Date Of Judgment 07-08-2018 I.t.a v. M/S. Applied Materials India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 07 DAY OF AUGUST 2018. PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA|I.T.A.No.361/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME-TAX.k FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BBENGALURU-560 095.k FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BBENGALURU-560 095. 2.THE ASST. COMMISSIONER OF INCOME-TAX.CIRCLE-1(1)(1), 2 KLOOR,BMTC BUILDING, 380 FEET ROADCIRCLE-1(1)(1), 2 KLOOR,BMTC BUILDING, 380 FEET ROAD KORMANGALA, BENGALURU-560 095. .. APPBLLANT (By Mr. K.V. ARAVIND, ADV.) AND: M/S. APPLIED MATERIALS INDIA PVT. LTD.,UNIT-5, 3 FLOOR, EXPLORER BUILDING.INTBRNATIONAL THCH PARK|WHITEFIELD ROAD, BENGALURU-560 O66PAN: AABCA 2635C. . RESPONDENT (By Mr. SANDEEP HUILGOL, ADV., FOR |Mr. T. SURYANARAYANA, ADV..,) THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT|ACT, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONSOF LAW. ALLOW THE APPEAL AND SET ASIDE THE ORDERS| Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 2/11 PASSED)BYTHEINCOME-TAX.APPBRLLATBTRIBUNAL, BANGALORE IN ITI(TP)A No.17/BANG/2016 DATED 21/09/2016ANNEXURE-D AND CONFIRM THERE ORDER OF THE DRCONFIRMING|THEORDERPASSEDBY|THEASST..COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU.& KTC. THIS LT.A. COMING ON FOR HEARING THIS DAY,S. SUJATHAJT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. K.V. Aravind,Adv. for Appellants-Revenue |Mr. Sandeep Huilgol,Adv. for |Mr. T. Suryanarayana, 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, Bangalore Bench ‘C’,Bangalore, dated.21.09.2016passed in|IT(TP)A No.17/Bang/2016(M/s.Appliled Materials India Pvt.Ltd., DS.Asst.Commissionerof|Income-tax}forA.Y.JZO011-1 2. This appeal has been admitted on|14.11.2017to consider the following substantial questions of law Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 3/11 framed by the learned counsel for the Appellants-Revenue: - “1.Whetherin|the factsandcircumstances of the case, the Tribunal ts right|in law in excluding the comparables on theground of functional dissimilarity by following|its earlier order which has not reached finalityand even when the TPO had chosen thecomparables as it satisfies qualitative and_quantitative filters applied by the TPO and|Tribunaloughtto.havedecidedthe|comparability of these companies on the basis|of specific facts brought out on record by the|TPO in the case of the assessee?| D2 Whetherinthefactsandcircumstances of the case, the Tribunal 1s|holding that companies such has ICRA TehnoAnalytic Ltd, Infosys Ltd, L & T Infotech Ltd,|Tata Elxsi Ltd by following its earlier order incase of M/s. Electronic for Imaging India P. Ltd|even when the sqid order has not reachedfinality P 3.|Whetherinthefactsandcircumstances of the case, the Tribunal ts right|in law in holding that M/s. Acopetal Tech Ltddoes not satisfy the fiuter of information Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 4/11 technology revenue applied by the TPO as theTevenuefrominformationtechnologytransactions 1s less than 25% of income filed bythe revenue even when TPO had considered the|segment of company’s software segment alone|for bench marking purposes?”| 3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and theRespondent-Assessee, has given the following findings:- | :Regarding substantial question of law No.1: 3.|Whetherinthefactsandcircumstances of the case, the Tribunal ts right|in law in holding that M/s. Acopetal Tech Ltddoes not satisfy the fiuter of information Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 4/11 technology revenue applied by the TPO as theTevenuefrominformationtechnologytransactions 1s less than 25% of income filed bythe revenue even when TPO had considered the|segment of company’s software segment alone|for bench marking purposes?”| 3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and theRespondent-Assessee, has given the following findings:- | :Regarding substantial question of law No.1: “ 9294. We have considered the rivalSubmissions as well as the relevant material onrecord. At the outset we note that the functionalcomparability of these two companies haveexamined by the co-ordinate bench of thisTribunal in the case of DCIT Vs. Electronics forImaging India Put. Ltd. (supra) in para 60 and 61& paras 24 to 26 as under: XXXXXXXXXXNX We further find from the Annual Report thatthere is no change in the activity and functions ofthesecompaniesduringthe|Yearunder Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 5/11 consideration in comparison to the AssessmentYear.Y2O1O0-] Accordingly,followingthedecisions of the co-ordinate benches of thisTribunal (supra), we direct the A.O./TPO toexclude these two companies from the set ofa comparables Regarding substantial question of law Nos. 2and 3:: “15. The revenue is also seeking inclusion|of some of the companies in the lst ofcomparables which were reflected by the DRP.We wul deal with the issues one