Date Of Judgment 17-07-2018, Ita v. M/S Symbol Technologies India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 1/ DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.173/2015 BETWEEN : 1.COMMISSIONER OF INCOME TAX C.R. BUILDING, QUEENS ROAD BANGALORE «|INCOME [TAX OFFICER WARD-12(2), BANGALORE . APPELLANTS| (BY SRI E.I.SANMATHI, ADV.) AND ; M/s SYMBOL TECHNOLOGIESINDIA PVT. LTD.,.RMZ-ECOSPACE, 4 KFLOOR|BLOCK 3B.SARJAPUR OUTER RING ROAD.DEVARADISANAHALLI VARTHUR HOBLIBANGALORE - 560 037|_. RESPONDENT. (BY SRI SANDEEP HUILGOL, ADV. FOR SRI T.SURYANARAYANA, ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 19/12/2014 PASSED IN IT(TP)A NO.1352/BANG/2011,KOR THE ASSBSSMBNT YRAR 2OO7-O8 ANNBXURE-A. PRAYINGTO: 1. DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED|BY THR HON'BLE COURT AS DBEEMBED FIT. 2. SET ASIDE THAPPELLATE ORDERS DATED 19/12/2014 THE ITAT, 'A' BENCH,BANGALORE,IN|IT(TP)ANO.1352/BANG/2011_FORASSESSMENT YEAR 2007-08 ANNEXURE-A. 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. Sandeep Huilgol,Adv. for!Mr. T.Suryanarayana,Adv. Respondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘A’, Bangalore, inIT JA No.1352/Bang/2011dated19.12.2014, relating to the Assessment Year2007-08. 2.TheappealhasbeenadmittedOT)08.12.2015 to consider the substantial questions of lawNo.1 to 6 as indicated in the memorandum of appeal.However, learned counsel for the Revenue seeks to.consider all the substantial questions of law framed inthe memorandum of appeal, which reads as under: Date of Judgment 17-07-2018, ITA No.173/2015 Commissioner of Income Tax & Another Vs. M/s Symbol Technologies India Pvt. Ltd. 3/13 aWhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law directing the TPO to consider only thoseuncontrolled comparables|which are havingturnover between Rs.1 to 200 Crores and therebyerred in excluding uncontrolled comparableshaving turnover of more than Rs.200 Crores inthe absence of turnover criterion prescribed inRule 10B of IL.T.Rules and also there being nocorrelation between turnover and profit marginand without appreciating that the economies ofscale is not relevant in software industry? D2 WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law directing the TPO to examine limit turnoverrangebetween=TO DOO|Crores|withoutappreciating that it is against the method ofarithmetical average of the PLI’s of uncontrolledcomparables as per the proviso to section 92C(2)of I.T.Act? 3.|WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law holding that the functions of the assessee arenot comparable to the functions of the AccelTransmatics Ltd., Avani Cimcon Technology Ltd.,Celestiral Labs Ltd., KALS Information Systems Date of Judgment 17-07-2018, ITA No.173/2015 Commissioner of Income Tax & Another Vs. M/s Symbol Technologies India Pvt. Ltd. 4/13 Ltd., Lucid Software Ltd., Infosys TechnologiesLtd., Wipro Ltd., IT Segment, TATA Elxsi Ltd.,without doing FAR analysis in the instant caseeven though these comparables satisfy all thequalitative and quantitative filters applied by theTPO and that Tribunal ought to have decidedcomparability of these companies on the basis ofspecific facts brought on record by the TPO in thecase of assessee?P 3.|WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law holding that the functions of the assessee arenot comparable to the functions of the AccelTransmatics Ltd., Avani Cimcon Technology Ltd.,Celestiral Labs Ltd., KALS Information Systems Date of Judgment 17-07-2018, ITA No.173/2015 Commissioner of Income Tax & Another Vs. M/s Symbol Technologies India Pvt. Ltd. 4/13 Ltd., Lucid Software Ltd., Infosys TechnologiesLtd., Wipro Ltd., IT Segment, TATA Elxsi Ltd.,without doing FAR analysis in the instant caseeven though these comparables satisfy all thequalitative and quantitative filters applied by theTPO and that Tribunal ought to have decidedcomparability of these companies on the basis ofspecific facts brought on record by the TPO in thecase of assessee?P 4 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|holding that the above companies are functionallydifferent and cannot be taken as comparableseven though the Tribunal has held that servicesare in the nature of software developmentservices and it is not necessary for the TPO to gointo the horizontal and vertical segments of thesame sub segment, therefore no comparable canbeeliminated.OTFthe basisOf|functionaldifferences and that economics of scale are notrelevant in the software industry? 5.|WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law in fixing the RPTfilter at 10% of total revenueas against 25% RPT applied by the TPO anddeleting M/s Ishir Infotech Ltd., and Geomatric 5/13 software Ltd., as comparable, by superimposingthe decisions of Tribunal in other cases, includingthose of other benches of Tribunal, withoutadducing the basis for arriving at the 15% cut offfor RPT filter, in the case of the taxpayer andwithout adducing the basis for arriving at the10% cut offfor RPTfilter, in the case of assessee?P 6.|WhetherOF|the factsandin|the circumstances of the case, the Tribunal is right inlaw rejecting the companies as a comparablewithout identifying any extraordinary variablewhich would distinguish this company from thetaxpayer in terms offunctions performed, assetsused and risk undertake t.e. quantitative andqualitative analysis?| 7.