Date Of Judgment 18-07-2018, Ita v. M/S. Mercedes-Benz Research & Development India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 18 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.169/2017 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX-IV BMTC COMPLEX, KORAMANGALA BANGALORE. «|THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4/1]/2] BANGALORE.» . APPELLANTS| (BY SRI JEEVAN J. NEERALGI, ADV.) AND ; M/s. MERCEDES-BENZRBSBARCH & DBEVBELOPMENINDIA PVT. LTD.,.WHITKRFIBLD PALMS FLAT No.9AND 10, EPIP ZONE, PHASE-1_WHITHKFIBLD ROADBANGALORBE-560066PAN: AAACD 62618.)_. RESPONDENT. (BY SRI K.MALLAHARAO & SRI S.N.ARAVINDA, ADVS.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 24.06.2016 PASSED IN IT/TPJA No.291/BANG/2015, FOR:THE ASSESSMENT YEAR 2010-11, PRAYING TO: 1]. DECIDE THEFOREGOING QUESTION OF LAW AND / OR SUCH OTHER, Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 2/14 QUESTIONS OF LAW AS MAY BE FORMULATED BY THE)HON’BLE COURT AS DEEMED FIT; 2). SET ASIDE THE.APPELLATE ORDER DATED 24.00.2016 PASSED BY THE ITAT,‘A’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS No. IT/TP|ANo.291/BANG/2015 FOR ASSESSMENT YEAR 2010-11 AS.SOUGHT FOR 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. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Jeevan J. Neeralgi,Adv. for Appellants — Revenue.Mr. K.Mallaharao & Mr. S.N.Aravinda,Advs. forRespondent — 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[TP|A No.291/Bang/2015dated24.06.2016, relating to the Assessment Year2010-11. ?)TheappealhasbeenadmittedOTLO3.01.2018|CO consider.the|followingsubstantial|questions of law formulated in the memorandum ofappeal, which reads thus: Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 3/14 aWhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|law in deleting three comparables, from lst ofcomparables, namely, Kals Information System,Tata Elxi Ltd and Zylog System Ltd., on the basisof functional dissimilarity even when the TPOapplied 2 kinds of filters when culling outcomparables, namely, quantitative filters andqualitative filters? D2 WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was rightin including comparables, namely, ThinksoftGlobal Services Ltd., and Infosys Ltd., even whenall the filters were not satisfied to make suchaddition? 3.|WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was rightin law in directing the assessing authority /Transfer Pricing Officer to exclude M/s. Persistentsystems Ltd., as its RPT is 15.47 and to includeThinksoft Global Services Ltd., even withoutproper application of principles for adopting theSame? 4 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was right Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 4/14 in law in directing the TPO not to restrict workingcapital adjustment and allow the appropriateactual capital adjustment as per the working incase of each comparable by following its earlierdecision in the case of Bearing Point BusinessConsulting Put. Ltd., which has not reachedfinality P 5.|WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was rightinlawin|holding thatM/s.|SaskenCommunicationTechnologyLtd.,cannotbe|treated as comparable by following Delhi Tribunaldecision in the case of M/s. ION Trading IndiaPut. Ltd.,?| 4 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was right Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 4/14 in law in directing the TPO not to restrict workingcapital adjustment and allow the appropriateactual capital adjustment as per the working incase of each comparable by following its earlierdecision in the case of Bearing Point BusinessConsulting Put. Ltd., which has not reachedfinality P 5.|WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was rightinlawin|holding thatM/s.|SaskenCommunicationTechnologyLtd.,cannotbe|treated as comparable by following Delhi Tribunaldecision in the case of M/s. ION Trading IndiaPut. Ltd.,?| 6. WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was rightin law in directing the TPO to allow riskadjustment by following its earlier decision in the|case Intellinet Technologies India Put. Ltd., evenwhen the said order has not reached finality andas, such erred in granting benefit of proviso tosection 92-C of the Act?| 7 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal was erredin law in directing the TPO to consider foreign Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 5/14 exchange or loss as operating revenue or costwhile computing the operating margin of theassessee as well as the comparable by followingits earlier decision in the case of SAP Labs IndiaPut. Ltd., which has not reached finality?” 3.Learned Counsel for the Appellants-Revenue does not press substantial question No.2. 4Submission is taken on record. 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1:“(y)KALS Information System : 12.3.We|have|consideredtherivalSubmissions as well as the relevant material on|record. At the outset we note that for theassessment years 2007- O& and 2008-09 theTribunal in assessee’s own case found that this|company is not comparable. Further in the case of.Obopay Mobile Technology India Put. Ltd. Vs.| Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 6/14 DCIT vide its decision at.8.1.2016 in ITANo.469/ Bang/2015 for the Assessment Year2010-11 has again examined the functionalcomparability of this company with softwaredevelopment services provider in para 37, asunder: In view of the finding of this Tribunal inassessee's own case as well as in the case ofObopay Mobile Technology India Pvt.Ltd.(supra), we hold that this company cannot beconsidered as functionally comparable with theassessee as this company was found to beengaged in the software product development.Accordingly, we direct the A.O/TPO to excludethis company from the list of comparables. 15. |Tata Elxsi Ltd. 15.4 We have considered the rival submissionsas well as the relevant material on record. At theoutset we note that the co-ordinate bench of thisTribunal in the case of lon Trading India Put. Ltd(supra) has considered the comparability of thiscompany in para 11 as under : KVeVNKK” Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., The co-ordinate bench in the said case has.followed the decision of the Tribunal of M/s. CiscooystemsPut.Ltd.at. 14.8.2014in|IT(TP)ANo.271/Bang/2014 and directed the A.O/TPO to)excludethiscompanyformthelistofcomparables. We concur with the view of the co-ordinate bench of this Tribunal and accordinglydirect the A.O./TPO to exclude this company fromthe list of comparables. — 16. |Zylog System Ltd. KVeVNKK” Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., The co-ordinate bench in the said case has.followed the decision of the Tribunal of M/s. CiscooystemsPut.Ltd.at. 14.8.2014in|IT(TP)ANo.271/Bang/2014 and directed the A.O/TPO to)excludethiscompanyformthelistofcomparables. We concur with the view of the co-ordinate bench of this Tribunal and accordinglydirect the A.O./TPO to exclude this company fromthe list of comparables. — 16. |Zylog System Ltd. 16.3 We have considered the rival submissionsas well as the relevant material on record. At theoutset we note that the Delhi Benches of theTribunal in the case ofEquant Solutions India| Pout.Ltd.