Date Of Judgment 02-08-2018, Ita v. M/S. Te Connectivity India P. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 2 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.22/2017 BETWEEN : 1.THERE COMMISSIONER OFINCOME-TAX, LTU,|JSS TOWERS, BSK III STAGE,BBNGALURU - 560 O85)D «|THERE DEPUTLY COMMISSIONER OINCOME-TAX, LTU,JSS TOWERS, BSK III STAGE,BBNGALURU - 560 O85)D_ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s. TE CONNECTIVITY INDIA P. LTD.,(PREVIOUSLY KNOWN AS TYCO|ELECTRONICS CORPN. INDIA P. LTD..,)TE PARK, 22B, DODDENAKUNDI~ PHASE, INDUSTRIAL AREA, >WHITEFILED ROAD,|BENGALURU - 560 O48|PAN: AABCT 7374C._. RESPONDENT. (BY SRI SANDEEP HUILGOL, ADV. FOR SRI T.SURYANARAYANA, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER| Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., DATED 25/07/2016 PASSED IN IT|/TPIA No.1722/BANG/2013,KOR.THR ASSBSSMBENTYEAR 2005-2006,ANNEXURE-D,PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS)OF LAW STATBKD ABOVE. 2. ALLOW THR APPBAL AND SBTASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN|IT}TP|A No.1722/BANG/2013 DATED 25/07/2016, ANNEXURE-D>ANT)CONFKIRMTH EORDEROF.THEAPPBLLATEKCOMMISSIONBR CONFIRMING THR ORDEBR PASSBKD BY THCOMMISSIONER OF INCOME TAX, LTU, BENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT 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 purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘A’, Bangalore, inIT[TP|A No.1722/Bang/2013dated25.07.2016, relating to the Assessment Year2005-06. 2.Theappealhas|beenadmitted|OTL13.19.9017|TO consider.the|followingsubstantial|questions of law: Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 3/16 aWhether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in adopting 15% as RPT Futer by following itsearlier decisions which have not reached finalityeven though the TPO rightly held that 25% RPTfilter is to be considered as fair by drawing ananalogy from the provisions of Section 92 A/2/and Section 40/A]/2/[b/ of the Act?| D2 Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding comparables namely Extensyssoftware Solutions Ltd., Sankhya Infotech Ltd.,Foursoft Ltd., Thirdware Solutions Ltd., Geometricsoftware Solutions Company Ltd., Tata Elxsi Ltd.,Visual Soft Technologies Ltd., Flextronics Ltd.,satyam Computers Services Limited and InfosysTechnologies Limited from the list of Comparablesfor computing Arm’s Length Price of InternationalTransaction of the Assessee with its associatedenterprises even though the TPO has_ rightlychosen the same by applying all the requiredtestsP” 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 4/16 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law Nos.1 & 2: 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 4/16 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law Nos.1 & 2: “25. We have perused the orders and|heard the rival contentions. It is true that out ofthe many companies which assessee is seekingexclusion, Bodhtree Consulting Ltd, GeometricSoftware Solutions Co. Ltd, Satyam ComputerServices Ltd, and Infosys Technlogies Ltd, werein assessee’s own list of comparables. Howeverassessee had contended before the CIT (A) thatGeometric Software Solutions Co. Ltd, haddiversified operations consisting of softwareproducts and services. In so far as SatyamComputer Services Ltd, assessee had contended|before the CIT (A) that its financials wereunreliable. In so far as Infosys Technologies Ltd,assessee had contended before the CIT (A) thatits turnover was far in excess of that of theassessee which had a turnover was only Rs.6.97)crores in the software development segment.Once assessee had taken grounds’ seekingexclusion of certain companies before the CIT (A)in our opinion, even if such companies appearedin the TP study of the assessee itself, CIT (A)having adjudicated and decided on such ground Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 5/16 againsttheASSESSEEG,assessee cannot beprecludedfromseekingexclusionofsuchcompanies before the Tribunal. However, in so faras Bodhtree Consulting Ltd, is concerned, notonly was the said company in the lst ofassessee, but we find that assessee had notcontested its inclusion before the TPO or beforethe CIT (A). However, in view of the decision ofthe Special Bench in the case of Quark SystemsLtd, (supra), assessee again cannot be precludedfrom seeking exclusion of a comparable, though itwas a part of its own comparables, since TP is anevolving area. Said decision of the Special Benchwas confirmed by the Hon’ble Punjab & HaryanaHigh Court in (2011) 62 DIR 182. Neverthelesssince comparability of the said company was notbefore any of the lower authorities, we are of theopinion that this has to be looked into afresh bythe AO / TPO. It ts true that coordinate bench inthe case of Symbol Technologies India P. Ltd,(supra) had held that Bodhtree Consulting Ltd,had RPT of more than 15% and was required tobe excluded. However as mentioned above, thegrounds seeking exclusion of M/s. BodhtreeConsulting Ltd was not raised before TPO or CIT(A). Hence in our opinion, the issue requires afresh look by the AO / TPO. We set aside the Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 6/16 order of CIT (A) and remit the issue ofcomparability of Bodhtree Consulting Ltd, to theAO / TPO for consideration afresh in accordancewith law. 26. Now we will try to resolve the grounds|raised by the assessee seeking exclusion ofvarious other companies in the list considered bythe TPO, including M/s. Geometric Softwaresolutions