Date Of Judgment 13-07-2018 I.t.a v. M/S. Genisys Information Systems India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU.DATED THIS THE 13 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.83/2015 BETWEEN: 1.THE COMMISSIONER OF INCOME-TAXC.R. BUILDING, QUEENS ROADBANGALORE.C.R. BUILDING, QUEENS ROADBANGALORE. 2.THE INCOME-TAX OFFICKRWARD-11(2)RASHTROTHANA BHAVANNRUPATHUNGA ROADBANGALORE -560001.WARD-11(2)RASHTROTHANA BHAVANNRUPATHUNGA ROADBANGALORE -560001. .. APPBLLANT (By Mr. K.V. ARAVIND, ADV..,) AND: M/S. GENISYS INFORMATION SYSTEMS INDIA PVT. LTD., 43-46 & 33-36, EXPORT PROMOTIONINDUSTRIAL PARK, WHITEFIELD ROAD|BANGALORE-560 O66.| . RESPONDENT (By Mr. S. SHARATH, ADV., FORMr. CHYTHANYA K.K. ADV..,) | THIS LT.A. IS FILED UNDER SECTION J6O0-A OF THE LI. |ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL|QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL ANDSET ASIDE THR ORDBRS PASSED BY THR [INCOMB TAX Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 2/12 APPBRLLATETRIBUNAL, BANGALORE,IN|IT(TP)ANo.1/7/Bang/2014DATEHD12/09/2014.ANNEXURE-D>ANT)CONFIRM THE ORDER OF THER DRP CONFIMING THERE ORDPASSED|BY|TH EINCOMETAXOFFICER,WARE-11(2),BANGALORE. THIS LT.A. COMING ON FOR HEARING, THIS DAY |S. SUJATHAJT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. K.V. Aravind,Adv. for Appellants-Revenue | Mr. S. Sharath,Adv. tor | Mr. Chythanya K.K. Adv. for Respondent -Assessee 1. The Appellants-Revenue have filed this appeal u/s.260Aof the Income Tax Act, 1961, raising)purportedly certain substantial questions of law arisingfrom the order of theITAT, Bangalore Bench ‘A’,Bangalore, dated.12.09.2014passed in|IT(TP)ANo.17/Bang/2014(M/s.Genisys Information Systems| India Put. Ltd., vs. Income Tax Officer )forA.Y.2009-10. 2. The proposed substantial questions of lawframed.1n theMemorandumoT|appealby theAppellants-RevenueaTe€quotedbelowfor.readyreference: - Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 3/12 aWhether on the facts and in thecircumstances of the case, the Tribunal was rightin law in holding the functions of the assesseeare not comparable to the functions of M/s. KalsInformation Systems Ltd, M/s. Cosmic Global Ltdby super imposing decisions of other benches ofTribunal without doing any FAR analysis in theinstantCASEevenwhenthiscomparablessatisfies all the qualitative and quantitative filtersapplied by the TPO and the Tribunal ought tohave decided comparability of these companieson the basis of specific facts brought on record bythe TPO in the case of assessee?. D2 WhetheracomparableTTLabe|considered as engaged in software productbusiness merely because it has developedsoftwareproductbyfollowingsoftwaredevelopmentProcess.withouthavinglegalownership on such software products?. 3.|Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in directing to include forex gain or loss aspartofoperatingincome/ losswithoutascertaining the nexus with the business activityof the assessee?P’. Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 4/12 3. This Appeal was admitted on|18.08.2015TO| consider the aforesaid substantial questions of lawframed by the learned counsel for the Appellants-Revenue. 4 [nso far as the first and second substantialquestions of law raised by the Revenue are concerned,learned counsel for the Revenue submitted that the' learned [TAT in its Order dated|12.09.2014has giventhe findings, the relevant portion of which is quotedbelow for ready reference:-_ J] 2KALS Information Systems Ltd. Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 4/12 3. This Appeal was admitted on|18.08.2015TO| consider the aforesaid substantial questions of lawframed by the learned counsel for the Appellants-Revenue. 4 [nso far as the first and second substantialquestions of law raised by the Revenue are concerned,learned counsel for the Revenue submitted that the' learned [TAT in its Order dated|12.09.2014has giventhe findings, the relevant portion of which is quotedbelow for ready reference:-_ J] 2KALS Information Systems Ltd. 12.1 This is a comparable selected by|the TPO inspite of the assessee’s objections to theinclusion of this company in the final set ofcomparables on grounds of it being functionallydifferent as the accounts show it has significantinventory and is a software product company,having many products and generating revenuetherefrom, unlike the assessee who providessoftware development services to its AES. Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 5/12 12,2 Before us, learned Authorised|Representative reiterated the contentions that this.company is not functionally comparable to theassessee as it is into software products whereasthe assessee 1s providing software developmentservices to its AEs. The learned AuthorisedRepresentative placed reliance on the followingdecisions of the Tribunal in support of theproposition that KALS Information Systems Ltd.has been rejected as comparable in the case ofsoftware development service providers for thereason that it is functionally dissimular:- uyTriology E-Business Software India Put.|Ltd. V DCIT (ITA No. 1054/ Bang/ 201 i)Bearing Point Business Consulting Put. Ltd.V DCIT (ITA No.1124/7 Bang/ 201 ult)CSR|India.Put.Ltd.VoITOUIT(TP)ANo.1119/Bang/ 201 1)Ww) Mercedes Benz Research & Development|India.Put.Ltd.,VDCIT|(IT(TP)ANo.1222/Bang/201 1).v)SDPLM Software Solutions Ltd. V DCIT(IT(TPJA No. 1303/7 Bang/ 2012 It is contended by the learned AuthorisedRepresentative that there is no change in thefunctional profile of this company and being intodevelopment of software products, it cannot betaken as a comparable for a mere softwareservice providers like the assessee in the case onhand. 6/12 12.3 Per contra, the learned DepartmentalRepresentative relied on the orders passed by theTPO & DRP and contended that KALS InformationoystemsLtd.ShouldberetainedaS|Cmcomparable. 