Date Of Judgment 08-08-2018, Ita v. M/S. Softbrands India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 8 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.398/2017 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-12(3), PRESENT ADDRESS—~ FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,BENGALURU-560095... APPELLANTS| (BY SRI ARAVIND.K.V., ADV.) AND ; M/s. SOFTBRANDS INDIA PVT. LTD.,PRESTIGE OBELISK, LEVEL 9,KASTURBA ROAD,BBRENGALURU-560001PAN:AAFRFCS OSOO41_. RESPONDENT. (BY SRI S.SHARATH, ADV. FOR SRI CHYTHANYA.K.K., ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 26/08/2016 PASSED IN IT(TP)A NO.1094/BANG/2011,. Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., KOR.THR ASSBSSMBENTYEAR 2007-2008,ANNEXURE-D,PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF|LAW SIATED THEREIN, Il. ALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THE ITAT, BENGALURU IN IT(TP)A.NO.1094/BANG/2011 DATED 26/08/2016, ANNEXURE-D ANDCONFIRM THR ORDEBR OF DRP CONFIRMING THR ORDERPASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-3(1)(1), BENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. S.Sharath,Adv. tor | Mr. Chythanya.K.K.,|Adv. for Respondent — Assessee. 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.1094/Bang/2011 dated|26.08.2016, relating to the Assessment Year2007-08. 2.Theappealhas|beenadmitted|OTL14.11.2017TO consider.thefollowingsubstantialquestions of law: Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 3/10 aWhether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding certain comparable on theground offunctional dissimilarity by following its|earlier order in case of M/s. Triology E-BusinesssoftwareIndiaPut.Ltd.,inITA|No.1054/Bang/2011 dated 23.11.2012 evenwhen Transfer Pricing Officer has rightly chosenthe same considering its functions which aresimilar to assessment and has satisfied all therequired tests and without doing an FAR analysisof the taxpayer with those other cases?| D2 Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in directing the assessing authority toexclude comparable such as Persistent SystemsLtd., Wipro Ltd., Flextronics Software SystemsLtd., I-gate Global Solutions Ltd., Ishir InfotechLtd.,MegasoftLtd.,MindTree,R.SystemInternational Ltd.,SaskenCommunications Technologies Ltd., by following its earlier orderwhich has not reached finality ?~ 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 4/10 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1: ¢(t) Accel Transmatics Ltd. (Seg.] KVeVNKK” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 4/10 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1: ¢(t) Accel Transmatics Ltd. (Seg.] KVeVNKK” 7.3We|have.consideredtherivalSubmissions as well as the relevant material onrecord.Atthe.outset,WE|notethattheComparability of this company to a _ softwardevelopmentSCYLVICESproviderhasbeen|considered by the co-ordinate bench of thisTribunal in the case of Trilogy E-Businesssolutions dt.23.11.2012 for the Assessment Year2007-08inITA|No. 1054/7 Bang/ 20TheTribunal in para 48 of the said order hasreproduced the finding of the Mumbai Bench ofthe Tribunal in the case of Capgemini India (P)Ltd. Vs. Addl. CIT 12 Taxman.com 51as under: KVeVNKK” By following the above decision of the|Mumbai Tribunal, the co-ordinate bench has heldthat this company is not comparable and should be excluded from the list of comparable in para5O0 as under: KVeVNKK” As far as the business activities of thecompany are concerned, the revenue has notdisputed that this company is engaged in thediversified activity as recorded by the Tribunal inthe earlier year. Accordingly, by following theearlier orders of this Tribunal, we direct theA.O./TPO to exclude this company from the list ofcomparable for determining the ALP. (tt)Avant Cincom Ltd. KVM 5?|We|have.consideredtherivalSubmissions as well as the relevant material on|record. We note that the comparability of thiscompany has been considered by the co-ordinatebench of this Tribunal in Trilogy E-Business.software India Put. Ltd. (supra) in para 39 & 41.as under: KVM Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., Following the earlier orders of this Tribunal,we direct the A.O./TPO to exclude this companyfrom the list of comparable for determining theALP.” 4.similarly,thelearnedTribunal|has considered other comparables and excluded the same. Regarding Substantial Question of Law No.2: “Vit) Flextronics Software Systems Ltd.|(Seg.} KVeVNKK” 11.2 Wehave.consideredtherivalSubmissions as well as the relevant material onrecord. We find that the comparability of thiscompany was not an issue before this Tribunal inthe cases relied upon by the assessee as above.Accordingly, we do not find any substance ormerit in the argument of the assessee_ thatbecause of the turnover filter of this companyShould be excluded from the list of comparables. VU) |Helios & Matheson InformationTechnology Ltd. KVeVNKK” Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 12.2 Wehave.consideredthe|rivalSubmissions as well as the relevant material onrecord. We note that the comparability of thiscompany has been considered by the co-ordinate|bench of this Tribunal in the case of SerialInnovations India Put. Ltd. (surpa) in paras 29 &30 as under: Respectfully following the decision of this:Tribunal, we direct the A.O./TPO to exclude thiscompanyfromthe.list.of|comparablefordetermining the ALP.” considered other comparables and excluded the same. 6.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (Pri. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-iacie perversity in thefindings of the learned Income Tax Appellate Tribunal is Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 8/10 established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of the said judgment isquoted below for ready reference: considered other comparables and excluded the same. 6.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (Pri. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-iacie perversity in thefindings of the learned Income Tax Appellate Tribunal is Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 8/10 established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of the said judgment isquoted below for ready reference: “Conclusion: 55.|Asubstantialquantumof)international trade and transactions dependsupon the fair and quick judicial dispensation insuch cases. Had it been a case of substantialquestion of interpretation of provisions ofDouble Taxation Avoidance Treaties (DTAA),interpretation of provisions of the Income TaxAct or Overriding Effect of the Treaties over theDomestic Legislations or the questions likeTreaty Shopping, Base Erosion and _ Profishifting (BEPS), Transfer of Shares in TaxHavens (like in the case of Vodafone etc.),based on relevant facts, such substantialquestions of law could be raised before theHigh Court underSection 260-A of the Act, theCourtscouldhave|embarkedUPOFrsuchexercise of framing and answering such Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 9/10 substantial question of law. On the other hand,the appeals of the present tenor as to whetherthe comparables have been rightly picked up ornot, Filters for arriving at the correct list ofcomparables have been rightly applied or not,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 requirementsofSection 260-Aof the Act and thus theappeals filed by the Revenue are found to bedevoid of merit and the same are liable to bedismissed. 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 andfindings has found certain comparables to begood comparables to arrive at an'7s| “ArLength Price“in the case of the assessees withwhich the assessees may not be satisfied and Date of Judgment 08-08-2018, ITA No.398/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Softbrands India Pvt. Ltd., 10/10 have filed such appeals before this Court.Therefore we clarify that mere dissatisfactionwith the findings of facts arrived at by thelearned Tribunal is not at all a sufficient reasonto invokeSection 260-Aof the Act before this|Court. 58. The appeals filed by the Revenue are|therefore dismissed with no order as to costs.” T Havingheard|the.learnedcounsels. appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the presentcase also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. NC. Sd/-.JUDGE. Sd/-.JUDGE.