Date Of Judgment 09-07-2018 I.t.a v. M/S. Genisys Integrating Systems (India) Pvt., Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE O0 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.17/2012 BETWEEN: 1.THE COMMISSIONBR OF INCOMB TAX C.R. BUILDING, QUEENS ROADBANGALORE.BANGALORE. 2.THE DY. COMMISSIONBR OF INCOMBEB-TACIRCLE 11(38), C.R. BUILDINGCIRCLE 11(38), C.R. BUILDING QUEENS ROAD, BANGALORE. .. APPBLLANT (By Mr. K.V. ARAVIND, ADV.) AND: M/S. GENISYS INTEGRATING SYSTEMS(INDIA) PVT., LTD.,No .43-46 ®& 33-3BRXPORT PROMOTIONAL INDUSTRIAL PARKWHITEFIELD ROAD, BANGALORE-5S60066. . RESPONDENT (By Mr. TATA KRISHNA, ADV. FORMr. K.K. CHYTHANYA, ADV..,) THIS L.T.A .IS FILED UNDER SECTION 260-A OF IL.T. ACT,1961, PRAYING TO FORMULATE THE SUBSTANTIAL OUESTIONSOF LAW STATBKD THRRBIN. ALLOW THR APPEAL AND SBT Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 2/12 ASIDE THE ORDER DATED 05/08/2011 PASSED BY THE ITAT,.BANGALORE IN ITA No.1231/Bang/2010 ANNEXURE-D AND.CONFIRM THR ORDEBR OF THR APPKRHLLATKH COMMISSIOCONFKFIRMINTH EORDERPASSEDBY|TH EDEBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE,|IN THE INTEREST OF JUSTICE AND EOUITY. THIS LT.A. COMING ON FOR FINAL HEARING, THIS DAYS. SUJATHAJ. DELIVERED THE FOLLOWING :- JUDGMENT Mr. K.V. Aravind,Adv. for Appellants- Revenue Mr. Tata Krishna,Adv. tor | Mr. K.K. Chythanya, Adv. for Respondent - Assessee | 1. The Appellants-Revenue have filed this appeal u/s.260Aof the Income Tax Act, 1961, raisingpurportedly certain substantial questions of law arisingfrom the order of theITAT, Bangalore Bench ‘A’, Bangalore>.dated05.08.2011passedin.ITANo.1231/Bang/2010(M/s.Genisys Integrating Systems(India) Put. Ltd., vs. The Deputy Commissioner of Income.Tax){fOrA.Y.2006-07. Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 3/12 2. The proposed substantial questions of lawframed.1n theMemorandumoT|appealby theAppellants-Revenue|aTe€quotedbelowforreadyreference:-. “1.Whether the Tribunal was correct inholding that transfer pricing adjustments shouldberestrictedto.transactionsofAssociateEnterprises only by adopting operating revenue|and operating cost of these transactions whenthere is no segmental analysis in the auditedannual report submitted by the assessee byrejecting the profit margin at enterprise leveladopted by Transfer Pricing Officer? D2 Whether the Tribunal was correct inholding that the turnover filter of comparablecompanies between the range of 1 crore to 200crores Should be adopted for the assessee whenthere was no prohibition under any law for themethod adopted by the Transfer Pricing Officerincluding the taxpayers own case for the earlieryears and in software industry profits related tofixed costs and not the turnover? 3.|Whether the Tribunal was correct inholding that the assessee should be given anopportunity to cross examine all those parties Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 4/12 whose comparables have been selected by theTransfer Pricing Officerfor determination ofArms”Length Price in the case of the assessee?| 4.|Whether the Tribunal was correct inholding that 5% standard deduction should beextended to the assessee after quantification ofthe Arms’ Length Price when the proviso to Subsection 2 to Section 92C of the Act did not providefor such a deduction?r”. 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| Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 4/12 whose comparables have been selected by theTransfer Pricing Officerfor determination ofArms”Length Price in the case of the assessee?| 4.|Whether the Tribunal was correct inholding that 5% standard deduction should beextended to the assessee after quantification ofthe Arms’ Length Price when the proviso to Subsection 2 to Section 92C of the Act did not providefor such a deduction?r”. 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’madebythe concerned|authorities below. We consider it appropriate to quotethe relevant portion of the order of Tribunal, which runs |as hereunder:- 6. Having heard both the parties andhaving considered their rival contentions, we findthat Sec.92B of the IT Act gives the meaning of Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 5/12 “international transactions’To|mean“a transaction betiween two or more associatedenterprises either or both of whom are non-resident... ........20 Chapter-X of IT Act relates to specialprovisions relating to avoidance of tax and sec.92therein relates to computation of income frominternational transactions having regard to ALP.Thus, it can be seen that only internationaltransactions between the associated enterpriseseither or both of whom are non-resident are to becomputed having regard to ALP. This issue is alsocovered by the decisions relied upon by thelearned counsel for the assessee. Accordingly, theAO is directed to make the transfer pricingadjustments by restricting the adjustments to thetransactions of the AE only by adopting theoperating revenue and operating costs of thesetransactions only. LoHaving heard both the parties andhaving considered the rival contentions and alsothe judicial precedents on the issue, we find thatthe TPO himself has rejected the companieswhich are making losses as comparables. ThisShows that there is a limit for the lower end foridentifying the comparables. In such a situation,we are unable to understand as to why there Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 6/12 Should not be an upper limit also. What should beupper limit ts another factor to be considered. Weagree with the contention of the learned counselfor the assessee that the