Date Of Judgment 2-8-2018, Ita v. M/S.kodiak Networks (India)Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 2 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.82/2016 BETWEEN : 1.PR. COMMISSIONER OF INCOME TAX.C.R. BUILDING, QUEENS ROAD,|BANGALORE — 560 OO1—C.R. BUILDING, QUEENS ROAD,|BANGALORE — 560 OO1— 2.THR DEKEPUTLY COMMISSIONER OF INCOME TOFFICER, CIRCLE 11(9)BANGALORE_ APPBRLLANTS) (BY SRI. E I SANMATHI, ADV.) AND: M/S. KODIAK NETWORKS INDIA PVT. LTD., NO.401, 4[‘T]FLOOR,PRESTIGE SIGMA NO.3VITTAL MALLYA ROAD,BANGALORE -560 OO]PAN: AACCK 0978 J_. RESPONDENT (BY SRI.S.SHARATH, ADV. FOR SRI. CHYTHANYA K K, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:095/006/2015 PASSED IN ITA NO.1940/BANG/2012, FOTHE ASSESSMENT YEAR 2008-09 ANNEXURE —- A. PRAYING TO: Date of Judgment 2-8-2018, ITA No.82/2016 Pr. Commissioner of Income Tax & another Vs. M/s.Kodiak Networks (India)Pvt. Ltd. 2/9 1. DECIDE THE FOREGOING QUESTION OF LAW AND / OR.SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATEDBY THERE HON'BLBE COURT AS DBBMEBD FIT & SHIT ASIDEAPPELLATE ORDER DATED:05/06/2015 PASSED BY THE ITAT,'"B'BENCH,BENGALURU,AS|SOUGHTFOR,IN|THERESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN-ITA NO.1540/BANG/2012 FOR A.Y.2008-09 ANNE XURE — A. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S.SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. E.I. Sanmathi,Adv. for Appellants — Revenue. ©Mr. S. Sharath,Adv. forMr. Chythanya K.K.,Adv., forRespondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, “‘B’ Bench,Bangalore|1nIT|TPIANo.1540/ Bang/201dated05.06.2015, relating to the Assessment Year2008-09. 2.This Appeal is filed to consider the followingsubstantialquestionsoT lawaS|raised1nthe.memorandum of appeal. “71|Whether,Orthe factsand|circumstances of the case, the Tribunal ts right in| 3/9 law in holding that the following comparableshave to be excluded from the list of comparablesas they are functionally different forum than thatof the assessee, (i) Accel Cimcon TechnologiesLtd., (tt) Celestial Biolabs (ut) Infosys Technologies|Ltd (Turnover) (iv) e-zest Solutions Ltd (v)Quintegra Solutions Ltd., (vi) Kals Informationsyems Ltd (seg) (vit) Persistent System Ltd (vit)Tata Elxsit (seg) (ix) Thirdware Solutions Ltd(Turnover) (x) Wipro Ltd (xi) Lucid Software Ltd(xi) Softsol India Ltd (RPT Filter), when all thecompaniesSatisfiesthe testsrequiredfordetermining qualitatwe and quantitative filtersand when selection of comparables in a casedepends on FAR analysis?| 2. Whether, on the facts and circumstancesof the case, the Tribunal is right in law in fixingthe RPT filters at 15% of total revenue anddeleting Softsol India Ltd., as comparable withoutgoing into the specific facts in the case of the taxpayer and without adducing the basis for arriving|at 15% cut off for RPT filter, in the case of taxpayerr 3.|Whether,Onlthe.factsandcircumstances of the case the Tribunal is right in|law in holding that size, turnover, brand value. Date of Judgment 2-8-2018, ITA No.82/2016 Pr. Commissioner of Income Tax & another Vs. M/s.Kodiak Networks (India)Pvt. Ltd. 4/9 and research and development activity of thecompany are deciding factors for treating acompany as a comparable and consequently|erred in excluding the Infosys Technologies Ltdand Thirdware Solutions as comparables in thecase of tax payer?| 4. Whether, on the facts and circumstances|of the case the Tribunal is right in law in notappreciating that this adjustments cannot bemade without making assumptions which are notpermissible in transfer pricing and the riskadjustment cannot be accurately measured?”| 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: Date of Judgment 2-8-2018, ITA No.82/2016 Pr. Commissioner of Income Tax & another Vs. M/s.Kodiak Networks (India)Pvt. Ltd. 4/9 and research and development activity of thecompany are deciding factors for treating acompany as a comparable and consequently|erred in excluding the Infosys Technologies Ltdand Thirdware Solutions as comparables in thecase of tax payer?| 4. Whether, on the facts and circumstances|of the case the Tribunal is right in law in notappreciating that this adjustments cannot bemade without making assumptions which are notpermissible in transfer pricing and the riskadjustment cannot be accurately measured?”