Date Of Judgment 09-08-2018, Ita v. M/S. Target Corporation Of India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 9 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.413/2017 BETWEEN : 1.PR. COMMISSIONEROF INCOME TAX-/CR. BUILDINGSQUEENS ROADBANGALORE-560001.OF INCOME TAX-/CR. BUILDINGSQUEENS ROADBANGALORE-560001. «|DEPUTY COMMISSIONEROF INCOME TAX.CIRCLE-95{1}/ 1BANGALORE.». APPELLANTS|OF INCOME TAX.CIRCLE-95{1}/ 1BANGALORE.». APPELLANTS| (BY SRI E.I.SANMATHI, ADV.) AND : M/s. TARGET CORPORATION OFINDIA PVT. LTD.,9.No.2/1, 2/2, 2/3, 5/1FOUNTAIN BMBASSYGOLF LINK BUSINESS PARKINDIRANAGAR, KORMANGALA IRR|BANGALORBE-560071PAN: AABCAS899QO_. RESPONDENT. (BY SRI ANKUR PAI, ADV. FOR SRI K.R.VASUDEVAN, ADV.)| Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 2/11 THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 29.12.2016 PASSED IN C.O.No.103/BANG/2015 IN.IT}TP|JA No.3843/BANG/2015, FOR THE ASSESSMENT YEA2010-11, ANNEXURE-A, PRAYING TO: DECIDE THE FOREGOINGQUESTION OF LAW AND/OR SUCH OHTHER QUESTIONS OF.LAW AS MAY BR FORMULATED BY THR HON’BLE COURT AS.DEEMED FIT; SET ASIDE THE APPELLATE ORDER DATED29 129.9016PASSED|BY|THREINCOMETAXAPPBLLATEHTRIBUNAL, “B’ BENCH, BANGALORE, IN APPEAL PROCEEDINGSC.O.NO.103/BANG/20195 IN No.IT/TPJA No.343/BANG/2015 FORTHE ASSESSMENT YEAR 2010-11, ANNEXURE-A AS SOUGHTFOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS—DEEMED FIT, IN THE INTEREST OF JUSTICE.| THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. E.I.Sanmathi, Adv. for Appellants — Revenue.Mr. Ankur Pai,Adv. for Mr. K.R.Vasudevan,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 ‘B’, Bangalore, inC.O. No.103/BANG/2015)A<IT{TP|ANo.343/Bang/2015dated29.12.2016?relating to the Assessment Year2010-11. Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 3/11 a2Theappealhas|beenadmitted|OTL14.11.2017TO consider.thefollowingsubstantialquestionsot lawformulated1nthe.appealmemorandum: “1.Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in holding that certain comparable cannot betaken as comparables on the basis of facts of adifferent case for different assessee withoutmaking any specific FAR analysis vis-a-vis theassessee — company in contrast to the fact thatTata Elxsi Limited satisfy all the qualitative andquantitative filters applied by the TPOP| D2 Whether, on the facts and in thecircumstances of the case, the Tribunal is right inlaw in directing the TPO to apply RPTfilter of 15%by superimposing the decisions of Tribunal inother cases without going into specific facts of the|taxpayer and without adducing the basis forarriving at the 15% cut offfor RPTfilter?| 3.|Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in rejecting few companies chosen byTransfer Pricing Officer as comparables on the Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 4/11 basis of functional dissimuarity by following itsearlier order which has not reached finality evenwhentheSaInesatisfiedqualitativeandquantitative tests in the case of the assesseeP D2 Whether, on the facts and in thecircumstances of the case, the Tribunal is right inlaw in directing the TPO to apply RPTfilter of 15%by superimposing the decisions of Tribunal inother cases without going into specific facts of the|taxpayer and without adducing the basis forarriving at the 15% cut offfor RPTfilter?| 3.|Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in rejecting few companies chosen byTransfer Pricing Officer as comparables on the Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 4/11 basis of functional dissimuarity by following itsearlier order which has not reached finality evenwhentheSaInesatisfiedqualitativeandquantitative tests in the case of the assesseeP 4 |Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|directingtheASSeSSINGAuthority/ TransferPricingOfficerTo|considerrisk.adjustmentclaimed by the assessee on the basis of thedetails provided by the assessee by following itsearlier order which has not reached finality evenwhen the TPO the same cannot be considered asthere is no reliable method to convert thequalitative difference into qualitative differenceand to make adjustment on account of risk leveland without applying Rule 1OB/3/ of LT. Rules?”