Date Of Judgment 05-07-2018 I.t.a v. M/S. Broadcom India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 5 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA|I.T.A.No.701/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME-TAX, CIT{(A)5[‘T]FLOOR, BMTC BUILDING5[‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA|BBENGALURU-560 095.BBENGALURU-560 095. OoTHER DEPUTY COMMISSIONER OF INCOMBE-TACIRCLE-11(2), PRESENT ADDRESS—CIRCLE-1(1)(2), 2 KFLOOR|BMTC BUILDING, 80 FEET ROADKORMANGALA, BENGALURU-5S60 O95.CIRCLE-11(2), PRESENT ADDRESS—CIRCLE-1(1)(2), 2 KFLOOR|BMTC BUILDING, 80 FEET ROADKORMANGALA, BENGALURU-5S60 O95. .. APPBLLANT (By Mr. ARAVIND K.V. ADV.) AND: M/S. BROADCOM INDIA PVT. LTD.,CAMPUS 1A, 5[‘L]FLOOR, RMZ ECOSPACEBELLANDUR VILLAGE, VARTHUR HOBLIBENGALURU-560 103.PAN: AACCB 6063BE. . RESPONDENT (By Ms. MANASA ANANTHAN, ADV.) Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL ANDSET ASIDKBR THR ORDBRS PASSBD BY THR [NCOME-TAAPPBRLLATETRIBUNAL, BENGALURUIN|IT(TP)ANo.95/Bang/2014DATEHD17-03-2017ANNEXURE-DANT)CONFIRM THR ORDER OF THR DRP CONFIRMING THR ORDER|PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,|CIRCLE-1(1)(2), BENGALURU & ETC. © THIS I.T.A. COMING ON FOR ADMISSION, THIS DAYDr. VINEET KOTHARIJ' DRLIVBERED THR FOLLOWING:- JUDGMENT Mr. Aravind K.V.Adv. for Appellants-RevenueMr. Manasa Ananthan,Adv. for Respondent-assessee The Appellants-Revenue have filed this appeal u/s.260Aoft the!Income Tax Act, 1961, raising. purportedly certain substantial questions of law arisingfrom the order oft theITAT, Bengaluru Bench ‘B’, Bengaluru>.dated|17.03.2017passed in IT(TP)A No.95/ Bang/2014(Broadcom India P. Ltd. vs.Deputy Commissioner of Income Tax) forA.Y.2009-10.| Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 3/11 2. The proposed substantial question of lawframed.1n theMemorandumoT|appealby theAppellants-Revenue|aTe€quotedbelowforreadyreference:-. DWhetherOTLthefactsandinthecircumstances of the case, the Tribunal is right inlaw in directing the TPO to exclude comparablessuch as M/s. Bodhtree Consulting Ltd, Persistentsystems Ltd, Infosys Technologies Ltd, KalsInformation Systems Ltd and Tata Elxsi Ltd ascomparable’s by following its earlier orders whichhas not reached finality and even when the TPOhad chosen the comparable’s on the basis of itsfunctionalsimilarityandbyapplication|ofqualitative and quantitative tests?”.| 3.|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. Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 4/11 authorities below. We consider it appropriate to quote the relevant portions hereunder: “O04. On the TP matters, the AR submitted thatthe following comparables are to be rejected asthey are functionally different from it. The gist ofhis arguments and the cases relied on, are asunder: I.Bodhtree Consulting Ltd: XXXXXX 2.|Persistent Systems Ltd: NXXXXX 3.Larsen & Toubro Infotech: NXXXXX 4,Infosys Ltd: XXXXX OS.For all the above 4 comparables, the|assessee relied on Broadcom [India Research P.Ltd. [IT(TP) A.46 & 62/Bang/2014-AY 2009-10]and Fair Isaac India Software P. Ltd [IT(TP) A.24& I1776/Bang/2014-AY 2009-10]. It took usthrough appropriate pages in the paper books Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 5/11 the relevant portions hereunder: “O04. On the TP matters, the AR submitted thatthe following comparables are to be rejected asthey are functionally different from it. The gist ofhis arguments and the cases relied on, are asunder: I.Bodhtree Consulting Ltd: XXXXXX 2.|Persistent Systems Ltd: NXXXXX 3.Larsen & Toubro Infotech: NXXXXX 4,Infosys Ltd: XXXXX OS.For all the above 4 comparables, the|assessee relied on Broadcom [India Research P.Ltd. [IT(TP) A.46 & 62/Bang/2014-AY 2009-10]and Fair Isaac India Software P. Ltd [IT(TP) A.24& I1776/Bang/2014-AY 2009-10]. It took usthrough appropriate pages in the paper books Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 5/11 and the copies of the decisions. Since it hasplaced reliance on this Tribunal decision, supra,in its own group case which was_ renderingsoftwaredevelopmentSCYLVICESToitsAF|Broadcom International, the relevant portion ofthe order is extracted as under: XXXXX 16.The ld counsel for the assessee submitted|that Persistent Systems Ltd, Consulting Ltd., isdissimilarfor the following reasons: lL.Functionally differentA. The Company is engaged in OutsourcedProduct Development services B.Derives significant portion of revenue from|exportofsoftwareSECTUICESand|products,software services and products treated as singlesegment C.