by one as under: (t) Acropetal Technologies Ltd. (Seg.) XXXXXXXXXXXXX| 16.4. Wehaveconsideredthe|rivalSubmissions as well as the relevant material onrecord. As per the segmental reporting at page 53of the Annual Report the income from InformationTechnology Services is Rs.81.40 Crores out of thetotal income of Rs.141 Crores. Therefore therevenue from Information Technology transactionsservices is less than 75% and consequently thiscompany does not satisfy the filter of information Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 6/11 technology revenue applied by the TPO itself.Accordingly, we do not find any reason tointerfere with the order of the DRPfor this tissue. (ut) Icra Techno Analytic Ltd. XXXXXXXXXXXXNX 17.2 We further note that the Tribunal inthe case of DCIT Vs. Electronics for Imaging IndiaPut. Ltd. (supra) has considered the comparabilityof this company in paras 14 to 16 as under: NXXXXXXKXXKXX Nothing has been brought before us_ toShow that the facts recorded by the DRP as wellas by the co-ordinate bench of this Tribunal arenot correct. Accordingly, in view of the decision ofthe co-ordinate bench of this Tribunal in the caseof DCIT Vs. Electronics for Imaging India Put. Ltd.(supra), we do not find any error or illegality inthe order of the DRP on this issue. (ttt) Infosys Ltd. 18. We have heard the learned D.R. as wellas learned A.R. and considered the relevantmaterial on record. At the outset, we note that the| 7/11 co-ordinate bench of this Tribunal in the case ofDCIT Vs. Electronics for Imaging India Put.Ltd.(supra), has considered this issue in para 17as under: NXXXXXXKKKXXX Following the decision of this Tribunal in|the case of DCIT Vs. Electronics for Imaging IndiaPut.Ltd.(supra), we do not find any reason tointerfere with the directions of the DRP on thisissue. (tv) L&zT Infotech Ltd. 19. We have heard the learned D.R. as wellas learned D.R. and considered the relevantmaterial on record. The DRP_ rejected thiscompany by recording the facts at page 15 as under: NXXXXKXKXXX (ttt) Infosys Ltd. 18. We have heard the learned D.R. as wellas learned A.R. and considered the relevantmaterial on record. At the outset, we note that the| 7/11 co-ordinate bench of this Tribunal in the case ofDCIT Vs. Electronics for Imaging India Put.Ltd.(supra), has considered this issue in para 17as under: NXXXXXXKKKXXX Following the decision of this Tribunal in|the case of DCIT Vs. Electronics for Imaging IndiaPut.Ltd.(supra), we do not find any reason tointerfere with the directions of the DRP on thisissue. (tv) L&zT Infotech Ltd. 19. We have heard the learned D.R. as wellas learned D.R. and considered the relevantmaterial on record. The DRP_ rejected thiscompany by recording the facts at page 15 as under: NXXXXKXKXXX We further find that the comparability ofthis company has been considered by the co-ordinate bench of this Tribunal in the case ofDCIT Vs. Electronics for Imaging India Put. Ltd.(Supra) in paras 62 to 65 as under:| Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 8/11 XXXXXXXXXXXXXXNX In view of the facts recorded by the DRP aswell as the decision of the co-ordinate bench, wedo not find any reason to interfere with thedirections of the DRP”. 4. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015delivered on25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)1 has heldthat in these type of cases, unless anex-facleperversityin the findings of the learned Income Tax AppellateTribunal is established by the appellant, the appeal atthe instance ot 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|OmCaASeofSubstantialquestionof Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 9/11 interpretation 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 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. 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 appeals Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 10/11 filed by the Revenue are found to be devoid of|merit and the same are liable to be dismissed. | 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 appeals Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd., 10/11 filed 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 beapplied, 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 filedsuch appeals before this Court. Therefore we.clarify that mere dissatisfaction with the findingsoffacts arrived at by the learned Tribunal is notat all a sufficient reason to invoke|Section 260-Aof the Act before this Court. 58. The appeals filed by the Revenue are|therefore dismissed with no order as to costs.” Oo. Having heard the learned counsels for the parties, we are therefore of the opinion that nosubstantial question of law arises in the present casealso. The appeal filed by the Appellants-Revenue is Date of Judgment 07-08-2018 I.T.A.No.361/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Applied Materials India Pvt. Ltd.,11/11 liable to be dismissed and it is-+"B+"".-accordingly No costs. Srl. Sd/-.JUDGE Sd/-|JUDGE