Date Of Judgment 06-08-2018, Ita v. M/S. Fair Isaac India Software Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 6 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.368/2017 BETWEEN : 1.THE PR. COMMISSIONEROF INCOME-ITAX"[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,BENGALURU-560095..OF INCOME-ITAX"[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,BENGALURU-560095.. «|THERE DEPUTLY COMMISSIONEOF INCOME-TAX, CIRCLE-11(3), |PRESENT ADDRESS, CIRCLE-3(1)(1),~ FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,BENGALURU-560095... APPELLANTS| (BY SRI K.V.ARAVIND, ADV.) AND ; M/s. FAIR ISAAC INDIASORTWARKE PVT.LTD.135, OLD AIRPORT ROAD,KODIHALLY, BENGALURU-56001/7.PAN: AABCF 7670G.,_. RESPONDENT. (RESPONDENT SERVED, BUT UNREPRESENTED) THIS INCOME TAX APPEAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 08.09.2016 PASSED IN IT(TP)A No.24/BANG/2014, FOR: Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., THE ASSESSMENT YEAR - 2009-2010, ANNEXURE-D, PRAYING|TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED ABOVE. II] ALLOW THER APPEAL AND SEI ASIDE THEORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,BENGALURU IN I[T(TP)A No.24/BANG/2014 DATED: 08.09.2016,ANNEXURE-D, CONFIRMING THE ORDER OF THE APPELLATE|COMMISSIONBR AND CONFIRM THR ORDER PASSBD BY THE!DEBPUTYCOMMISSIONBR.OF.INCOME.TAX, CIRCLE-1(1)(1), BENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, Bangalore Bench ‘A’, Bangalore, inIT[TP|A No.24/Bang/2014dated|08.09.2016, relating to the Assessment Year2009-10. a2Theappealhas|beenadmitted|OTL17.01.2018TO consider.thefollowingsubstantialquestionsoT|lawformulated1ntheappealmemorandum: Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., 3/10 aWhetherin|the factsandcircumstances of the case, the Tribunal ts right in|law in excluding the comparables, namely, KalsInformation Systems, Bodhtree Consulting Ltd.,and Tata Elxsi Ltd on the ground of functionaldissimilarity by following its earlier order whichhas not reached finality and even when the TPOhad chosen the comparables as it satisfiesqualitative and quantitative filters applied by theTPO and Tribunal ought to have decided thecomparability of these companies on the basis ofspecific facts brought out on record by the TPO inthe case of the assessee?r D2 Whetherinthe factsandcircumstances of the case, the Tribunal ts right in|law in excluding comparables namely, M/s.SaskenCommunicationTechnologiesLtd.,Persistent Systems Ltd., Larsen & Tourbo InfotechLtd., and Infosys Ltd., on the basis of h ighturnover by following its earlier order in case ofM/s. Yodlee Infotech Ltd., and Unisys India Put.Ltd., which has not reached finality and TPO hadrightly chosen the same after applying requiredtests and without appreciating that the salesturnover of the company does not have anyimpact on the margins earned and there is no Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., correlation between size of the company and theprofit margins reported when the said companieshave satisfied all the qualitative and quantitativefiltersP~ 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: “TYKals Information Systems Ltd. KVeVNKK” Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., correlation between size of the company and theprofit margins reported when the said companieshave satisfied all the qualitative and quantitativefiltersP~ 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: “TYKals Information Systems Ltd. KVeVNKK” 11.1.3}Following the decision of the|co-ordinate Bench of the Tribunal in the case ofM/s. CISCO Systems [India] Put. Ltd., [supra], wedirect that Kals Informations Systems Ltd., beexcluded from the final list of comparables on thefunctional comparability. [2]Bodhtree Consulting Ltd. KVeVNKK” 11.9.2|In view of the co-ordinate|Bench of the Tribunal in the case of M/s. CISCO Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., systems [India/ Put. Ltd., /[supraj/, we direcBodhtree Consulting Ltd., to be excluded from thelust of comparables. KVeVNKK” [3]Tata Elxsi Ltd. Myer” 11.3.4In view of the decision of the|co-ordinate Bench of this Tribunal in the case ofM/s. CISCO Systems [India] Put. Ltd., [supra/, we|direct that Tata Elxsi Ltd., be excluded from the.final list of TPO’s comparables.” Regarding Substantial Question of Law No.2: “12. In support of its contentions forrejectionofthecomparablesVIZ., SaskenCommunicationTechnologiesLtd.,Persistentsystems Ltd., Larsen Toubro Infotech Ltd., andInfosys Ltd., reliance was placed on the decisionof this Tribunal in the case of Yodlee Infotech Ltd.,VD.ITO,IT/ITPIANo. 108/Bang/ 201dated12.12.2014, M/s. Unisys India Put. Ltd., v. DCITin IT/TP/A No.67/ Bang/ 2015 dated 30.09.201and M/s. CISCO Systems [India/ Put. Ltd.,/supra]. Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., 6/10 12.1 We find that in the case of YodleeInfotech Ltd., [supra], this Tribunal at para 20 of|its order has held as under:-. KVeVNKK” 12.2 Further, this Tribunal in the case ofM/s. Unisys India Put. Ltd., [supra/ with regard to|the comparables viz., Infosys Ltd., and Persistentsystems Ltd., on the functional comparability hasheld at para 32 and 36 as follows:-| KVeVNKK” 12.3 FollowingthedecisionsoftheTribunal in the case of Yodlee Infotech Ltd.,/supral and Unisys India Pvt. Ltd., [supra], wedirect that Sasken Communication TechnologiesLtd., [seg], Persistent Systems Ltd., Larsen &Toubro Infotech Ltd., and Infosys Ltd., beexcludedfromthefinallistofTPO’scomparables.” 4However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., 7/10 25.06.2018 (Prl. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-facie perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A otthe Act is not maintainable. The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions dependsupon 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| Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions dependsupon 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| Date of Judgment 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., 8/10 in Tax Havens (like in the case of Vodafone|etc.), tf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof 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|law.andthe|Suggested|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 06-08-2018, ITA No.368/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Fair Isaac India Software Pvt. Ltd., 9/10 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.Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no substantial question of law arises in thepresent case also. The Appeal filed by the Appellants-| 10/10 Revenue is liable to be dismissed and it is dismissed| accordingly. No costs. Copy of this Order be sent to the Respondent- Assessee forthwith. NC. Sd/-.JU DGE Sd/-.JU DGE