Date Of Judgment 02-08-2018, Ita v. M/S Electronics For Imaging India Pvt. 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.95/2017 BETWEEN: 1.THE PR. COMMISSIONER OF [INCOME-TAX|![‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, _KORMANGALA![‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, _KORMANGALA BBNGALURU - 560 095) 2.THR DBEPUTY COMMISSIONBR OF INCOME-TAXWARD-11(3), PRESENT ADDERS|CIRCLE-2(1)(2), 2 KFLOOR|BMTC BUILDING, 80 FEET ROADKORMANGALABBRENGALURU-560 09... APPELLANTS|WARD-11(3), PRESENT ADDERS|CIRCLE-2(1)(2), 2 KFLOOR|BMTC BUILDING, 80 FEET ROADKORMANGALABBRENGALURU-560 09... APPELLANTS| (BY SRI.ARAVIND K V, ADV.) AND M/s ELECTRONICS FOR IMAGING INDIA PVT. LTD.KALYANI PLATINA, 4[‘T]KLOOR.BLOCK -1, NO.24, EPIP ZONEPHASE-IT, WHITEFIELDBBNGALURU - 560 066|PAN: AAACG 6053E _. RBSPONDENT (BY SRI.S.SHARATH, ADV. FOR SRI. CHYTHANYA K.K., ADV. ). Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 2/12 THIS INCOME TAX APPEAL [IS FIBLD UNDER SBKBC.260OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED|17.06.2016, PASSED IN IT(TP)A NO. 1275/BANG/2012, FOR THEASSESSMENT YEAR 2007-2008 ANNEXURE -D, PRAYING TO: I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED:ABOVE. [I]. ALLOW THR APPKAL AND SBT ASIDEB THR ORDERPASSED)BYTHEINCOME-TAX.APPBRLLA TTRIBUNAL, BENGALURUIN|IT(TP)ANO.1275/BANG/2012—DATED17.06.2016 ANNBXURE —-D AND CONFIRM THR ORDER OF THRE.APPBRELLATEKE COMMISSIONBR CONFIRMING THR ORDER PASBY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -2(1)(2), BENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. S.Sharath,Adv.Mr. Chythanya K.K., Adv. forRespondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal,‘PpBench,Bangalore, inIT A No.12775/Bang/201dated 17.06.2016relating to the Assessment Year2007-08. 2. This Appeal has been admitted on)17.01.2018to consider the following substantial questions of law: Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 3/12 “1.Whether on the facts and in _ thcircumstances of the case, the Tribunal is right inlaw in directing the TPO to exclude M/s.AvaniCimcom Technologies Ltd, M/s. Celestial LabsLtd, Accel Transmatic Ltd, KALS InfomrationSystems Ltd, M/s Thridware Solutions Ltd,M/s.Helios & Matheson Information TechnologyLtd, Megasoft Ltd, E-zest Solutions Ltd from list ofcomparables by following its earlier order whichhas not finality and without appreciating thematerials brought on record by TPO and FARAnalysis? 2. Whether on the facts and in thecircumstances of the case, the Tribunal ts right inlaw in directing the TPO to exclude comparablenamely, Mindtree Ltd, IG4ate Global solutions Ltd,Infosys Technologies Ltd, Wipro Ltd, FlextronicsSoftware Systems Ltd, Persistent Systems Ltd,Sasken Communication technologies Ltd and TataElxsi Ltd by following its earlier decision whichhas not reached finality even when the TPO hadrightly chosen the same after applying all therequired tests?”| 3. The learned Tribunal, after discussing the rival contentions oT boththe.Appellants-Revenue|and Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 4/12 Respondent-Assessee, has returned the findings as. under: 2. Whether on the facts and in thecircumstances of the case, the Tribunal ts right inlaw in directing the TPO to exclude comparablenamely, Mindtree Ltd, IG4ate Global solutions Ltd,Infosys Technologies Ltd, Wipro Ltd, FlextronicsSoftware Systems Ltd, Persistent Systems Ltd,Sasken Communication technologies Ltd and TataElxsi Ltd by following its earlier decision whichhas not reached finality even when the TPO hadrightly chosen the same after applying all therequired tests?”| 3. The learned Tribunal, after discussing the rival contentions oT boththe.Appellants-Revenue|and Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 4/12 Respondent-Assessee, has returned the findings as. under: “12. |We have given a careful consideration to therival submissions. At the outset, it was submitted bythe parties before us that the very same 26comparables had been chosen by the TPO fordetermining the ALP in the case of software servicesproviding company viz., Trilogy E-Business SoftwareIndia Put. Ltd. It was also accepted by the parties:that in the case of that company, this Tribunal inITANo. 1054/7 Bang/ 2byitsorderdated23.11.2012 considered the comparability of thecomparables chosen by the TPO. It was agreed bythe parties that the aforesaid decision, whichincidentally is also for the A.Y. 2007-08, will applyto the case of the assessee in this appeal also. Itwas also accepted by the parties that some of thecomparables chosen by the TPO have also beenconsidered by the Mumbai Bench of the Tribunal inthe case of Telcordia Technologies India Put. Ltd.,ITA No.7821/Mum/2011; and by the Bangalore|Bench of the Tribunal in the case of 24/7 CustomerCom Put. Ltd., ITA No.227/Bang/2010. In thisbackground,We|Shall hROoexaminethe Viocomparables chosen by the TPO and also consider Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 5/12 as to what will be the comparables that can beconsidered for the purpose of determining the ALP.We may also add that M/s. Helios and MathersonLtd., was chosen as a comparable by the Assesseein his TP study but has now seeking to exclude thesame from the list of comparables and in this regardhas raised additional ground of appeal before us.The learned counsel has placed reliance on thedecision of the Special Bench ITAT in the case ofQuark Systems Put. Ltd., [2010] 38 SOT 307 [Chd.][SB/ for the proposition that there cannot be estoppelin Transfer Pricing issues and an Assessee can takea stand that a company chosen by it as comparableis in fact not comparable. Keeping in mind thedecision of the Special Bench referred to above, weadmit the additional ground for adjudication. 