Karnataka High Court
The Pr Commissioner Of Income Tax vs M/S Softbrands India Pvt Ltd on 8 August, 2018
Bench: Vineet Kothari, S.Sujatha
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 8TH DAY OF AUGUST 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.398/2017
BETWEEN :
1. THE PR. COMMISSIONER
OF INCOME-TAX
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORMANGALA,
BENGALURU-560095.
2. THE DEPUTY COMMISSIONER
OF INCOME-TAX
CIRCLE-12(3), PRESENT ADDRESS
2ND FLOOR, BMTC BUILDING,
80 FEET ROAD, KORMANGALA,
BENGALURU-560095. ...APPELLANTS
(BY SRI ARAVIND.K.V., ADV.)
AND :
M/s. SOFTBRANDS INDIA PVT. LTD.,
PRESTIGE OBELISK, LEVEL 9,
KASTURBA ROAD,
BENGALURU-560001.
PAN:AAFCS 9041K. ...RESPONDENT
(BY SRI S.SHARATH, ADV. FOR SRI CHYTHANYA.K.K., ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 26/08/2016 PASSED IN IT(TP)A NO.1094/BANG/2011,
Date of Judgment 08-08-2018, ITA No.398/2017
The Pr. Commissioner of Income-tax & Another Vs.
M/s. Softbrands India Pvt. Ltd.,
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FOR THE ASSESSMENT YEAR 2007-2008, ANNEXURE-D,
PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF
LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE
THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT(TP)A
NO.1094/BANG/2011 DATED 26/08/2016, ANNEXURE-D AND
CONFIRM THE ORDER OF DRP CONFIRMING THE ORDER
PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,
CIRCLE-3(1)(1), 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. S.Sharath, Adv. for Mr. Chythanya.K.K., Adv. for 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, Bangalore Bench 'A', Bangalore, in IT[TP]A No.1094/Bang/2011 dated 26.08.2016, relating to the Assessment Year 2007-08.
2. The appeal has been admitted on 14.11.2017 to consider the following substantial questions of law:
Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 3/10 "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable on the ground of functional dissimilarity by following its earlier order in case of M/s. Triology E-Business Software India Pvt. Ltd., in ITA No.1054/Bang/2011 dated 23.11.2012 even when Transfer Pricing Officer has rightly chosen the same considering its functions which are similar to assessment and has satisfied all the required tests and without doing an FAR analysis of the taxpayer with those other cases?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to exclude comparable such as Persistent Systems Ltd., Wipro Ltd., Flextronics Software Systems Ltd., I-gate Global Solutions Ltd., Ishir Infotech Ltd., Megasoft Ltd., Mind Tree, R.System International Ltd., Sasken Communications Technologies Ltd., by following its earlier order which has not reached finality?"
3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 4/10 Respondent-Assessee, has returned the findings as under:
Regarding Substantial Question of Law No.1:
"(i) Accel Transmatics Ltd. (Seg.) "xxxxx"
7.3 We have considered the rival submissions as well as the relevant material on record. At the outset, we note that the Comparability of this company to a software development services provider has been considered by the co-ordinate bench of this Tribunal in the case of Trilogy E-Business Solutions dt.23.11.2012 for the Assessment Year 2007-08 in ITA No.1054/Bang/2011. The Tribunal in para 48 of the said order has reproduced the finding of the Mumbai Bench of the Tribunal in the case of Capgemini India (P) Ltd. Vs. Addl. CIT 12 Taxman.com 51 as under :
"xxxxx"
By following the above decision of the Mumbai Tribunal, the co-ordinate bench has held that this company is not comparable and should Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 5/10 be excluded from the list of comparable in para 50 as under :
"xxxxx"
As far as the business activities of the company are concerned, the revenue has not disputed that this company is engaged in the diversified activity as recorded by the Tribunal in the earlier year. Accordingly, by following the earlier orders of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparable for determining the ALP.
(ii) Avani Cincom Ltd.
"xxxxx"
8.2 We have considered the rival submissions as well as the relevant material on record. We note that the comparability of this company has been considered by the co-ordinate bench of this Tribunal in Trilogy E-Business Software India Pvt. Ltd. (supra) in para 39 & 41 as under :
"xxxxx"
Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 6/10 Following the earlier orders of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparable for determining the ALP."
4. Similarly, the learned Tribunal has considered other comparables and excluded the same.
Regarding Substantial Question of Law No.2:
"vii) Flextronics Software Systems Ltd.
(Seg.) "xxxxx"
11.2 We have considered the rival submissions as well as the relevant material on record. We find that the comparability of this company was not an issue before this Tribunal in the cases relied upon by the assessee as above. Accordingly, we do not find any substance or merit in the argument of the assessee that because of the turnover filter of this company should be excluded from the list of comparables.
viii) Helios & Matheson Information Technology Ltd.
"xxxxx"
Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 7/10 12.2 We have considered the rival submissions as well as the relevant material on record. We note that the comparability of this company has been considered by the co-ordinate bench of this Tribunal in the case of Serial Innovations India Pvt. Ltd. (surpa) in paras 29 & 30 as under:
"xxxxx"
Respectfully following the decision of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparable for determining the ALP."
5. Similarly, the learned Tribunal has considered other comparables and excluded the same.
6. However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr.
-v- 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 Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 8/10 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 Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 9/10 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 Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 10/10 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."
7. Having heard the learned counsels appearing 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 NC.