| 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: Regarding Substantial Question Nos.1, 3 and 4: O11.We|haveconsideredtherivalSubmissions and relevant material aquailable onrecord. As we have narrated the facts in theforegoing paras that the TPO has determined theALP by taking into consideration the set of 20comparables. The assessee has raised objectionregarding 13 comparables out of 20 selected by 5/9 the TPO. The companies against which theassessee raised objections are as under: NXXXXKXXKXX 22. We note that the comparability of these|13 companies have been examined by thisTriubnal in series of decision as referred by theld. AR. In the case of M/s SDPLM Softwaresolutions Ltd (supra), the co-ordinate Bench ofthis Tribunal has considered the comparability ofthese companies in paras 7 to 19.3 of the orderwhich have been reproduced below: XXXXXXXXXXXNXX 23. Thus, it ts clearfrom the findings of theCo-ordinate Bench of the Tribunal in the case ofM/s 3DPLM Software Solutions Ltd (supra) thatexcept Bodhtree Ltd all other 12 companies werefound to be not good comparables of the softwaredevelopment services as provided by assessee.” Regarding Substantial Question No.2: 25. Thus, out of 20 comparables 12 companiesare required to be excluded from the list ofcomparablesfordeterminingthe.ALP. 6/9 Accordingly, we direct the TPO/AO to exclude thefollowing companies from the set of comparablesand recomputed the ALP after considering theclaim of risk adjustment as well as workingcapital adjustment: SLName of the CompanyINNqTAvanti Cimcon Technologies LtdD2Celestial Biolabs Ltd3)B-Zest Solutions Ltd4Infosys Technologies Ltd.5)KALS Information Systems Ltd (Seg.)6Lucid Software Ltd7Persistent Systems LtdomQuintegra Solutions Ltd9gsoftsole India Ltd10Tata Elxsi Ltd (Seg.)I]Thirdware Solutions Ltd (Seg)12Wipro Ltd (Seg.) 4The controversy involved herein is no moreres integrain view of the decision of this Court in|L.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018 Date of Judgment 2-8-2018, ITA No.82/2016 Pr. Commissioner of Income Tax & another Vs. M/s.Kodiak Networks (India)Pvt. Ltd. 7/9 [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, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: <Conclusion: 55. A substantial quantum of international tradeand transactions depends upon the fair and quick|judicial dispensation in such cases. Had it beena case of substantial question of interpretation ofprovisions of Double Taxation Avoidance Treaties(DTAA), interpretation of provisions of the IncomeTax Act or Overriding Effect of the Treaties overthe Domestic Legislations or the questions likeTreaty Shopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), tf 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 tenor 55. A substantial quantum of international tradeand transactions depends upon the fair and quick|judicial dispensation in such cases. Had it beena case of substantial question of interpretation ofprovisions of Double Taxation Avoidance Treaties(DTAA), interpretation of provisions of the IncomeTax Act or Overriding Effect of the Treaties overthe Domestic Legislations or the questions likeTreaty Shopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), tf 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 tenor Date of Judgment 2-8-2018, ITA No.82/2016 Pr. Commissioner of Income Tax & another Vs. M/s.Kodiak Networks (India)Pvt. Ltd. 8/9 as to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist 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 consideredopinion 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-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit 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 theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findingshas found certain comparables to be goodcomparables to arrive at an‘Arm’s LengthPrice“ in the case of the assessees with whichthe assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findingsoffacts arrived at by the learned Tribunal is not 9/9 at all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are)therefore dismissed with no order as to costs.” 5.In the circumstances, having heard the learned Counsel appearing for both the parties, We are of the considered opinion that no substantial questionof law arises for consideration in the present case. 6.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. accordingly.| All the pending applications stand disposed of AN /- Sd/-.JUDGE| Sd/-.JUDGE|