Ltd, Satyam Computer Services Ltd andInfosys Technologies Ltd. 27. Taking up the case of M/s. Extensys|software Solutions Ltd, annual report of the saidcompany has been placed before us at paperbook page 747. It does mention that there was anamalgamation of that company with one M/s.Holool India Ltd, with effect from 01.04.2004. Inthe notes to accounts, placed at paper book page767, it is clearly mentioned that amalgamationwas come into effect from 31.03.2004. Thus theprofits of the said company could have beenSkewed because of the amalgamation factor. Inthe case of Symbol Technologies India P. Ltd,(supra), this Tribunal had held as under at para14 of its order, which is reproduced hereunder : KVeVNKK” Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 27. Taking up the case of M/s. Extensys|software Solutions Ltd, annual report of the saidcompany has been placed before us at paperbook page 747. It does mention that there was anamalgamation of that company with one M/s.Holool India Ltd, with effect from 01.04.2004. Inthe notes to accounts, placed at paper book page767, it is clearly mentioned that amalgamationwas come into effect from 31.03.2004. Thus theprofits of the said company could have beenSkewed because of the amalgamation factor. Inthe case of Symbol Technologies India P. Ltd,(supra), this Tribunal had held as under at para14 of its order, which is reproduced hereunder : KVeVNKK” Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., Accordingly we direct exclusion of Extensyssoftware Solutions Ltd. 28. Coming to the case of Sankhya InfotechLtd, argument of the assessee is that it wasengaged in the business of software products andservices training and hence functionally different.Comparability of Sankhya Infotech Ltd, in thesoftware development segment was an issuewhich came up before this Tribunal in the case ofNet Devices India P. Ltd, (supra). Said decisionwas also for the very same assessment year.This Tribunal had held as under at para 18.1.1 ofits order at.25.05.2014 :| KVeVNKK” Accordingly we direct exclusion of SankhyaInfotech Ltd, from the list of comparables. 29. Coming to M/s. Foursoft Ltd, argumentof assessee is that this company was functionallydifferent and had been catering to enterprisesolutions and software products. It is also statedby the assessee that RPT of the said companyexceeded 15%. Comparability of Foursoft Ltd,was an issue which came up _ before thcoordinate bench of this Tribunal in Symbol Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 8/16 Technologies India p. Ltd, (supra), within the verysame segment. It was held as under by theTribunal at para 22 of its order dt.27.03.2015: KVeVNKK” Following the above, we direct exclusion ofFoursoft Ltd, from the list of comparables. 30. Coming to Thirdware Solutions Ltd,|claim of the assessee is that this was also afunctionally different company engaged in thesale of software designs, software products andsoftware development, and no segmental resultswere available. We find that comparability ofThirdware Solutions Ltd, was an issue whichcame up before the coordinate bench in the caseof Net Devices India P. Ltd, (supra). In its orderat.25.05.2016, it was held as under at para 9.1of the order : KVeVNKK” Following the above decision, we directexclusion of Thirdware Solutions Ltd, from the listof comparables. 31. Coming to Geometric Software Solutions|Co. Ltd, case of the assessee is that its RPTexceeded 15% and was doing software product Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 9/16 work also. We find that the issue of comparabilityof Geometric Software Solutions Co. Ltd, hadcome up before this Tribunal in the case of NetDevices India P. Ltd, (supra). It was held as underin its order at.25.05.2016 :| KVeVNKK” Tribunal had given a finding that 15% RPTjfuter was proper threshold in the case of NetDevices India P. Ltd, (supra). Further in the casebefore us comparables on the segment relating tointernational transactions undertaken by theassessee were easily available. Assessee itselfhad selected 93 cases in its TP study. Thus thetolerance of RPT can be restricted to the minimumlevel of 15%. Therefore exclusions directed by theTribunal in the case of Net Devices India P. Ltd,(supra) based on RPT filter of 15% can be appliedhere also. Accordingly we direct exclusion ofGeometric Software Solutions Ltd, from the list ofcomparables. 32. Coming to Tata Elxsi Ltd,(seg), in thecase of Net Devices India p. Ltd, (supra), it washeldas|underatPara18.4.3|Of|order|at.25.05.2016:. KVeVNKK” KVeVNKK” Tribunal had given a finding that 15% RPTjfuter was proper threshold in the case of NetDevices India P. Ltd, (supra). Further in the casebefore us comparables on the segment relating tointernational transactions undertaken by theassessee were easily available. Assessee itselfhad selected 93 cases in its TP study. Thus thetolerance of RPT can be restricted to the minimumlevel of 15%. Therefore exclusions directed by theTribunal in the case of Net Devices India P. Ltd,(supra) based on RPT filter of 15% can be appliedhere also. Accordingly we direct exclusion ofGeometric Software Solutions Ltd, from the list ofcomparables. 32. Coming to Tata Elxsi Ltd,(seg), in thecase of Net Devices India p. Ltd, (supra), it washeldas|underatPara18.4.3|Of|order|at.25.05.2016:. KVeVNKK” Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 10/16 Accordingly we direct exclusion of TataElxsi Ltd, (seg) from the list of comparables. 