Date Of Judgment 01-08-2018 I.t.a v. M/S. Infinera India Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE O1[Ss]DAY OF AUGUST 2018| PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.469/2016 BETWEEN: 1.|THE PR. COMMISSIONER OF INCOME-TAX,| k FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BBENGALURU-560 095. «|THE INCOME-TAX OFFICER, WARD-11(2), PRESENT ADDRESS: DCIT, C-3(1)(1),. 5[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,BBENGALURU-560 095.80 FEET ROAD, KORMANGALA,BBENGALURU-560 095. APPELLANTS (By Mr. K.V.ARAVIND, ADV.) AND: M/S.INFINERA INDIA LTD.,PRESTIGE SOLITAIRE LTD.,401, LEVEL-4, No.6,BRUNTON ROAD,BENGALURU-560 O25.PAN: AABCI 1411R. KESPONDENT (By Mr. SANDEEP HUILGOL, ADV. FORMr. T. SURYANARAYANA RAO, ADV.) Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., 2/11 THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT|ACT, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONSOK LAW. ALLOW THER APPEAL AND SEI ASIDE THE ORDERS|PASSEDBY|THEITAT,|BBRENGALURIN|IT(TP)ANo.294/BANG/2013 DATED 20.01.2016 ANNEXURE-D AND.CONFIRM THR ORDEBR OF THR APPKRHLLATKH COMMISSIOCONFKFIRMINTHEORDERPASSEDBY|THEDEBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BENGALURU. THIS LT.A. COMING ON FOR HEARING THIS DAY,S. SUJATHAJT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr.K.V.Aravind, Adv. for Appellants-—Revenue |Mr.Sandeep Huilgol,Adv. for Mr.T.Suryanarayana, |Adv. for Respondent -Assessee 1. The Appellants-Revenue have filed this appeal u/s.260Aof the Income Tax Act, 1961, raisingpurportedly certain substantial questions of law arisingfrom the order of theITAT, ‘A’ Bench, Bangalore>adated20.01.2016|passed1nNIT(TP)ANo.294/Bang/2013(Income-tax Officer vs. M/s.Infinera| India Ltd.,)for.A.Y.2008-09. 2. This appeal has been admitted on|24.10.2017to consider the following substantial questions of law Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., 3/11 framed by the learned counsel for the Appellants-Revenue: - oe(1) Whether on the facts and in thecircumstances of the case, the Tribunal erred indirectingthe.TPOto.excludecomparable,M/s.Celestial Biolabs, Lucid Software Ltd. on theground offunctional dissimilarity by following itsearlier orders which have not reached finalityeven when the TPO has rightly chosen the saidcomparables by applying all the required tests?| (2) Whether on the facts and in thecircumstances of the case, the Tribunal erred indirecting the TPO to exclude comparables such asM/s.Flextronics Software Systems Ltd. IGateGlobal Solutions Ltd. Peristent Systems Ltd.,Sasken Communication Technologies Ltd., InfosysTechnologies Ltd., on the ground of turnover basisby following its earlier orders which have notreached finality and even when the TPO hasrightly chosen the said comparables by applyingall the required tests? (3) Whether on the facts and in thecircumstances of the case, the Tribunal erred indirecting the TPO to include the comparables suchas Maars Software International Ltd. and VMF Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., 4/11 soft Tech Ltd. even when the said comparablesfail to satisfy all the required tests?”| 3. The learned Tribunal, after discussing the rivalcontentions of both the Appellants-Revenue and theRespondent-Assessee, has given the following findings:- | ;Regarding substantial question of law No.1: O4|M/s.CelesttalBiolabsLtd.,1S|functionally dissimilar 1.e. it is into bio-informaticssoftwareproduct/servicesandinthedevelopment of products in the field of bio-technology, pharmaceuticals and hence is notcomparable to that of the assessee-company. This|Tribunal in the case of 3DP LM Software Solutions|Ltd. (supra) regarding comparability of thiscompany, has held as follows:| NXXXXXKXKXXXMXMXK 4/11 soft Tech Ltd. even when the said comparablesfail to satisfy all the required tests?”| 3. The learned Tribunal, after discussing the rivalcontentions of both the Appellants-Revenue and theRespondent-Assessee, has given the following findings:- | ;Regarding substantial question of law No.1: O4|M/s.CelesttalBiolabsLtd.,1S|functionally dissimilar 1.e. it is into bio-informaticssoftwareproduct/servicesandinthedevelopment of products in the field of bio-technology, pharmaceuticals and hence is notcomparable to that of the assessee-company. This|Tribunal in the case of 3DP LM Software Solutions|Ltd. (supra) regarding comparability of thiscompany, has held as follows:| NXXXXXKXKXXXMXMXK 25. Following the decision of the coordinate|Bench of this Tribunal in the case of 3DPLMsoftware Solutions Ltd. (supra), hence thiscompany has to be rejected as a comparable.Hence, ground No.10 by the Revenue is rejected”. 5/11 ;Regarding substantial question of law No.2: “7. With respect to transfer pricing issues,the CIT(A) held that the total turnover has the.deciding factor for treating the company as.comparableandaccordinglyexcluded(i)Flextronics Software, (it) tGate Global Solutions|Ltd., (ut) Infosys Technologies Ltd., (iv) PersistentSystems Ltd., (v) Sasken Communications, (vit)Tata Elxsi Ltd., and (vi) Wipro Ltd., as|comparable. Aggrieved, revenue is in appeal|before us in ground No.5. &. We find that where the turnover ts morethan Rs.200 crores in the case of (i) Flextronicssoftware, (iu) tGate Global Solutions Ltd., (iit)Infosys Technologies Ltd., (tv) Persistent Systems|Ltd. and (v) Sasken Communication Technologies|Ltd. The issue has been dealt with by this|Tribunal in the case of Trilogy E-Business.software India Put. Ltd. vs. DCIT in ITA.No.1054/ Bang/ 2011 wherein it has been helas under:- NXXXXXKXKXXXMXMXK 9. The learned counsel for the assesseesubmitted that Tata Elxsi Ltd. is not comparable, 6/11 since it is functionally different from that of theassessee. The learned counsel for the assesseesubmitted, that it is evident from the Annual|report of Tata Elxsi Ltd. that it has business.units divided into Embedded Product Designservices, Industrial Design Services, Animationand Visual Effects, Systems Integration services|which are related to the high-end hardware andsoftware development activities and hence 1isfunctionally different from that of the assessee.