Date Of Judgment 20-07-2018, Ita v. M/S. Sonus Networks India Private Limited

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 20 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.682/2015 BETWEEN : 1.Pr. COMMISSIONER ©OF INCOME TAX-VI |CHRNTRAL REVENUB BUILDINGSQUEENS ROADBANGALORE —- 560001. «|THE ASSISTANT COMMISSIONEROF INCOME TAX.CIRCLE 12(3),BANGALORE.». APPELLANTS| (BY SRI E.L.SANMATHI, ADV.) AND : M/s. SONUS NETWORKS INDIAPRIVATE LIMITED,CRESCENT-IV, 12[‘T]FLOOR,PRESTIGE SHANTINIKETANBUSINESS PRECINCT,WHITEFIELD ROAD,BANGALORBE-560 048PAN:AALCS5706P. _. RESPONDENT. (BY SRI ANKUR PAI, ADV. FOR SRI K.R.VASUDEVAN, ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER| Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 2/9 DATED 14/05/2015, PASSED IN IT(TP)A No.1967/BANG/2012,.KOR.THEASSESSMENTYEAR2008-2009,ANNEXURE--A,PRAYING TO: |a). DECIDE THE FOREGOING QUESTION OF LAW,AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.FORMULATED BY THE HON'BLE COURT AS DEEMED FIT: (b).SET ASIDE THE APPELLATE ORDERS DATED: 14/09/2015 THE.ITAT, 'B' BENCH, BENGALURU IN IT(TP)JA No.1967/BANG/2012FOR ASSESSMENT YEAR 2008-09, ANNEXURE-A AND TO.GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THEINTKBREST OF JUSTICE. 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. Ankur Pai,Adv. for Mr.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 ‘B’, Bangalore, inIT[TP|A No.1567/Bang/2012dated|14.05.2015, relating to the Assessment Year2008-09. a2Theappealhas|beenadmitted|OTLO1.04.2016TO consider.thefollowingsubstantialquestions of law: Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 3/9 (1) “In the facts and circumstances ofthe case, the Tribunal has erred in holding|that few companies are functionally different|from the assessee company when it satisfies|all the qualitative and quantitative filters|applied by the TPO. The Tribunal has used a|narrower functionality filter than the TPO, but|has not tested other comparables against the|narrower functionality filter applied by it and|ought to remanded the matter to the TPO for a|fresh TP study after taking a new view on.functional matrix which is narrower than the.functionality matrix originally used by the.TPO?” (2) “Whether on the facts and in thecircumstances of the case, the Tribunal has|erred in directing the exclusion of comparable|companies having RPI transactions more|than 15% without asking the TPO to make a|fresh TP study, since a quantitative filter,namely, the RPT filter, has been changed. |Changing filter criteria changes the search|process altogether, and mandates a fresh TP.study using updated filtersP” Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 4/9 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: (2) “Whether on the facts and in thecircumstances of the case, the Tribunal has|erred in directing the exclusion of comparable|companies having RPI transactions more|than 15% without asking the TPO to make a|fresh TP study, since a quantitative filter,namely, the RPT filter, has been changed. |Changing filter criteria changes the search|process altogether, and mandates a fresh TP.study using updated filtersP” Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 4/9 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: “10.4 We have heard both parties and|perused and carefully considered the material onrecord. We find from the record that the TPO hasdrawn conclusions as to the comparability of thiscompany to the assessee based on informationobtained u/s.133(6) of the Act. This informationwhich was not in the public domain ought not tohave been used by the TPO, more so when thesame is contrary to the Annual Report of theCOTILDQTIas|pointedOUTbythe learnedAuthorised Representative. We also find that thecoordinate benches of this Tribunal in theassessee's own case for Assessment Year 2007-OS (supra) and in the case of Trilogy E-Businesssoftware India Put. Ltd. (supra) have held thatthis company was developing software productsand was not purely or mainly a software serviceprovider. Apart from relying of the above citeddecisions of coordinate benches of the Tribunal Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 5/9 (supra), the assessee has also brought on recordevidence from various portions of the company’sAnnual Report to establish that this company isfunctionally dis-similar and different form theassessee and that since the findings rendered inthe decisions of the coordinate benches of theTribunal for Assessment Year 2007-08 (citedsupra)areapplicableforthisYear1.e. Assessment Year 2008-09 also, this companyought to be excluded from the list of comparables.In this view of the matter, we hold that thiscompany t.e. KALS Information Systems Ltd., is tobe omitted form the list of comparable companies.It is ordered accordingly.” Regarding Substantial Question of Law No.2: “19.3 We have heard both parties and|perused and carefully considered the material onrecord. We find that the coordinate bench of thisTribunalinthe|assessee'sOUWTCASEforAssessmentYearYOO 7-O8inITANo.845/ Bang/ 2011 has excluded this companfrom the set of comparables for the reason thatRPT is in excess of 15% following the decision ofanother bench of this Tribunal in the case of 24/7Customer.Com.Put.Ltd.in|ITANo.227/Bang/2011. As the facts for this year are Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 6/9 Similar and material on record also indicates thatRPT is 18.3%, following the afore cited decisionsof the co-ordinate benches (supra), we hold thatthis company is to be omitted from the lst ofcomparables to the assessee in the case onhand.” 4The 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, isnot maintainable. The relevant portion of the Judgmentis 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| 4The 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, isnot maintainable. The relevant portion of the Judgmentis 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| Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 7/9 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, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. 56. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested| Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 8/9 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 cleqr that the sameyardsticks 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|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.” Date of Judgment 20-07-2018, ITA No.682/2015 Pr. Commissioner of Income Tax-VI & Another Vs. M/s. Sonus Networks India Private Limited. 5. 9/9 In the circumstances, having heard the learned Counsel appearing for both the sides, we are ofthe considered opinion that no substantial question of 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. No costs. NC. Sd/-.JU DGE Sd/-.JUDGE.