case of HP India Software Operation Ltd., v. DCIT, dated 09.03.2016 in IT[TP]A No.1304/Bang/2011, has Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.8/12
held that these companies are in software products and therefore are not comparable with software development service providing company.
14. On the other hand, Ld. DR has relied upon the orders of authorities below and submitted that from the business profile of these companies it is clear that these companies are also in the software development services and therefore these companies are engaged in similar business activity. TPO as well as the DRP has analysed the functional comparability of these companies and it was found that both the companies are comparable with that of assessee.
15. We have considered the rival submissions as well as the relevant material on record. At the out set we know that the coordinate bench of this Tribunal comprising of one of us Judicial Member in the case of HP India Software Operation Ltd., v. DCIT [supra], has considered and decided the comparability of these two companies namely Avani Cimcon Technologies Ltd., and Celestial Labs Ltd., in para 11, which is reproduced hereunder:
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Following the decision of the coordinate bench of this Tribunal, we direct the AO / TPO to exclude Avani Cimcon Technologies Ltd., and Celestial Labs Ltd., from the list of comparables."
4. For the similar reasons, the learned Tribunal has excluded other comparables also.
5. 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 Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.10/12
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 Date of Judgment 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.
11/12Revenue 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 01-08-2018, ITA No.470/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Goldman Sacha Services P. Ltd.
12/1258. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
6. 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 Appellants-Revenue is liable to be dismissed and is accordingly dismissed.
No costs.
Sd/-
JUDGE Sd/-
JUDGE ln.