|The learned counsel for the assessee relied on|the decision in the case of Apigee Technologies(India) Put. Ltd., in IT(TPJA No.8&70/Bang/2013dated 23/09/2015 wherein it has been held asunder:-| D,@, ©, @, ©, ©, ©, ©, 10. With respect to Wipro Ltd., the learnedcounsel for the assessee stated that though the|turnover of Wipro Ltd., is more than Rs.200crores, it is also functionally different being|product development company. He referred to the|Annual report of Wipro Ltd., for financial year|2007-08 which shows that Wipro Ltd., has|income from both sale of software products andsoftwaredevelopmentSeTrVICeS.He|furthersubmitted that this company is to be rejected as| Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., 7/11 a giant company and assumed all risks leading|to higher profits and is therefore, not comparableto the assessee which is a captive unit of theparent company and assumes only risks. Hefurther submitted that Wipro Ltd.f{segment) isactively engaged in research and developmentactivities and also owns intellectual propertu.|The learned counsel for the assessee relied on|the following decisions: - XXXXXXXXXXXXXKM Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., 7/11 a giant company and assumed all risks leading|to higher profits and is therefore, not comparableto the assessee which is a captive unit of theparent company and assumes only risks. Hefurther submitted that Wipro Ltd.f{segment) isactively engaged in research and developmentactivities and also owns intellectual propertu.|The learned counsel for the assessee relied on|the following decisions: - XXXXXXXXXXXXXKM Ill. We have heard both the parties. Weare of the opinion that (i) Flextronics Software, (it)|1GateGlobalSolutionsLtd.,(iit)InfosysTechnologies Ltd., (wv) Persistent Systems Ltd., (v)Sasken Communications, where turnover is morethan Rs.200 crores is to be _ rejected acomparable to that of the assessee based on the|decision of this Tribunal in the case of Triology E-Business Software India Put. Ltd. (supra). We|find that Tata Elxsi Ltd. and Wipro Ltd., are not|only having a turnover of more than Rs.200|crores but are also functionally different as|pointed out by the learned counsel for the|assessee and hence, cannot be taken as a 8/11 comparable to that of the assessee. Hence,|ground No.5 of the department is dismissed”. ;Regarding substantial question of law No.3: “17. Ground No.& raised by _ thedepartment is that the CIT(A) erred in rejectingthe employee cost filter applied by the TPO toselect companies which are predominantly intosoftware development services and _ therebincluding M/s. Maars Software International Ltd.,as a comparable. 18. The learned counsel for the assessee.argued that M/s.Maars Software International|Ltd. ts to be taken as a comparable since it isinvolved in software development activity whichis same as that of the assessee. The ClT(Appeals)held as follows:-_ KXXXXXXXXKXXXXK 19. We uphold the order of the CIT(Appeals) in directing the AO to include Maarssoftware International Ltd., as a comparable.Ground No.8 1s dismissed”. 4. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015delivered on Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd.,9/11 25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)1 has heldthat in these type of cases, unless anex-facleperversityin the findings of the learned Income Tax AppellateTribunal is established by the appellant, the appeal atthe instance ot an assessee or the Revenue under!Section 260-Aot the Act is not maintainable. The relevant portion of the said judgment is.quoted below for ready reference: §— Conclusion: oo. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|aCaSeofsubstantialquestion.Of|interpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectofthe TreatiesOVEeCtheDomestic.Legislations or _ the questions like TreatyShopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), if based on relevantfacts, such substantial questions of law could Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., 10/11 be raised before the High Court underSection260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., 10/11 be raised before the High Court underSection260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit and the same are liable to be dismissed. | 57. We make it clear that the same|yardsticks and parameters will have to beapplied, even if such appeals are filed by theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findingshas found certain comparables to be goodcomparables to arrive at an‘Arm’s LengthPrice’ in the case of the assessees with which Date of Judgment 01-08-2018 I.T.A.No.469/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Infinera India Ltd., the assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are)therefore dismissed with no order as to costs.” Oo. Having heard the learned counsels for the parties, we are therefore of the opinion that nosubstantial question of law arises in the present casealso. The appeal filed by the Appellants-Revenue isliable to be dismissed and it isdismissedaccordinglyaccordinglyNo costs. liable to be dismissed and it isdismissedaccordinglyaccordingly Srl. Sd/-. JUDGE Sd/-. JUDGE