(supra)hasconsideredthe.comparability of this company in para 16 asunder:KVeVNKK”No contrary view has been brought beforeus therefore following the order of the Delhi Benchof the Tribunal (supra), we direct the A.O/TPO toexcludethisCOTILDQrfromthe|list.Of|comparables.” Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 8/14 Regarding Substantial Question of Law No.3: “(t)Persistent Systems Ltd. We have heard the learned AuthorisedRepresentative as well as learned Departmental|Representativeand consideredthe relevantmaterial on record. We find that the RPT in this|case is 15.47%. In view of our finding on thisissue raised by the revenue, the RPT limit shall)not exceed 15% therefore we direct the A.O/TPO|to exclude this company form the_ set ofcomparables.” Regarding Substantial Question of Law No.4: “17.3|Havingconsideredthe|rivalSubmissions as well as the relevant material onrecord, we note that the TPO has worked out theworking capital as per Annexure C to the orderpassed under Section 92CA however the TPO has|restricted the working capital adjustment and notgranted the actual computation in the case ofeach comparable. We note that in the case ofBearing Point Business Consulting Put. Ltd.(supra) in paras 5.4 to 5.4.2 held as under : KVeVNKK” Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 9/14 Accordingly, by following the order of the|co-ordinate bench of this Tribunal in the case ofBearing Point Business Consulting Put. Ltd.(supra), we direct the A.O/TPO to reconsider theissue and allow the appropriate actual workingcapital adjustment as per the working in case ofeach comparable. Regarding Substantial Question of Law No.5: “(iySasken Communication Technology Ltd. 14.3.Havingconsideredthe.rivalSubmissions as well as the relevant material onrecord, we note that the Delhi Bench of theTribunal in the case of Ion Trading India Put. Ltd.(supra) has considered this issue in paras 52 &53 as under: As it is clear from the finding of theTribunal that the Tribunal has followed thedecision in the case of.Tibco Software (India)Pvt. Ltd. Vs. DCIT' in ITA No.94/ PN/2014Dt.10.4.2015 wherein the Tribunalfound that thiscompany failed export turnover filter of 75% andaccordingly cannot be treated as comparable. It isnot clear from the finding of the Tribunal in the Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 10/14 case of|Ion Trading India Put. Ltd.(Supra)whether the finding in the case of Tibco Software(India) Put. Ltd. (supra) was for the sameassessment year so that the turnover filter can beapplied for the year under consideration. We findthat the TPO has applied export turnover filter of79% in this case. Accordingly, we set aside thisissue to the record of the TPO/A.O to verifywhether this company _ satisfies this exporturnover filter of 75% or not and then decide thecomparability of the same.” Regarding Substantial Question of Law No.6: Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 10/14 case of|Ion Trading India Put. Ltd.(Supra)whether the finding in the case of Tibco Software(India) Put. Ltd. (supra) was for the sameassessment year so that the turnover filter can beapplied for the year under consideration. We findthat the TPO has applied export turnover filter of79% in this case. Accordingly, we set aside thisissue to the record of the TPO/A.O to verifywhether this company _ satisfies this exporturnover filter of 75% or not and then decide thecomparability of the same.” Regarding Substantial Question of Law No.6: “O44. We|haveheardthe.learnedAuthorised Representative as well as learnedDepartmental Representative and considered therelevant material on record. At the outset we notethat the DRP has decided this issue by followingvarious decisions of this Tribunal in para 14.5and 14.6 as under :-. KVeVNKK” As it is manifest from the findings of the|DRP it has given the cogent reasoning forallowing the risk adjustment and therefore we donot find any reason to interfere with the findingsof the DRP on this issue.” Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 11/14 Regarding Substantial Question of Law No.7: “95. 1We|haveheardthe.learnedAuthorised Representative as well as learnedDepartmental Representative and considered therelevant material on record. At the outset we notethat an identical issue has been considered bytheco-ordinate|bench.Of|thisTribunalin|assessee's own case for the Assessment YearY2OOS-O"videorder|at.16.3.2015|inITANo. 1336/7 Bang/ 2012 in paras 8 & 8.1 as unde KVeVNKK” Following the earlier order of the Tribunal|in assessee's own case, we do not find any errorin the directions of the DRP on this issue.” 6.The controversy involved herein is no moreres integrain view oft the decision of this Court inI1.T.A. Nos.536/2015 c/w 537/2015dated25.06.2018[Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]|wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, is 12/14 not maintainable. The relevant portion of the 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|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, Filters for| Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 13/14 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|found to be devoid of merit and the same are.liable to be dismissed. Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 13/14 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|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 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 | “ALength 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| Date of Judgment 18-07-2018, ITA No.169/2017 Pr. Commissioner of Income Tax-IV & Another Vs. M/s. Mercedes-Benz Research & Development India Pvt. Ltd., 14/14 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.” T.In the circumstances, having heard the learned Counsel appearing for both the sides, we are ofthe 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.