Date Of Judgment 12-07-2018, Ita v. M/S. Business Process Outsourcing India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 12 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.542/2013 BETWEEN : 1.THE COMMISSIONER | OF INCOME-TAX, CIT|A] C.R. BUILDING, QUEENS ROAD BANGALORE. «|THE INCOME-TAX OFFICER WARD- 11/1]| RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE.» . APPELLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/S. BUSINESS PROCESS_OUTSOURCING INDIA PVT. LTD.,SALARPURIA HALLMARKGROUND FLOOR, A BLOCK)15/3, 16, KADUBEESANAHALLIT OUTER RING ROADBANGALORE -56008 7 _. RESPONDENT. (BY SRI ANKUR PAI, ADV. FOR SRI K.R. VASUDEVAN, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 07.06.2013, PASSED IN ITA No.661/BANG/2011, FOR Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 2/11 THE ASSESSMENT YEAR 2004-05, ANNEXURE-D, PRAYING TO:1]. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAWSTATED ABOVE; 2]. ALLOW THE APPEAL AND SET ASIDE THEORDER PASSED BY THE ITAT, BANGALORE IN IT{|T.PJANo.661/BANG/2011DATED07.06.2013, ANNEXURE-D,CONFIRMING THR ORDER OF THR APPBLLATEKE COMMISSIONEAND CONFIRM THR ORDBR PASSHD BY THR INCOMB TAXOFFICER, WARD-11[1], BANGALORE. THIS APPEAL COMING ON FOR FINAL HEARING, THISDAY,S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. Ankur Pai,Adv. torMr. 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, Bangalore, inIT [TP|A. No.661/Bang/2011dated07.06.2013, relating to the Assessment Year2004-05. 01.07.2014 to consider the substantial questions of lawraised by the revenue. Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 3/11 3.The substantial questions of law framed by the Appellants-Revenue in the Memorandum of Appealare as under: aWhether the Trnbunalwas correct inexcluding M/s. Tricom India Limited and M/s.FortuneInfotechLimitedfromthelist|of|comparables holding that brand of the company|is a deciding factor for treating a company as acomparable, ignoring the fact that brands givesbusiness and not compulsorily generate profitsand further ignoring the tax payer itself hasadopted companies having brand values in itscomparability analysis and recorded a perversefinding? D2 Whether the Trnbunalwas correct inexcluding M/s. Vishal Information Technologiesfrom the list of comparables on the ground thatthe said company has outsourced its workwithout taking into consideration that, theTransferPricingOfficerNLOTthe|aAsSSCSSCconsidered the financial lines within the ITenabled services for the purpose of comparabilityanalysis and recorded a perverse finding? Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 4/11 3.|WhetherOnlthe factsandin|thecircumstances and in law the Tribunal correct inholding that the unabsorbed depreciation and thebrought forward loss cannot be set off frombusiness profits before computing deduction u/s.JOB of the Act when section 10B of the Actprovides for deduction of benefit on the profitsand gains?” ,Regarding third substantial question of law: 4Learned counsel for the appellants-Revenue|has submitted that the Hon'ble Supreme Court hassettled the controversy in the case ofCommissioner of Income-tax V/s. Yokogawa India Ltd., |(2017) 77taxmann.com41|(SC)andtheretorethe|saidcontroversy is covered by the decision of the Hon'bleSupreme Court. The question is accordingly answeredin the same terms. 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: ,Regarding third substantial question of law: 4Learned counsel for the appellants-Revenue|has submitted that the Hon'ble Supreme Court hassettled the controversy in the case ofCommissioner of Income-tax V/s. Yokogawa India Ltd., |(2017) 77taxmann.com41|(SC)andtheretorethe|saidcontroversy is covered by the decision of the Hon'bleSupreme Court. The question is accordingly answeredin the same terms. 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., ,Regarding first substantial question of law: “9.9.2 We have heard both parties at length|and have perused and carefully considered thematerial on record. There is no dispute to the factthat the assessee providing business processoutsourcing services to its AEs and operating inthe.ITESsectorhasTLOsoftwareproductintangibles, whereas, in the case of Tricom IndiaLtd., it is on record that it owns software productintangibles by which it provides niche services toits customers. The issue of whether Tricom IndiaLtd., its to be taken as a comparable, forAssessment Year 2004-05, with ITES entitieshavingTLOintangiblesoftheirOWNWasconsidered in detail by a co-ordinate bench of thisTribunal in the case of 24/7 Customer.Com Put.Ltd., in ITA No.227/ Bang/ 2010 at paras 15.0 t15.3.3 thereof. At para 15.3.3 of this order, theTribunal held that this company, Tricom IndiaLtd., requires to be excluded from the list ofcomparables observing that :-| KVeVNKK” Respectfullyfollowingtheaforesaiddecision of the co-ordinate bench of this Tribunalin the case of 24/7 Customer.Com Put. Ltd.,[supra]. We direct the assessment proceedings / Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 6/11 TPO to exclude Tricom India Ltd., from the list ofcomparable companies for the case on hand forAssessment Year 2004-05. 