Date Of Judgment 09-07-2018 I.t.a v. The Deputy Commissioner Of Income-Tax

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 9[th]DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.224/2011 BETWEEN: M/s. ALTAIR ENGINEERING INDIA PVT. LTD., C/O GOWTHAMA & COMPANY23/57, 41 CROdS»s, EAST END C MAIN ROAD6[‘T]BLOCK, JAYANAGAR, BANGALORE-560069RBEPRBESEBENTBD BY MANAGING DIRECTORSRI. PAVAN KUMAR C.\V.AGED ABOUT 45 YBARS|9/O SRI. CHANDAGARIVENKATAKONDA RBDDY. (By Mr. TATA KRISHNA, ADV. FORMr. K.K. CHYTHANYA, ADV..,) _ APPBLLANT AND: THER DEPUTLY COMMISSIONER OF INCOME-TACIRCLE-11(1), 5 KLOOR,R.P. BHAVAN, NRUPATHUNGA ROADBANGALORE -560001. . RESPONDENT (By Mr. K.V. ARAVIND, ADV.) THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL|QUESTIONS OF LAW SIATED THEREIN. SEIT ASIDE THE Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 2/9 APPBRLLATEORDERDATED14/03/2011IN|ITA|No.1184/Bang/2010 ANNE XURE-A. THIS LT.A. COMING ON FOR FINAL DISPOSAL, THIS DAY |S. SUJATHA JT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. Tata Krishna,Adv. tor |Mr. K.K. Chythanya, Adv. for Appellant-AssesseeMr. K.V. Aravind,Adv. torRespondent-Revenue The Appellant-assessee has filed this appealu/s.260Aoft the!Income Tax Act, 1961, raising.purportedly certain substantial questions of law arisingfrom the order of the.ITAT, ‘B’ Bench, Bangalore>.dated|14.03.2011passed inITA No.1184/Bang/2010for theA.Y.2006-07. 2. The proposed substantial questions of lawframed.1n theMemorandumoT|appealby theAppellants-Revenue|aTe€quotedbelowforready)868)81?83" “1.Whether in law, the Tribunal was justifiedin approving the ALP determined by the TPO and approved by the DRP without gwing any validreasons through a speaking order? D2 Whether in law, the circumstances being|identical and when the Revenue has accepted theALP determined by the Appellant under CUP)method in the preceding year after examination,was justified in deviating from the same byadopting ITINMM method to make the impugneaddition? 3.Whether in law, the DRP and Tribunal wereright in ignoring the vital fact that the Appellantwas exporting to the parent company only anincomplete product and in the circumstances thecomparisons reliedON.bytheTPOWwWe®inapplicablewhilejustifyingtheimpugned addition made on account of variance in ALPdetermined arbitrarily by the TPOP” 3.|The learned Tribunal, after discussing therival contentions of both the appellant-assessee and theRespondent-Revenue, has returned a finding as under: 4O4. We considered the contentions in the.light of the details submitted by the assessee'srepresentative, assessment order, the directionsof the Disputes Resolution Panel and the order of Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 4/9 the Transfer Pricing Officer. With reference to theinternationaltransactionsofsoftware,theassessee has agreed with its associate concern'sformula of cost + profit. The profit factor has been|agreed to be 10%. But on a detailed study of theactivities carried on by the assessee companyand its working results and the results of thecomparable cases, the TPO came to a finding thatthe operating margin (ALP margin) worked out to20.68% of the operating cost. On the basis of theProfit Level Indicator (PLI), the TPO computed theALP at °.5,95,33,962/- against the internationaltransactions price shown by the assessee at°.0,48,98,928/-. Shortfall of .46,35,034/- hasbeen added by way of adjustment u/s.92CA. 4/9 the Transfer Pricing Officer. With reference to theinternationaltransactionsofsoftware,theassessee has agreed with its associate concern'sformula of cost + profit. The profit factor has been|agreed to be 10%. But on a detailed study of theactivities carried on by the assessee companyand its working results and the results of thecomparable cases, the TPO came to a finding thatthe operating margin (ALP margin) worked out to20.68% of the operating cost. On the basis of theProfit Level Indicator (PLI), the TPO computed theALP at °.5,95,33,962/- against the internationaltransactions price shown by the assessee at°.0,48,98,928/-. Shortfall of .46,35,034/- hasbeen added by way of adjustment u/s.92CA. O05. On examination of the case, we find thatthere is no verifiable basis for determining theprofit factor at 10% of the cost as embodied in theagreement entered by the assessee and itsassociate concern. The argument of the assesseethat the services