|The Company offers complete product life|cycle services form end to end dD.Ownsproducts;EHarnsTevenue|fromlicensing ofproducts D2 R®&; D Activities Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 6/11 3.|subsidiary set-up in the current FY -|“Persistent Systems & Solutions Limited”| 17.The ld counsel for the assessee relied onthe decision of Infinera India Put. Ltd., in IT(TP)JANo.977 & 1O08/Bang/2014 for the asst. year2009-10, wherein at pages 15 and 16 it has been’held as under: NXXXXX 1S.The ld counsel for the assessee submittedthat L & T Infotech is dissimilar for the followingTeCaASONn 1. Functionally different A. The company has two_ service lines —Consulting and testing; The company providesspecializedSCYLVICESlikedatawarehousing, DuSINeSSintelligence,testingSCYLVICESandinfrastructure management services B. Earns income from both software developmentservices and products; software services andproducts treated as single segment Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 7/11 C. The company has_ significant expenses|towards ‘consultancy charges’ under softwaredevelopment expenses — outsourced work| DThe owns and selfproducts 2. Turnover filter — More than 10 times the turn-over of the Assessee3. Intangible assets|A. The company owns brands|B. The company owns intangible assets 19.The ld counsel for the assessee relied on|the decision of Invensys Development CentreIndia Put. Ltd., in ITA No.383/Hyd/2014 for theasst. year 2009-10, wherein at para 10.3 it hasbeen held as under: XXXXX 2O.The ld counsel for the assessee submitted|that Infosys Ltd. is dissimilar for the followingTEeaSsonlXXXXX QI.The ld counsel for the assessee relied on|the decision of Infinera India Put. Ltd., in IT(TPJANo.977 & 1008/Bang/2014 for the asst. year 8/11 2009-10, wherein at pages 17 and 18 it has beenheld as under: XXXXX Since|thisTribunalhasfoundthatthecomparables, Bodhtree Consulting Ltd., InfosysTechnologies Ltd, Persistent Systems Ltd., andLarsen & Turbo Infotech Ltd are functionallydissimilar to that assessee, directed the TPO toexclude them and the facts remaining same inthis case, following it, we direct the TPO toexclude them from the comparable list for this a yalso. To this extent, the assessee’s claim isallowed.” 4This Court inITA No.536/2015 C/w | ITANo.537/2015delivered OT] 25.06.2018 | 2O.The ld counsel for the assessee submitted|that Infosys Ltd. is dissimilar for the followingTEeaSsonlXXXXX QI.The ld counsel for the assessee relied on|the decision of Infinera India Put. Ltd., in IT(TPJANo.977 & 1008/Bang/2014 for the asst. year 8/11 2009-10, wherein at pages 17 and 18 it has beenheld as under: XXXXX Since|thisTribunalhasfoundthatthecomparables, Bodhtree Consulting Ltd., InfosysTechnologies Ltd, Persistent Systems Ltd., andLarsen & Turbo Infotech Ltd are functionallydissimilar to that assessee, directed the TPO toexclude them and the facts remaining same inthis case, following it, we direct the TPO toexclude them from the comparable list for this a yalso. To this extent, the assessee’s claim isallowed.” 4This Court inITA No.536/2015 C/w | ITANo.537/2015delivered OT] 25.06.2018 | (Pri. Commissioner of Income Tax & Anr. Vs. |M/s. Softbrands India Pvt. Ltd.,}| has held that inthese type of cases, unless an|ex-facteperversity in thefindings of the learned Income Tax Appellate Tribunal isestablished by the appellant, the appeal at the instance of an assessee or the Revenue under|Section 260-Aot | Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 9/11 the Act is not maintainable and 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 TreatiesOVETthe|Domestic.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 couldbe 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 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 10/11 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 tf such appeals are filed by theAssessees, because, there may be cases where)the 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 whichthe 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.” Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd., 5 11/11 Having heard the learned counsels for the parties, we are therefore of the opinion that nosubstantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue isliable to be dismissed and it is,*"2*""3,accordinglyNo costs. TTL Sd/-. JUDGE Sd/-.JUDGE JUDGE