Karnataka High Court
The Pr. Commissioner Of Income Tax vs M/S Amd India Pvt. Ltd on 26 July, 2018
Bench: Vineet Kothari, S.Sujatha
1/14
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.247/2016
BETWEEN:
1. THE PR. COMMISSIONER OF INCOME TAX,
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANAGALA,
BANGALORE-560 095.
2. THE INCOME TAX OFFICER,
WARD-11(1), 2ND FLOOR,
BMTC BUILDING,
80 FEET ROAD, KORAMANAGALA,
BANGALORE-560 095.
...APPELLANTS
(By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. AMD INDIA PVT.LTD.,
PLOT NOS.102 & 103,
EXPORT PROMOTION INDUSTRIAL PARK,
WHITEFIELD,
BANGALORE - 560 066.
PAN:AAECA 6756C
...RESPONDENT
(By Mr. S.SHARATH, ADV.)
Date of Judgment 26-07-2018 I.T.A.No.247/2016
The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd.,
2/14
THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL
QUESTIONS OF LAW STATE ABOVE AND ALLOW THE APPEAL
AND SET ASIDE THE ORDERS PASSED BY THE ITAT,
BENGALURU IN ITA NO. 1244/BANG/2011 DATED 23/09/2015,
ANNECURE - D AND CONFIRM THE ORDER OF THE DRP
CONFIRMING THE ORDER PASSED BY THE INCOME TAX
OFFICER, WARD-11(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. S.Sharath, Adv. for Respondent-Assessee The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short 'Act') raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, 'A' Bench, Bangalore (for short 'Tribunal') dated 23.09.2015 passed in I.T(TP)A No.1244/Bang/2011 for the A.Y.2007-08.
Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 3/14
2. This appeal has been ADMITTED on 12.09.2017 to consider the following substantial questions of law as formulated in the appeal memo:
"1. Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding (i) Accel Transmatic ltd., (ii) M/s. Avani Cimcon Technologies Ltd., (iii) M/s. Celestial Labs Ltd., (iv) M/s. KALS info Systems Ltd, (v) M/s. Ishir Infotech Ltd., (vi) Lucid Software Ltd., (vii) M/s. Infosys Technologies Ltd., (viii) Tata Elxsi Ltd., (ix) M/s. Wipro Ltd., (x) M/s. E-Zest Solutions Ltd.,
(xi) M/s. Quintegra solutions Ltd., (xii) Persistent Systems Ltd., (xiii) Thirdware Solutions Ltd., (xiv) M/s. Helios & Matheson Information Technology Ltd., from the list of comparables, holding that they are functionally different, without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparables in transfer pricing depends on assessee specific FAR analysis and not deciding the selection of the Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 4/14 comparables on the basis of specific facts brought on record by the TPO?
2. Whether the Tribunal was right in directing to exclude M/s. Ishir Infotech Ltd., and M/s. Thirdware Solutions Ltd., by placing reliance on other benches of Tribunal, without considering the assessee specific information collected u/s. 133(6) of the Act, based on which, the TPO had concluded that it satisfies all the filters including employee cost filter?
3. Whether the Tribunal was right in directing to consider only the segmental margin of Megasoft Ltd., without considering the assessee specific information received from M/s. Megasoft Ltd., wherein it was stated that the entire total operating income is out of its software development services only?"
3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under:
Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 5/14 Regarding substantial questions of law Nos.1 and 2:
"14. We will proceed to consider the comparability of companies chosen by the TPO and listed in the earlier part of this order.
15. As far as comparable companies listed at Sl.No.1,2,3 and 12 of the final list of comparable companies chosen by the TPO viz., M/S. Accel Transmatic Limited (seg.), Avani Cincom Technologies Ltd., Celestial labs Limited and KALS Infosystems Ltd., are concerned, this Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. Vs. DCIT IT (TP) No. 1086/Bang/2011 for AY 07- 08 held that the aforesaid companies are not comparable companies in the case of software development services provider. The nature of services rendered by the Assessee in this appeal and the Assessee in the case of First Advantage Offshore Services Pvt. Ltd. (supra) are one and the same. This fact would be clear from the fact that the very same 26 companies were chosen as comparable in the Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 6/14 case of the Assessee as well as in the case of First Advantage Offshore Services Pvt. Ltd.(supra) followed the decision rendered in the case of Trilogy E-Business Software India Pvt. Ltd. Vs. DCIT ITA No. 1064/Bang/2011 for AY 07-08 order dated 23.11.2012. The following were the relevant observations in the case of First Advantage Offshore Services Pvt. Ltd. (supra).
xxxx
(b) Avani Cimcon Technologies Ltd.
39. As far as this company is concerned, the plea of the Assessee has been that this company is functionally different from the assessee. Based on the information available in the company's website, which reveals that this company has developed a software product by name "DXchange", it was submitted that this company would have revenue from software product sales apart from rendering of software services and therefore is functionally different from the assessee. It was further submitted that the Mumbai Bench of the Tribunal to the decision Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 7/14 in the case of Telcordia Technologies Pvt. Ltd. v. ACIT - ITA No.7821/Mum/2011 wherein the Tribunal accepted the assessee's contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only and it was held as follows:-
xxxx xxxx
(c) Celestial Labs Ltd.
42. As far as this company is concerned, the stand of the assessee is that it is absolutely a research & development company. In this regard, the following submissions were made:-
xxxx xxxx xxxx Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 8/14
(d) KALS Information Systems Ltd.
46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was Q 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows:
xxxx xxxx Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd.,
9/14
(e) Accel Transmatic Ltd.
48. With regard to this company, the
complaint of the assessee is that this
company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd v Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of the assessee that Accel Transmatic should be rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows:
xxxx xxxx xxxx
16. Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to exclude the aforesaid companies from the final list of comparable companies for the purpose of determining ALP."
Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 10/14 Regarding substantial question of law No.3
19. As far as comparable companies listed at Sl.No.16 of the final list of comparable companies chosen by the TPO viz., M/S. Megasoft Limited is concerned, this Tribunal in the case of First Advantage Offshore Services Pvt.Ltd. Vs. DCIT IT (TP) No.1086/Bang/2011 for AY 07-08 held that the aforesaid companies are not comparable companies in the case of software development services provider. The nature of services rendered by the Assessee in this appeal and the Assessee in the case of First Advantage Offshore Services Pvt.Ltd.(supra) are one and the same. This fact would be clear from the fact that the very same 26 companies were chosen as comparable in the case of the Assessee as well as in the case of First Advantage Offshore Services Pvt.Ltd.(supra). In coming to the aforesaid conclusion, the Tribunal in the case of First Advantage Offshore Services Pvt.Ltd.(supra) followed the decision rendered in the case of Trilogy E-Business Software India Pvt. Ltd. Vs. DCIT ITA Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 11/14 No.1064/Bang/2011 for AY 07 08 order dated 23.11.2012. The following were the relevant observations in the case of First Advantage Offshore Services Pvt.Ltd.(supra):
xxxx xxxx xxxx xxxx
20. Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to compute the correct margin of Mega Soft Ltd. as directed by the Tribunal in the case of First Advantage Offshore Services Pvt.Ltd. (supra)."
4. 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/s. 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.
Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 12/14 260-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 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 Date of Judgment 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 13/14 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 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 26-07-2018 I.T.A.No.247/2016 The Pr. Commissioner of Income-Tax & Anr.
Vs. M/s. AMD India Pvt.Ltd., 14/14
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
5. 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.
6. Hence, the Appeal filed by the Appellants-
Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/-
JUDGE Sd/-
JUDGE TL