| 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 Nos.1 & 3: “We have heard the learned Authorised|Representative as well as learned Departmental Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 5/11 Representativeand considered|therelevantmaterial on record. At the outset, we note that the|comparability of four companies out of six havebeen considered by the co-ordinate bench of thisTribunal vide order dated 24.02.2016 in the case. ofDCIT Vs. Electronics for Imaging India [P.] inIT/TPIANo.212/ Bang/ 201OSC.0.No.94/ Bang/2015 in paras 21 to 35 asunder: KVeVNKK” Following the earlier orders of this Tribunal,we direct the Assessing Officer/TPO to excludethesefourcompaniesfromthesetofcomparables. [vuAs regards, L&T Infotech Ltd., theassessee has not advanced any argument as tohow this company is not functionally comparable.Accordingly in the absence of any substantialfunctional difference brought to our notice, we donot find any reason to interfere with the order ofthe TPO in selecting this company. 12.Since we have directed the A.O/TPOto exclude five companies from the set ofcomparables selected by the TPO therefore the Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 6/11 TPO is required to recomputed the ALP from theremaining comparable companies. Needless tosay the benefit of proviso to section 92C/2/ shallalso be considered while considering the ALP.” Regarding Substantial Question of Law No.2: “7.1 Since the CIT [Appeals] has rejected|the comparable companies by applying 0% RPTfilter as well as other criteria which are notacceptable to the revenue as this Tribunal in aseries of decisions have held that the tolerancerange of RPT in normal circumstances its 15% andin extreme circumstances it can be relaxed up to25%. Since in the case of the assessee there isnothing to suggest that sufficient comparablecompanies are not available therefore, we are ofthe view that the tolerance range ofRPT at 15% isconsidered to be proper and reasonable as held)by the co-ordinate bench of this Tribunal videorder dated 25.05.2016 in the case of ITO Vs. Net DevicesIndia.Put.Ltd.,in|IT/ITPIANo. 1099/Bang/2011 in para 7.3 as under: KVeVNKK” Accordingly, we modify the impugned order|of the CIT/[Appeals/ on the issue of applying theRelated Party filter at 15% instead of 25% applied DevicesIndia.Put.Ltd.,in|IT/ITPIANo. 1099/Bang/2011 in para 7.3 as under: KVeVNKK” Accordingly, we modify the impugned order|of the CIT/[Appeals/ on the issue of applying theRelated Party filter at 15% instead of 25% applied Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 7/11 by the TPO and O% offered by ClIT/Appeals/.Accordingly, we decide this issue in favour of therevenue.” Regarding Substantial Question of Law No.4: “QWe|haveheardthelearnedDepartment Representative as well as learnedAuthorised Representative and considered therelevant materiaql on record. The ld. DR hasreferred to the directions of the DRP on this issueand submitted that the DRP has directed the TPOto follow the guidance of 1% risk adjustmentwhich cannot be applied universally ignoring thefactsand circumstances of the caseandcomparables. 10.On the other hand, the ld. AR hassubmitted that the assessee has no objection tifthe TPO ts directed to allow the risk adjustmentby considering the claim of the assesseeindependently without following such guidance.Accordingly, we modify the finding of the DRP onthis issue and direct the TPO/A.O to consider therisk adjustment claimed by the assessee to becalculated by analyzing the FAR independently. ~ Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 8/11 4However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 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 depends|upon 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| Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 9/11 Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|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| Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 10/11 found to be devoid of merit and the same are.liable to be dismissed. 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| Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 10/11 found to be devoid of merit and the same are.liable to be dismissed. 57. We make it cleqr that the sameyardsticks 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. “ArLength 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.Havingheard|the.learnedcounsels. appearing for the parties, we are therefore of the opinion Date of Judgment 09-08-2018, ITA No.413/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Target Corporation of India Pvt. Ltd., 11/11 that no substantial question of law arises in the present case also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. NC. Sd/-.JUDGE. Sd/-.JUDGE.