|WhetherOF|the factsandin|the circumstances of the case the Tribunal is right inlaw following the decision of this Hon’ble Court incase of TATA Elaxsi even when the matter ispending Supreme Court and such the Tribunalought to have awaited the decision of ApexCourt?” Regarding Substantial Question of law No.7: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Date of Judgment 17-07-2018, ITA No.173/2015 Commissioner of Income Tax & Another Vs. M/s Symbol Technologies India Pvt. Ltd. Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. “17. The similar nature of controversy, akinthis case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd. [2012] 204 Taxman|3S21/17/taxman.com 100/349 ITR 98. The issuebefore the Karnataka High Court was whetherthe Tribunal was correct in holding that whilecomputing relief under Section IOA of the IT Act,the amount of communication expenses should beexcluded from the total turnover tf the same are.reduced from the export turnoverPr While givingthe answer to the issue, the High Court, inter-alia,held that when a particular word is not definedby the legislature and an ordinary meaning is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is.used. Hence, what is excluded from ‘export|turnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total| 7/13 turnover’1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. LSE, XXXXXX 7/13 turnover’1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. LSE, XXXXXX 19. In the instant case, if the deductions on|freight,telecommunicationand|insuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and illogical result whichwould cause grave injustice to the Respondentwhich could have never been the intention of thelegislature. 20. Even in common parlance, when the|object of the formula is to arrive at the profit fromexport business, expenses excluded from exportturnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makesthe formula unworkable and absurd. Hence, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. 8/13 5.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of law Nos.1 and 2: “QWe have considered the submission of the|learned counsel for the Assessee and the learnedDR. In the case of Trilogy E-Business SoftwareIndia [P/ Ltd., [supra/, this Tribunal on application|of the turnover-filter while selecting comparablecompanies for comparability analysis held asfollows: KVeVNKK” 10.Respectfullyfollowingtheaforesaiddecision of the Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd., /supra/, wehold that the following companies whose turnoveris admitted beyond Rs.200 Crores, should beexcludedfrom the list of comparable companies. [1]Flextronics Software Systems Ltd. [2]iGate Global Solutions Ltd.| [S]}Mindtree Ltd. [4] Persistent Systems Ltd. [||sasken Communication Technologies Ltd.” 9/13 Regarding Substantial Question of law Nos.3, 4 & 6: “15. The facts and circumstances under|which the aforesaid company were considered ascomparable is identical in the case of theAssessee as well as in the case of Logica PrivateLtd., /supraj/. Respectfully following the decisionof the Tribunal referred to above in the case ofLogica Put. Ltd., [supraj/, we direct that thecompany viz., Lucid Software Ltd., be excludedfrom the list of 20 comparable arrived at by theTPO.” Regarding Substantial Question of law No.5: “16. As far as comparable companychosen by the TPO viz., Geometric Software Ltd.,[Seg.]/ & Ishir Infotech Ltd., are concerned, it is notin dispute before us that the related partytransaction in the case of companies exceeds 15%{19.98% in the case of Geometric Software Ltd.,and 21.97% in the case of Ishir INfotech Ltd./ andin view of the decision of the Tribunal in the caseof 24 xX 7 Customer.Com Put. Ltd., in ITANo.227/ Bang/ 2010, followed by this Tribunal ithe case of Logica Private Ltd., [supra/ wherein itwas held that where the RPT exceeds 15%, suchcompanies should not be taken as comparable| companies. The learned DR however submittedbefore us that the Mumbat Tribunal in the case ofWillis Processing Services [I] Put. Ltd., V/s. DCIT|ITA No.4420 & 4847/Mum/2012 order dated01.03.2013 in para 21.8 has held that when'comparable companies are available in largenumbers then the RPT filter can be appliedadopting 10% RPT as threshold limit. We haveperused the said decision and find that the ratioof the said decision, even if applied to the presentcase, the aforesaid two companies have to beexcluded because the RPI of the aforesaidcomparable companies are above 10% and the)comparable companies available are abundant.|Following the decision cited by the learnedcounsel for the Assessee, we hold that IshirInfotechLtd.,andGeometricLtd.,[Seg.]comparable companies chosen by the TPO beexcluded from the list of comparable companieswhile working out the ALP. ” 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 537/201519;7129.06.2018 [Prl..Commissioner.of|Income.TaxaAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein it has been Date of Judgment 17-07-2018, ITA No.173/2015 Commissioner of Income Tax & Another Vs. M/s Symbol Technologies India Pvt. Ltd. 11/13 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.), tfbased on relevant facts, such substantialquestions of law could be raised before theHigh Court underSection 260-A of 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 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 17-07-2018, ITA No.173/2015 Commissioner of Income Tax & Another Vs. M/s Symbol Technologies India Pvt. Ltd. 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 are|therefore 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|