5.6.2We have heard both parties|andcarefullyperusedandconsideredthe|material on record. There is no dispute in respectof the fact that the assessee is operating purely inthe ITES sector providing services to its AEs,whereas fortune Infotech Ltd., has developed andowns web based unique software“Einetran”2etc., by which it provides niche services to itscustomers. The issue of whether Fortune InfotechLimited is to be taken as a comparable for Asst.Year 2004-05 with ITES entities having nointangibles of their own was considered in detailby the co-ordinate bench of this Tribunal in thecase of 24/7 Customer.Com Put. Ltd., at paras15.0 to 15.3.4 thereof. At para 15.3.4 of thisorder, the Tribunal held that this company;Fortune Infotech Limited requires to be excludedfrom the list of comparables observing that - KVeVNKK” Respectfullyfollowingtheaforesaiddecision of the co-ordinate bench of this Tribunalin the case of 24/7 Customer.Com Put. Ltd.,/Supra/, we direct the Assessing Officer / TPO to Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 7/11 exclude Fortune Infotech Limited from the list ofcomparable companies for the case on hand forAsst. Year 2004-05.” ,Regarding second substantial question of law:“5.4. 1]VishalInformation Technologies Ltd., ['VITL’ tn short| It is the submission of the learned A.R thatthis company should be removed from thecomparable with a pure ITES company, like theassessee. In support of this argument, thelearned A.R placed reliance on the decision of theMumbai Tribunal in the case ofMearsk Global Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 7/11 exclude Fortune Infotech Limited from the list ofcomparable companies for the case on hand forAsst. Year 2004-05.” ,Regarding second substantial question of law:“5.4. 1]VishalInformation Technologies Ltd., ['VITL’ tn short| It is the submission of the learned A.R thatthis company should be removed from thecomparable with a pure ITES company, like theassessee. In support of this argument, thelearned A.R placed reliance on the decision of theMumbai Tribunal in the case ofMearsk Global Services [I] Put. Ltd.In ITA No.3774/ Mum/ 201dated 09.11.2011 which held that since VITL isoutsourcing most of its work it has to be excludedfrom the lst of comparables whereas_ theassessee in the cited case was carrying out of thework by itself. This, the learned AR submittedthat view was followed by co-ordinate benches ofthe Bangalore Tribunal in the case of —_ NetlinkIndiq.[P]Ltd.,inITA|No.454/ Bang/ 2011 dated 19.10.2012 and 24/7 Customer Com. Put. Ltd., in ITANo.227/ Bang/ 2010 dated 09.11.2012 Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 8/11 Wherein was held that VITL needs to be'excludedfrom the list of comparables. 5.4.27We have heard both parties|and have perused and carefully considered thematerial on record. We find from the cited casesthat, there is a clear finding that, in the periodunder consideration, VITL was outsourcing mostof its work whereas the assessee therein wascarrying out the work by themselves. In the caseon hand also, the assessee was carrying out itswork by itself, whereas VITL is outsourcing mostof its work. We are of the considered opinion thatthe decision of the co-ordinate bench in the caseof 24/7 Customer.Com Put. Ltd., [supra/ to whichboth of us are party, on the issue of excludingVITL as a comparable, squarely applies andtherefore direct the A.O / TPO to exclude VishalInformational Technologies Limited from the list ofcomparables. ” 6.The controversy involved herein is no moreres integrain view of the decision of this Court in 1.T.A. Nos.536/2015 c/w 537/201529;7225.06.2018 [Prl. |Commissioner.of|Income.TaxOQAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein it has been Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 9/11 observed that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: 55.|A|substantialquantumofinternational 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.), ifbased on relevant facts, such substantialquestions of law could be raised before theHigh Court underSection 260-Aof the Act, theCourtscouldhave|embarkedUpor”suchexercise of framing and answering suchsubstantial question of law. On the other hand,the appeals of the present tenor as to whether Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 10/11 the 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. Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 10/11 the 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 sameyardsticks 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 andhave filed such appeals before this Court.Therefore we clarify that mere dissatisfaction Date of Judgment 12-07-2018, ITA No.542/2013 The Commissioner of Income-tax & another Vs. M/s. Business Process Outsourcing India Pvt. Ltd., 11/11 with 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 aretherefore dismissed with no order as to costs.” T.In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question oflaw arises for consideration in the present case. 8.Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. No costs... NC. Sd/-.JU DGE Sd/-.JUDGE.