Karnataka High Court
The Pr Commissioner Of Income Tax vs M/S Cgi Information Systems 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.393/2017
BETWEEN :
1. THE PR. COMMISSIONER
OF INCOME-TAX
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANGALA,
BENGALURU-560095.
2. THE ASST. COMMISSIONER
OF INCOME-TAX
CIRCLE-2(1)(1), 2ND FLOOR,
BMTC BUILDING, 80 FEET ROAD,
KORAMANGALA,
BENGALURU-560095. ...APPELLANTS
(BY SRI ARAVIND.K.V., ADV.)
AND :
M/s. CGI INFORMATION SYSTEMS &
MANAGEMENT CONSULTANT PVT. LTD.,
95/1, 95/2, ELECTRONIC CITY
PHASE-I, [WEST],
BENGALURU-560100.
PAN:AAACI 1994C. ...RESPONDENT
(BY SRI SANDEEP HUILGOL, ADV. FOR
SRI T.SURYANARAYANA, ADV.)
Date of Judgment 08-08-2018, ITA No.393/2017
The Pr. Commissioner of Income-tax & Another Vs.
M/s. CGI Information Systems & Management Consultant Pvt. Ltd.,
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THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 26/10/2016 PASSED IN IT(TP)A No.346/BANG/2015,
FOR THE ASSESSMENT YEAR 2010-2011, ANNEXURE-E,
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.346/BANG/2015 DATED 26/10/2016, ANNEXURE-E,
CONFIRMING THE ORDER OF THE DRP AND CONFIRM THE
ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME
TAX, CIRCLE-2(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. Sandeep Huilgol, Adv. for Mr. T.Suryanarayana, 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.346/Bang/2015 dated 26.10.2016, relating to the Assessment Year 2010-11.
2. The appeal has been admitted on 14.11.2017 to consider the following substantial question of law:
Date of Judgment 08-08-2018, ITA No.393/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems & Management Consultant Pvt. Ltd., 3/9 "Whether in the facts and circumstances of the case, the Tribunal is right in law in excluding the comparables, namely, Kals Information Systems Ltd., M/s. Persistent Systems Ltd., Tata Elxsi Ltd., ICRA Techno Analytics Ltd., on the ground of functional dissimilarity by following its earlier order which has not reached finality and even when the TPO had chosen the comparables as it satisfies qualitative and quantitative filters applied by the TPO and Tribunal ought to have decided the comparability of these companies on the basis of specific facts brought out on record by the TPO in the case of the assessee?"
3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under:
"18. We have heard the rival submissions. The issue in this ground of appeal is whether the advance received from AE should be considered as a trade payable for the purpose of working out working capital adjustment. There is no dispute that the adjustment for working capital be granted. But the only issue is whether the advance received from AE should be considered Date of Judgment 08-08-2018, ITA No.393/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems & Management Consultant Pvt. Ltd., 4/9 as trade payable and be considered for working capital adjustment. The advance received from AE par takes the character of trade payables which is to be adjusted against the future invoice. As a result of receipt of this advance money the necessity for borrowings from outside is reduced to that extent thereby reducing the cost of the borrowings. Thus it has a direct bearing on the profitability of the concern. Therefore the trade payable should be considered while computing the working capital adjustment. Thus the grounds of appeal filed by the revenue are dismissed.
19. Ground Nos. 6, 7 and 8 challenges the direction of Hon'ble DRP to exclude the companies ICRA Techno Analytics Ltd., Persistent Systems Ltd., and Infosys Ltd., on the ground of functional dissimilarity. Now, we shall deal with each of the comparables.
ICRA Techno Analytics Ltd., (seg) The learned CIT (A) argued that the Hon'ble DRP ought not to have deleted these companies from the list of the comparables on the ground of functional dissimilarity. On other hand the ld. Counsel for the assessee submitted that these comparables were excluded by the coordinate Date of Judgment 08-08-2018, ITA No.393/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems & Management Consultant Pvt. Ltd., 5/9 bench in the case of DCIT V. Electronics for Imaging India P. Ltd., [(2016) 70 taxmann.com
299. We heard the rival submissions and perused the material on record. We find from the order of the Hon'ble DRP that in the case of ICRA Techno Analytics Ltd., the Hon'ble DRP after perusing the Annual Report had come to conclusion that the service segment comprised of software development, software consultancy, engineering services, web development, web hosting etc., for which no segment details were available. The revenue had not led any evidence on record controverting the above findings. Even the Hon'ble coordinate bench in the case of DCIT V. Electronics for Imaging India P. Ltd., [(2016) 70 taxmann.com 299 had held that this company is not comparable with the software development company in view of the fact that it is engaged in the diversified activities. The relevant paragraph is reproduced below:
"xxxxx"
Respectfully following the decision of the coordinate bench, we do not find any reason to interfere with the findings of the DRP that this Date of Judgment 08-08-2018, ITA No.393/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems & Management Consultant Pvt. Ltd., 6/9 company is not comparable with that of a software development service provider.
Persistent Systems Ltd:
"xxxxx"
The revenue had not filed any evidence contradicting the above findings. Therefore, we do not find any reason to differ from the findings of the Hon'ble DRP. "
4. Similarly, the learned Tribunal has considered other comparables and excluded the same.
5. 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 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.
Date of Judgment 08-08-2018, ITA No.393/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems & Management Consultant Pvt. Ltd., 7/9 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 Date of Judgment 08-08-2018, ITA No.393/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems & Management Consultant Pvt. Ltd., 8/9 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 such appeals before Date of Judgment 08-08-2018, ITA No.393/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. CGI Information Systems & Management Consultant Pvt. Ltd., 9/9 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 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.