rendered by the assessee areonly basic services to its holding company andtherefore the prices declared by the assessee areto be treated as reasonable, as the Arms LengthPrice cannot be accepted as an overwhelmingproposition for the reason that the assessee has not placed before us any cost model and marketpotential of the products so as to accept or reject)the bench mark profit of 10%. It is the case of theassessee that the real impact of the servicesrendered by the assessee would be known onlyafter’consideringthevalue additions/contributionsmadebyassessee'sholding company. But it is to be seen that theassessee has not furnished any details of suchvalueadditioncontributed.byits holding company. Therefore, an effective evaluation of the market price of the final product and the share ofthe contribution of the assessee in that marketprice cannot be computed for want of details, forwhich the assessee alone is responsible. O7. Now regarding the quantum of addition, theTransfer Pricing Officer has worked out theoperating profit at 20.68% of the operating cost.We feel that a nominal modification is called for inthis rate of operating profit, accepting certainvalid contentions of the learned representativeregarding the competence level of its employees ;the remuneration payable to them and the effectof the safe environment in which the assesseewas functioning. Therefore, as a fair measure ofprice difference, we modify the Arms Length Price 6/9 adjustment factor to 20% of the operating cost inplace of 20.68% of the operating cost adopted bythe.lowerauthorities.Withthisnominalmodification, the first issue of Transfer Pricing 1sdisposed off. OS. The second issue raised by the assessee 1sthatdisallowanceof|assessee'sclaim|of|.1,52,58,201/- made u/s.10A is not justified.TheverySameISSUEWasconsidered|in|assessee'sOWN?case for|assessmentyear2005-06 by ITAT, 'B' Bench, Bangalore, through|theirorder.dated.2?1.01.2011inITA.762/ Bang/ 2010. The very same issue wadecided in favour of the assessee for assessmentyear 2004-05 as well by ITAT, Bangalore Bench.In view of that, the said disallowance of.1,52,58,201/- is deleted and the assessingauthority 1Sdirectedto.giveconsequentialbenefits. 4This Court in|ITA No.536/2015 C/w ITA. No.537/2015delivered OT] 25.06.2018 | (Pri. Commissioner of Income Tax & Anr. Vs. |M/s. Softbrands India Put. Ltd.,)| has held that inthese type of cases, unless an|ex-facteperversity in the Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 7/9 findings of the learned Income Tax Appellate Tribunal isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under|Section 260-Aot|the Act is not maintainable and the relevant portion ofthe said judgment is quoted below for ready reference: § Conclusion: 4This Court in|ITA No.536/2015 C/w ITA. No.537/2015delivered OT] 25.06.2018 | (Pri. Commissioner of Income Tax & Anr. Vs. |M/s. Softbrands India Put. Ltd.,)| has held that inthese type of cases, unless an|ex-facteperversity in the Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 7/9 findings of the learned Income Tax Appellate Tribunal isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under|Section 260-Aot|the Act is not maintainable and the relevant portion ofthe 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|OmCaASeofSubstantialquestionofinterpretation 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 rightly 8/9 picked up or not, Filters for arriving at the correctlust 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 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 requirements ofSection 260-Aof the Act and thus the appealsfiled 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 _ bapplied, 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 filed|such appeals before this Court. Therefore we.clarify that mere dissatisfaction with the findingsoffacts arrived at by the learned Tribunal is notat alla sufficient reason to invokeSection 260-Aof the Act before this Court. Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 9/9 o8. The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” 5Having heard the learned counsel for theappellant-assessee, we are therefore of the opinion thatno substantial question of law arises in the presentcase. The appeal filed by the appellant-assessee isliable to be dismissed and it is/+$3+$$4/accordinglyNo costs. To Sd/-. JUDGE Sd/-. JUDGE|