size matters inbusiness. A big company would be in a position tobargainthepriceandalso.attractMorecustomers. It would also have a broad base ofSkilled employees who are able to give betteroutput. A small company may not have thesebenefits and therefore, the turnover also wouldcome down reducing profit margin. Thus, as heldby the various benches of the Tribunal, whencompanies which are loss making are excludedfrom comparables, then the super profit makingcompanies should also be excluded. For thepurpose of classification of companies on thebasis of net sales or turnover, we find that areasonable classification has to be made. Dun &Bradstreet and NASSCOM have given differentTAPLGES.TakingtheIndianSCeNnaTIOintoconsideration, we feel that the classification madeby Dun & Bradstreet is more suitable andreasonable. In view of the same, we hold that theturnoverfilter1S|veryimportantandthecompanies having a turnover of Rs.1.00 core to200 crores have to be taken as a particular rangeand the assessee being in that range having’ Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 7/12 turnover of 8.15 crores, the companies which alsohave turnover of 1.00 to 200.00 crores onlyShould be taken into consideration for thepurpose of making TP studdu. Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 7/12 turnover of 8.15 crores, the companies which alsohave turnover of 1.00 to 200.00 crores onlyShould be taken into consideration for thepurpose of making TP studdu. 13.We have already held that ff anyinformation is sought to be used against theassessee, the same has to be furnished to theassessee and thereafter, taking into considerationthe assessee’s objections, if any, only then canthe TPO proceed to take a decision. If theassessee seeks an opportunity to cross examine|the party, the assessee shall be provided such anopportunity. It is only during a cross examinationthat the assessee can rebut the stand of thatparticular company. The assessee has alsobrought out various defects in the additionalcomparables selected by the TPO and hasbrought out the glaring differences between thefunctions of those comparables as compared toassessee and also as to how the entire revenue ofthe assessee has been taken into considerationinspite of there being income from unrelated partytransactions also. All these objections have beengiven in detail in the written submissions. We findthat the TPO has not considered these objections,while determining the ALP. Further, the learned Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 8/12 counsel for the assessee has also submitted thatthe assessee should be gwen a_ standarddeduction of 5% as provided under the proviso tosec.92C(2) before making adjustments for thetransfer price. In support of his contention, heplaced reliance on the following decisions: 1.M/s Sap Labs India Put.Ltd., Vs ACIT 2010-TI-44ITAT-BANG-TP 2.Philips Software Centre Put.Ltd., 26 SOT 2263. MSS India Put.Ltd., 32 SOT 132 4. Customer Services India Put.Ltd., Vs ACIT 30 SOT456 | 5. Skoda Auto India Put.Ltd., Vs ACIT 2009-TIOL-2 14ITAT-PUNBE 6. Development Consultants Put.Ltd., Vs DCIT 25 SOT455 | 7. Sony India Put.Ltd., 315 ITR 150 & Cumins India Ltd., Vs DCIT ITA NO.277 &1412/ PN/O7~ 9. TNT India Put.Ltd., Vs ACIT 10 Taxman.com 161 |10. Abhishek Auto Industries Ltd Vs DCIT 2O10-TII-54-ITAT-DEL-TP| 13.1The learned DR however, relied onthe orders of the authorities and submitted that5% is not the standard deduction, but it is therange within which tif the ALP falls then the ALPof the assessee has to be accepted. Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 9/12 13.2| Having heard both the parties andhaving considered their rival contention, we findthat this issue is already covered by the decisionrelied upon by the assessee”. 4. However, this Court in a recent judgment inI.T.A.No.536/2015c/w.I.T.A.No.537/2015(Pr.Commissionerof|IncomeTax,Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) renderedon 25-06-2018,has held that in these type of cases,unless ansex-facti’ perversity in the findings of thelearned Income Tax Appellate Tribunal is established bythe appellant, the appeal at the instance of an assesseeor the Revenue under|Section 260-Aot the Act is notmaintainable and the relevant portion of the saidjudgment 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 it Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 10/12 “Conclusion: oo. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had it Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 10/12 been|(OCaASeofSubstantialquestionofinterpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or Overriding|EffectoftheTreatiesOVEeCthe.DomesticLegislations 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 could |be raised before the High Court underSection| 260-Aof 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 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 11/12 filed by the Revenue are found to be devoid ofmerit and the sqme 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 findingshas 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 weclarify that mere dissatisfaction with the findings|offacts arrived at by the learned Tribunal is not)at all a sufficient reason to invokeSection 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 case also. The appeal filed by the Appellants-Revenue is Date of Judgment 09-07-2018 I.T.A.No.17/2012 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Integrating Systems (India) Pvt., Ltd., 12/12 liable to be dismissed and it is,*"<*""4,accordinglyNo costs.Sd/-.JUDGESd/-|JUDGESrl.