33. Coming to Visual Soft Technologies Ltd,(seg), claim of assessee is that the said companywas a product company and Delhi bench in thecase of ITO v. Colt Technology Services India p.Ltd, [HITA.6091/Del/2011, dt.23.10.2012) haddirected its exclusion in the software developmentsegment. What was held by the coordinate benchin the case of Colt Technology Services India p.Ltd (supra) is reproduced hereunder : KVeVNKK” Delhi bench decision mentioned supra wasalso in relation to the software developmentsegment. In the said case, CIT (A) himself haddirected exclusion of the said company finding itto be not a routine software development serviceprovider. Nothing was brought before us by Ld.DR for taking a different view, though the annualreport of the company placed by assessee atpaper book page 1210 does not clearly indicatewhether the said company was into softwareproductssegmentonly.Judicialdisciplinerequires us to follow the decision of a coordinate Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 11/16 bench unless it has taken a view which is notapossible one. In the circumstances we directexclusion of Visual soft Technologies Ltd, (seg)from the list of comparables. 34. Coming to Flextronics Ltd, (seg), we find|that comparability of the said company was anissue which came up before the coordinate benchin the case of Net Devices India P. Ltd, (supra). Itwas held by the coordinate bench as under in itsorder at.25.05.2016: KVeVNKK” Accordingly|WE|direct|exclusion|ofFlextronics Ltd, (seg) from the list of comparables. 35. Vis-a-vis, Satyam Computer Services|Ltd, comparability of this company was an issuewhich came up before this Tribunal in the case ofNet Devices India p. Ltd, (supra). This Tribunalhas held as under in its order at.25.05.2016 :| KVeVNKK” Following the above, we direct exclusion ofsatyam Computer Services Ltd, from the list ofcomparables. Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 12/16 36. Coming to the issue of comparability ofInfosys Technologies Ltd, Hon’ble Delht HighCourt in the case of Agnity India Technologies P.Ltd, (supra) has held that due to the hugerevenues,ownership|ofintangiblesandproprietary brand of the said company, it wouldnot be a proper comparable. We find that thisTribunal in a number of cases including that ofsymbol Technologies India P. Ltd, (supra) heldInfosys Technologies Ltd, not to be a goodcomparable. Accordingly we direct the exclusionof Infosys Technologies Ltd, from the list ofcomparables. KVeVNKK” Following the above, we direct exclusion ofsatyam Computer Services Ltd, from the list ofcomparables. Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 12/16 36. Coming to the issue of comparability ofInfosys Technologies Ltd, Hon’ble Delht HighCourt in the case of Agnity India Technologies P.Ltd, (supra) has held that due to the hugerevenues,ownership|ofintangiblesandproprietary brand of the said company, it wouldnot be a proper comparable. We find that thisTribunal in a number of cases including that ofsymbol Technologies India P. Ltd, (supra) heldInfosys Technologies Ltd, not to be a goodcomparable. Accordingly we direct the exclusionof Infosys Technologies Ltd, from the list ofcomparables. 37. In view of the discussions at para 27 to36 above, we direct the AO / TPO to excludeExtensyssoftwareSolutionsLtd,sankhyaInfotech Ltd, Foursoft Ltd, Thirdware SolutionsLtd, Geometric Software Solutions Co. Ltd, TataElxsi Ltd, (seg), Visual Soft Technologies Ltd (seg),Flextronics Ltd (seg), Sathyam Computer ServicesLtd, and Infosys Technologies Ltd, from the list ofcomparables for computing arms length price ofinternational transactions of the assessee with itsAEF. Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 13/16 4The controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A. Nos.536/2015 c/w 537/2015dated95.06.2018[Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,]|wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone| Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 14/16 etc.), uf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-4of the Act, the Courts could have|embarked upon such exercise offraming 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, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act andthus the appeals filed by the Revenue are|found to be devoid of merit and the same are.liable to be dismissed. Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 15/16 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act andthus the appeals filed by the Revenue are|found to be devoid of merit and the same are.liable to be dismissed. Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 15/16 57. We make it clear that the same'§yardsticks and parameters will have to beapplied, even tf 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|7s “ArmLength Price“in the case of the assesseeswith which the assessees may not be|satisfied and have filed such appeals beforethis Court. Therefore we clarify that mere|dissatisfaction with the findings of facts|arrived at by the learned Tribunal ts not at all|a sufficient reason to invoke.Section 260-Aof the Act before this Court. o8. The appeals filed by the Revenueare therefore dismissed with no order as to|costs.” 5.In the circumstances, having heard the learned Counsel appearing for both the sides, we are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. Date of Judgment 02-08-2018, ITA No.22/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 6. 16/16 Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. No costs. | NC. Sd/-.JUDGE. Sd/-.JUDGE.