12.4.1. We have heard both parties andperused and carefully considered that material onrecord in including the judicial decisions cited. —The co-ordinate bench of this Tribunal in the caseof SDPLM Software Solutions Ltd. V DCIT inIT(TP)A No. 1303/7Bang/2012 vide order dt:28-12013 for Assessment Year 2008-09 has held that)KALS|InformationoystemsLtd.beinginto|developing of software products was functionallydifferent from a purely software service providerand therefore should be rejected as a comparablefor software service providers. The _ relevantobservations of the Tribunal’s order at para 10.4thereof is extracted hereunder: XXXXXXXX 12.4.2 Following the above decision of the|co-ordinate bench of this Tribunal in the case ofSODPLM Software Solutions Ltd. (supra), we holdthat KALS Information Systems Ltd. be excludedfrom the list of comparable companies as it is Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 7/12 functionallydifferent; beingintosoftwareproducts and cannot be comparable to theassessee in the case on hand who ts a softwareservice provider. The Assessing Officer/ TPO areaccordingly directed. 24,Cosmic Global Limited(formerly Tulsyan Technologies Ltd.} XXXXXXXX 12.4.2 Following the above decision of the|co-ordinate bench of this Tribunal in the case ofSODPLM Software Solutions Ltd. (supra), we holdthat KALS Information Systems Ltd. be excludedfrom the list of comparable companies as it is Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 7/12 functionallydifferent; beingintosoftwareproducts and cannot be comparable to theassessee in the case on hand who ts a softwareservice provider. The Assessing Officer/ TPO areaccordingly directed. 24,Cosmic Global Limited(formerly Tulsyan Technologies Ltd.} 24.1 The assessee seeks the exclusion ofthis comparable on the grounds that it isfunctionally different and has outsourced most ofits work. In this regard the learned AuthorisedRepresentative placed reliance on the decision ofthe Mumbai Tribunal in the case of ACIT VMaersk Global Services Centre (India) Put. Ltd.(ITA No.3774/ Mum/ 2011 dt. 9-11-2011) whereithis company was excluded from this list ofcomparables for the reason that it has outsourcedmost of its work. 24.2 We have heard both parties and|perused and carefully considered the material onrecord, including the judicial decisions cited. Ona perusal of the order of the DRP, at pages 63 to65 thereof, we find it concluded that the margin inthe case of an entity outsourcing a part of itswork is bound to be lower than the margin in thecase of an entity performing its activities in Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 8/12 house. However from the annual report of thiscompany reproduced at page 64 ofDRP order it isevidentthattheCOMmpa;nhasincurred|translation charges in excess of Rs.3 Crores,whereas, on the other hand, the assessee in thecase on hand is carrying out its ITES business onits own. The Mumbai ITAT in the case of MaerskGlobal Service Centre (India) P. Ltd. (supra) in its:order at.9-11-2011 has held at para 48 thereof asunder: NXXXXKXKXXX Following the above decision of the ITAT,Mumbai in the case of Maersk Global ServiceCentre (India) P. Ltd. (supra) dt:9-11-2011, wehold that Cosmic Global Ltd. should be excludedfrom the list of comparables. oS. In so far as the third substantial question of law raised by the Revenue is concerned, learned counsel for the Revenue submitted that the learned [TAT in its|Order dated12.09.2014has given the findings, the|relevant portion of which is quoted below tor readyreference: - Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 9/12 oe32.4We have heard the rivalcontentions and perused and carefully considered|the material on record including the judicialdecisions cited. We find that in the case ofTrilogy E-Business Software India Put. Ltd. (ITANo.1056/ Bang/ 2011), the co-ordinate bench othisTribunalheldthatforeignexchangelosses/gains should be considered as operatinginnatureforcomputingthe margins:Of|comparables and the assessee. The relevantportion at para 79 of the order is extractedhereunder: XXXXXXXXXX Following the above decision, we hold that|foreign exchange gain/loss should be consideredas operating in nature for computing the marginsfor comparability analysis”. 6. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015delivered on25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)1 has heldthat in these type of cases, unless anex-facleperversityin the findings of the learned Income Tax Appellate Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 10/12 Tribunal is established by the appellant, the appeal atthe instance ot an assessee or the Revenue under! Section 260-Aot the Act is not maintainable. The relevant portion of the said judgment is.quoted below for ready reference: § Conclusion: 6. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015delivered on25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)1 has heldthat in these type of cases, unless anex-facleperversityin the findings of the learned Income Tax Appellate Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 10/12 Tribunal is established by the appellant, the appeal atthe instance ot an assessee or the Revenue under! Section 260-Aot the Act is not maintainable. The relevant portion of the 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 Date of Judgment 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 11/12 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 13-07-2018 I.T.A.No.83/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Genisys Information Systems India Pvt. Ltd., 12/12 o8. The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” 7. 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 isliable to be dismissed and it is,*"=*""-,accordinglyaccordinglyNo costs. liable to be dismissed and it is,*"=*""-,accordinglyaccordingly Srl. Sd/-. JUDGE Sd/-|JUDGE