Karnataka High Court
The Pr Commissioner Of vs M/S Mphasis Limited on 16 August, 2018
Bench: Vineet Kothari, S.Sujatha
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 16th DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.909/2017
BETWEEN:
1. THE PR. COMMISSIONER OF INCOME-TAX-4
BMTC COMPLEX
KORAMANGALA, BANGALORE.
2. THE ASSISTANT COMMISSIONER OF INCOME-TAX
CIRCLE-12(1), BANGALORE.
...APPELLANTS
(By Mr. SANMATHI E.I. ADV.)
AND:
M/S. MPHASIS LIMITED
BAGMANE WORLD TECHNOLOGY CENTRE
K.R.PURAM, WTC-3, BLOCK-B
1ST FLOOR, MARATHHALLI, ORR
DODDENEKUNDI, BANGALORE-560048.
PAN: AACCB6820C.
...RESPONDENT
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT
ACT, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW
AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE
FORMULATED BY THE HON'BLE COURT AS DEEMED FIT & SET
ASIDE THE APPELLATE ORDER DATED 07-06-2017 PASSED IN
IT (TP)A NO. 1104/BANG/2012 FOR A.Y.2005-06 VIDE
ANNEXURE-A BY THE INCOME TAX APPELLATE TRIBUNAL, 'B'
Date of Judgment 16-08-2018 I.T.A.No.909/2017
The Pr. Commissioner of Income Tax-4 & Anr. Vs.
M/s. Mphasis Limited
2/8
BENCH BANGALORE, AS SOUGHT FOR. 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. E.I. Sanmathi, 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 07.06.2017 passed in IT(TP)A No.1104/Bang/2012 (M/s. Mphasis.Limited. vs. Asst.Commissioner of Income Tax) for A.Y.2005-06.
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, the Tribunal, on the facts and in the circumstances of the case, that the Tribunal is right in law in directing the assessing officer/transfer pricing officer to decide the Date of Judgment 16-08-2018 I.T.A.No.909/2017 The Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Mphasis Limited 3/8 transfer pricing issue afresh but comparing the margins with uncontrolled comparable price by following earlier decision in the case of M/s. Kshema Technologies which has not reached finality and TPO had rightly made adjustment of Rs.11.59 crores in Arm's Length Price in accordance with the provisions of the Act and the Rules prescribed thereunder?
2. Whether, the Tribunal, on the facts and in the circumstances of the case, that the Tribunal is right in law in holding that the income earned by assessee through onsight development of software by the AE of the assessee would be eligible for deduction under section 10A/10B of the Act by relying upon the decision of this Hon'ble High Court in ITA No.263 and 264/2014 which has not reached finality?"
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:-
" 9. Having considered the rival submissions as well as the relevant material on Date of Judgment 16-08-2018 I.T.A.No.909/2017 The Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Mphasis Limited 4/8 record, we find that in order to determine whether the international transactions carried out by the assessee are at arm's length, the price/cost of international transactions is compared with the uncontrolled independent price as per the method and procedure prescribed under Chapter X of the Income Tax Act, 1961 (in short 'the Act'). Therefore only the price/the PLI of international transactions of the assessee has to be compared with the uncontrolled comparable price. The assessee took its entity level margin for the purpose of bench marking its international transactions which is not permissible under the T.P. provisions of IT Act as envisaged in Chapter X of the Act. We further note that the CIT (Appeals) rejected the TNMM as MAM and adopted cost plus method as MAM. However, the CIT (Appeals) has proceeded to consider the AE of the assessee as tested party to compare the margin with the comparable price. We find that this exercise of the CIT (Appeals) is also contrary to the provisions of Transfer Pricing. The co- ordinate bench of this Tribunal in the case of M/s. Kshema Technologies Ltd. Vs. ACIT (supra) while dealing with an identical issue has held in para 11.3 as under:
Date of Judgment 16-08-2018 I.T.A.No.909/2017 The Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Mphasis Limited 5/8 xxxxxxxxxxxxx Accordingly, the TP Analysis of the assessee as well as the CIT (Appeals) are not in accordance with the provisions of Transfer Pricing and therefore, the impugned order of the CIT (Appeals) is set aside and the TP issue is remitted to the record of the TPO for deciding the matter afresh by comparing the margins of the international transactions with the uncontrolled comparable price. Needless to say the assessee be given an appropriate of hearing".
4. The issue involved in the second substantial question of law is already considered by this Court in the very Assessee's case for A.Y.2002-03 in ITA Nos.263 and 264/2014 vide order dated 29.07.2015 and the same is answered in favour of the Assessee and against the Revenue. Hence, consideration of the said substantial question of law now does not arise for this Court.
5. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015 delivered on Date of Judgment 16-08-2018 I.T.A.No.909/2017 The Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Mphasis Limited 6/8 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 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 Date of Judgment 16-08-2018 I.T.A.No.909/2017 The Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Mphasis Limited 7/8 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 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 Date of Judgment 16-08-2018 I.T.A.No.909/2017 The Pr. Commissioner of Income Tax-4 & Anr. Vs. M/s. Mphasis Limited 8/8 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."
6. 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.