13.As far as the 8 comparable at SL.no.9, 11,12, 13, 15, 17, 18 & 19 ts concerned, it was thesubmission of the learned counsel for the AssesseethatthosecompaniesTTLabe|rejectedas|comparable by applying the turnoverfilter ofRs.200Crores in view of the decision of the Tribunal inassessee’s own case for AY 2006-07 and also in the|case of Trilogy E-Business Software India P. Ltd.,HTA No.1338/ Bang/2010/ for same assessment!year. It is not in dispute that the turnover of these| Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 6/12 companies are more than Rs.200 crores. Theturnover of the assessee in the present case isRs.147,02,41,787. It has been held by this Tribunalin the case of Trilogy E-Business Software India Put.Ltd., [supra] that companies with a turnover of morethan Rs.200 crores cannot be taken as comparableswhile determining the ALP in the case of companieshaving turnover of less than Rs.200 crores. Thefollowing are the relevant observations of theTribunal in this regard. KVeVNKK” Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 6/12 companies are more than Rs.200 crores. Theturnover of the assessee in the present case isRs.147,02,41,787. It has been held by this Tribunalin the case of Trilogy E-Business Software India Put.Ltd., [supra] that companies with a turnover of morethan Rs.200 crores cannot be taken as comparableswhile determining the ALP in the case of companieshaving turnover of less than Rs.200 crores. Thefollowing are the relevant observations of theTribunal in this regard. KVeVNKK” 14.Respectfully following the decision of theTribunal referred to above, we hold that the 8comparable companies chosen by the TPO given inthe chart in the earlier paragraphs of this have to beexcluded as comparables for the purpose ofdetermining the ALP of the impugned transaction inthis appeal. 15. 2 Comparables at Sl.No.14, 22 of the chartgiven in the earlier paragraph of comparable chosen|by the TPO viz., Accel Transmatic Ltd. and KALSInformation Systems Ltd. (Seg.) have been held to be|functionally dissimilar to that of a pure softwareservice provider in the decision of the Tribunal in!assessee’s own case for AYb 2006-07 and also in| Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 7/12 the case of Triology E-Business Software India P.Ltd (ITA No.1338/Bang/2010) for same assessmentyear. The relevant observations of these twocomparable companies in the case of Triology E-Business Software India Put. Ltd.(supra) are asfollows: - NXXXXKXXXX 16. In view of the aforesaid decision of the Tribunal,comparable at SL No.14 and 22 of the Chart givenat Para-12 of this order is directed to be excluded|from the list of comparables. 17. As far as comparable at SL.No.23 of the list ofcomparable companies chosen by the TPO listed inpara-12 of this order viz., Lucid Software Ltd. from'the list of comparables chosen by the TPO isconcerned, we find that the Mumbai Bench of theTribunal in the case of Telcordia Technologies IndiaPut. Ltd. (supra) while dealing with the case ofsoftwareService providerliketheASSESSEE,considered the comparability of Lucid Software Ltd.with similar software services provider and theTribunal held as follows: - XXXXX Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 8/12 18. In view of the aforesaid decision of the MumbaiBench of the Tribunal, which is also in relation toA.Y. 2007-08, we are of the view that the saidcompany Sl. No.23 of the list of comparable listed by the TPO at para-12 of this order is to be excluded asa comparable while determining the ALP of theinternational transaction impugned in this appeal. 19. As far as comparables at Sl.Nos.16 & 21 viz.,Avant Cimcon Technologies Ltd. And Celestial LabsLtd., of the chart of comparable chosen by the TPOlisted in para-12 of this order, this Tribunal in thecase of Trilogy E-Business Software India Put. Ltd.(supra) has taken a view that these companies arenot comparable to the software service providercompanies.Thefollowingarethe.relevantobservations of the Tribunal in this regard:- XXXXXXXXXXX 20. In view of the aforesaid decision of theTribunal, comparables at Sl. Nos. 16 and 21 of thelist of comparables chosen by the TPO listed in theearlier paragraph of this order have to be excluded|for the purpose of comparison while determining the|ALP of the impugned transaction in this appeal.” Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 9/12 XXXXXXXXXXX 20. In view of the aforesaid decision of theTribunal, comparables at Sl. Nos. 16 and 21 of thelist of comparables chosen by the TPO listed in theearlier paragraph of this order have to be excluded|for the purpose of comparison while determining the|ALP of the impugned transaction in this appeal.” Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 9/12 4. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inI.T.A.Nos.536/2015 c/w 537/2015dated|25.06.2018 (Prl.Commissioner of Income Tax & Anr. -v- 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.ASubstantialquantumof|international trade and transactions dependsupon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|substantial questionof|interpretationof|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 Erosion Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 10/12 and Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone|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.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 11/12 57. We make it cleqr that the sameyardsticks 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. “ArLength 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 Revenue are|therefore dismissed with no order as_ tocosts.” o. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of lawarises for consideration in the present case. © Date of Judgment 02-08-2018, ITA No.95/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Electronics for Imaging India Pvt. Ltd 12/12 Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. —No costs. In. Sd/-.JU DGE Sd/-.JU DGE