Date Of Judgment 03-07-2018 I.t.a v. M/S. Apigee Technologies (India) Pvt. Ltd., 2/11

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE OS[rd]DAY OF JULY 2018 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.138/2016 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME-TAX, CIT{(A)5[‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BANGALORE -560 095.5[‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BANGALORE -560 095. 2.THE JOINT COMMISSIONER OF INCOME-TAX (OSD)CIRCLE-12(3), 2 KLOOR.CIRCLE-12(3), 2 KLOOR. BMTC BUILDING, 380 FEET ROAD KORMANGALA, BANGALORE-9560 OY. .. APPBLLANT (By Mr. ARAVIND K.V. ADV.) AND: M/S. APIGEE TECHNOLOGIES (INDIA) PVT. LTD.,(FORMERLY SONOA NETWORKS (INDIA) PVT. LTD..,)No.17/2, 2 “B” CROSS, 7[‘T]MAIN.# FLOOR, 3 BLOCK, KORAMANGALA|BANGALORBE-560 034PAN: AAICS 9117R. . RESPONDENT (By Mr. SANDEEP HUILGOL, ADV.) THIS I.T.A. IS FILED UNDER SECTION 2J60-A OF INCOMETAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 2/11 SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN|ITA No.8/70/Bang/2013 DATED 23/09/2015 ANNEXURE-D ANDCONFIRM THR ORDER OF THERE APPELLAIEKE COMMISSIOCONFIRMING|THEORDERPASSEDBY|TH EJOINTCOMMISSIONER.OF|INCOMETAX(OSD),|CIRCLE-12(3), BENGALURU. THIS LT.A. COMING ON FOR ADMISSION, THIS DAYDr. VINEET KOTHARIJ' DRLIVBERED THR FOLLOWING:- JUDGMENT Mr. Aravind K.V.Adv. for Appellants -|RevenueMr. Sandeep Huilgol,Adv. for Respondent-Assessee 1. The Appellants-Revenue have filed this appeal u/s.260Aof the Income Tax Act, 1961, raising)purportedly certain substantial questions of law arisingfrom the order of the.ITAT, ‘B’ Bench, Bangalore>.dated|23.09.2015passedin.IT(TP)A No.870/Bang/2013(Apighee Technologies (India) Pvt.Ltd., vs. The Joint Commissioner of Income-Tax}forA.Y.20Q08-O0 2. The proposed substantial questions of lawframed1n the Memorandum|ot appealby the. Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 3/11 Appellants-RevenueaTe€quotedbelowfor.ready reference: - “1. Whether on the facts and in thecircumstances of the Tribunal is right in settingaside.assessing? officer’additionofRs.5,85,777/- even though assessing authorityrightly disallowed a sum of Rs.5,85,777/-bearing an amount debited towards RAM, harddisk, memory card etc., as a part of computerconsumables and the assessing officer treatedsuch sum as capital in nature?| 2. Whether on the facts and in thecircumstances of the Tribunal is right in issuingcertain directions in its order to re-compute theadjustment under section 92CA even when the)TPO and AO has rightly computed transfer pricingadjustment in accordance with parameters of LT.Acta and Rules framed there under?| 3.Whether|OTFthe factsandin|thecircumstances of the Tribunal ts right in allowingthe appeal filed by the assessee relating issue ofTDS by erroneously holding that paymentsreferred to in the assessment order are outsidethe purview of section 194C of the Act whenpayments made by assessee squarely falls under Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 4/11 TDS obligations et out in section 194c of the act”and the assessing officer had rightly disallowed asum of Rs.5,14,595/- bearing an amount on)which the assessee had failed to deduct TDS asper provisions of the Act?| 4. Whether on the facts and in thecircumstances of the Tribunal is right in law inholding assessing authority is not right in treatingexpenditureofRs.5,85,777/-aS|Revenueexpenditure when the said expenditure is in thenature of capital expenditure? Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 4/11 TDS obligations et out in section 194c of the act”and the assessing officer had rightly disallowed asum of Rs.5,14,595/- bearing an amount on)which the assessee had failed to deduct TDS asper provisions of the Act?| 4. Whether on the facts and in thecircumstances of the Tribunal is right in law inholding assessing authority is not right in treatingexpenditureofRs.5,85,777/-aS|Revenueexpenditure when the said expenditure is in thenature of capital expenditure? oS. Whether on the facts and in thecircumstances of the Tribunal is right in law insetting aside the disallowance of expenditure ofRs.5,14,595/- being the amounts paid to M/s.Club Cabana, Rs.58.925/- and M/s. GoldenPalms, Rs.4,55,670/- when same was rightlydisallowed as these amounts were paid towardshiring of banquet hall which is a composite natureof contract and since, the company had notdeducted TDS on these payments?” 3. Learned counsel for the Appellants-Revenue Mr.K.V.Aravind has filed a Memo dated.11.06.2018 Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 5/11 reframing thesubstantial question of law No.2, which reads as under:- 2. Whether on the facts and in thecircumstances of the case, the Tribunal wascorrect in excluding Avant Cincom TechnologiesLtd, Celestial Bio Labs Ltd, E-zest Solutions Ltd,InfosysTechnologiesLtd,KalsInformationSystems Ltd, Persistent Systems Ltd, QuintegraSolutions Ltd, Tata FElxsi Ltd, ThirdwareSolutions Ltd, Wipro Ltd, and Lucid Software Ltdfrom the list of comparables, holding that they arefunctionally different, without appreciating thatthe comparable satisfy all the qualitative andquantitative filters applied by the TPO and thatthe selection of comparables in a case dependson the assessee specific FAR analysis, merelyrelying on various decisions of the Tribunal andnot deciding the selection of comparables on thebasis of the specific facts brought on record bythe TPO and recorded perverse finding?” Mr.K.V.Aravind also submits that he does not press the substantial questions of law Nos. 1, 3, 4 and 5.Hissubmission is recorded. Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 6/11 4. The learned Tribunal, after discussing the rivalcontentions of both the Appellants-Revenue and theRespondent-assessee, has given the following findingsagainst Revenue with regard to various issues raisedbefore it with regard to‘Transfer Pricing’and‘Transfer|PricingAdjustments’made.bytheconcerned.authorities below. We consider it appropriate to quotethe relevant portions hereunder:- _ Regarding reframed substantial question of law No.2- “10. With respect to Avant CimconTechnologies:Ltd.,ItWastheassessee’s|submission that the assessee offers diversifiedoperations such as software solutions, softwaredevelopment, consultingandinformationtechnology services|to various clients. The.assessee was also a products developmentcompany and has developed innovative productlines such as Dxchange, CARMA etc. Reliancewas placed on the decision of 3DPLM Softwaresolutions Ltd. in IT(TPJA No. 1303/7Bang/2012 fo Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 7/11 AY 2008-09 and Trilogy E-Business Software|India (P) Ltd. in ITA No.1054/ Bang/ 2011 for A2007-08. | ll. We find that there is merit in theobjection of the ld. counsel for the assessee andhence we direct that Avant Cimcon TechnologiesLtd. be excluded from the list of comparablesselected by the TPO. | 12. With regard to the other 8 comparables|selected by the TPO, the ld. counsel for theassessee submitted that these companies werefunctionally different from the assessee for thefollowing reasons:- XXXXXXXXXXXXXXNX Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 7/11 AY 2008-09 and Trilogy E-Business Software|India (P) Ltd. in ITA No.1054/ Bang/ 2011 for A2007-08. | ll. We find that there is merit in theobjection of the ld. counsel for the assessee andhence we direct that Avant Cimcon TechnologiesLtd. be excluded from the list of comparablesselected by the TPO. | 12. With regard to the other 8 comparables|selected by the TPO, the ld. counsel for theassessee submitted that these companies werefunctionally different from the assessee for thefollowing reasons:- XXXXXXXXXXXXXXNX 13. The assessee placed reliance on the|following decisions in support of its contentions:-| - SDPLM Software Solutions Ltd. IT(TP)A|No. 1303/7 Bang/ 2012 (AY 2008- - Trilogy E-Business Software India P. Ltd.,(ITA No. 1054/ Bang/ 2011 (AY 2007-0 - Systech Integrators India Pvt. Ltd. ITA|No. 1283/7 Bang/ 2012 (AY 2008- - Telcordia Technologies India Put. Ltd., ITA|No.7821/Mum/ 2011 (AY 2007-08) Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 8/11 14.WithregardTO the.other|threecomparables, the ld. counsel for the assesseesubmitted that these companies are also to beexcluded from the list of comparables selected bythe TPO for the following reasons:-_ NXXXXXKXXKXXXXMK L[5. XXX KKKMKKKMKK 16. The assessee’s reliance on 3DPLM softwareSolutionsLtd. IT(TP)ANo. 1303/7 Bang/ 2012 (AY 2008-09) is well taand hence the 11 companies identified by theassessee referred to in paras 12 and 14hereinqbovearefunctionallydifferent. We.thereforeatirectthe.TPOTO excludetheaforementioned 11 comparables from the list ofcomparables for the TP study’. 5. This Court insITA No.536/2015 C/w ITA. No.537/2015deliveredOT] 25.06.2018 | (Pri. Commissioner of Income Tax & Anr. Vs. | M/s. Softbrands India Pvt. Ltd.,}1 has held that in these type of cases, unless an|ex-facleperversity in thefindings of the learned Income Tax Appellate Tribunal is Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 9/11 established by the appellant, the appeal at the instance of 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: 038. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofSubstantialquestionofinterpretation 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.), | based on relevantfacts, such substantial questions of law could |be raised before the High Court underSection|260-A|of the Act, the Courts could haveembarked upon such exercise of framing andanswering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightly Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 10/11 picked up or not, Filters for arriving at the correctlust 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 considered|opinion 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-Aof the Act and thus the appealsfiled by the Revenue are found to be devoid of|merit and the same are liable to be dismissed. | Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 10/11 picked up or not, Filters for arriving at the correctlust 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 considered|opinion 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-Aof the Act and thus the appealsfiled 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 _ bapplied, even tf such appeals are filed by theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findings|has found certain comparables to be goodcomparables to arrive at an'‘Arm’s LengthPrice~ 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 findingsoffacts arrived at by the learned Tribunal is notat alla sufficient reason to invokeSection 260-Aof the Act before this Court. Date of Judgment 03-07-2018 I.T.A.No.138/2016 The Pr. Commissioner of Income-tax, CIT (A) & Anr. Vs. M/s. Apigee Technologies (India) Pvt. Ltd., 11/11 o8. The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” 6. Having heard the learned counsels for the parties, we are therefore of the opinion that nosubstantial questions of law arises in the present case also. The appeal filed by the Appellants-Revenue isliable to be dismissed and it isaismissedaccordinglyaccordinglyNo costs. liable to be dismissed and it isaismissedaccordinglyaccordingly Srl. Sd/-. JUDGE Sd/-|JUDGE| JUDGE|