Date Of Judgment 20-08-2018, Ita v. M/S. Abb Global Services Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 20 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.989/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-ITAX ![‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BENGALURU-560095.. «|THERE DEPUTLY COMMISSION OF INCOME-TAX, CIRCLE-11]1] PRESENT ADDRESS ACIT, C-1]1]/1] ~ FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BBENGALURU-560095._ APPBLLANTS| (BY SRI ARAVIND.K.V., ADV.) AND ; M/s. ABB GLOBAL SERVICES PVT. LTD.,~ FLOOR, EAST WING, KHANIJA BHAVAN49, RACE COURSE ROAD.BENGALURU-560001PAN: AADCA 3217B.._. RESPONDENT. THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 05.05.2017 PASSED IN IT/TPJA No.97/BANG/2014, FOR:THE ASSESSMENT YEAR 2009-10, VIDE ANNEXURE-E, PRAYINGTO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW| Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., STATEKED ABOVE. 2. ALLOW THR APPEAL AND SET ASIDE THORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,BENGALURU IN IT{TP|A No.97/BANG/2014 DATED 095.05.2017VIDE:ANNEXURE-HECONFIRMINGTHEORDEROF.THEAPPBERELLATK COMMISSIONBR AND CONFIRM THR ORDPASSED BY THE ASST. COMMISSIONER OF INCOME TAX,|CIRCLE-1]{1}/1], BENGALURU. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. 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.97/Bang/2014 dated05.05.2017, relating to the Assessment Year 2009-10. 2.The substantial question of law framed by the Revenue in the Memorandum of Appeal is as under: aWhether,Onlthe.factsandcircumstances of the case, the Tribunal has erredindirectingthe exclusion.ofcomparable|companies having RPI transactions more than)15% ignoring the TPO’s observation that the basis Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., for determining the threshold limit for eliminatingcompanies having RPI transactions more than25% was through the determination of Indian|companies with foreign shareholding greater than26% and, therefore, had its basis in_ theprovisionsofthe ActandtheaccountingStandards AS-18? aWhether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in excluding certain comparables on the basisoffunctional dissimilarity by following its earlierjudgment which has not reached finality andeven when the Transfer Pricing Officer hasconsidered the comparables on the basis ofqualitative and quantitative filters?” 3.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 Nos.1 & 2: “13. Wehave.consideredtherivalsubmissions. First we examine the profile of theassessee and the assessee in these two cited Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., 4/10 3.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 Nos.1 & 2: “13. Wehave.consideredtherivalsubmissions. First we examine the profile of theassessee and the assessee in these two cited Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., 4/10 cases. As per page 2 of the order of the TPO, thepresentaASSCSSCE1Sengagedinrenderingsoftware development services to AE engaged inProduct Development and integration also inadditionTO threeother|activities.In|OUTconsideredopinion,SInce|theasSSCSSCC1Srendering only software development services toits AE, who may be doing Product Development, ithas to be accepted that the assessee is engagedin rendering software development services to AEand Product Development by AE is of norelevance because the assessee is not the ownerof those products. In Para 13 of the Tribunal orderrendered in the case of Infinera India Put. Ltd.,vs. ITO [supraj, it is noted by the Tribunal that theassessee iS engaged in rendering softwaredevelopment services to AE and hence, thefunctional profile of the present assessee and thatassessee iS same. Similarly, in the case ofVMware Software India Put. Ltd., vs. DCIT [Supra/also it is noted by the Tribunal in Para 7 that theassessee is engaged in providing softwaredevelopment services in addition to ITES andmarket support services but the dispute in thatcase was only about providing of softwaredevelopment services and there was no disputeabout ITES and market support services. Hence, Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., 5/10 the functional profile of the present assessee andthat assessee 1s also same. In the case ofInfineraIndia Put. Ltd., vs. ITO [supra], it ts held by the)Tribunal that in addition to Infosys TechnologiesLtd., already excluded by CIT /A/ in the presentcase, four companies te., 1/ KALS Informationsystems Ltd., 2/ Bodhtree Consulting Ltd., 3/ TataElxsi Ltd., and 4} Persistent Systems Ltd., are notgoodcomparableOTLaccountOf|functionaldissimilarity. Respectfully following this Tribunalorder, we direct the AO/TPO to exclude these 4companies from the list of comparables in thepresent case also. We also direct AO/TPO toexclude one company te., Akshay SoftwareTechnologies Limited because it is hit by LowerTurnover filter. In addition to this, we also directAO/TPO to exclude one more company Le.,sasken Communication Tech Ltd., by Respectfullyfollowing this Tribunal order rendered in the caseof VMware Software India Put. Ltd., vs. DCIT[Supral because it was held by the Tribunal inthis case in Para 17 that this company is notagood comparable by following another Tribunalorder rendered in the case of Novell SoftwareDevelopment India Put. Ltd., vs. DCIT vide orderdated31.08.2015)inIT/TPIANo.1287/Bang/2011 and this finding is given in| Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., 6/10 that order dated 31.08.2015 that this companyowns IPR and has branded products also.Regarding L & Tribunal Infotech Limited, werestore the matter back to AO/TPO for a freshdecision with the direction that he should verifythe correct RPT % of this company and to excludeit uf the same is more than 15%. In respect ofWorking Capital Adjustment claim also, werestore the matter to AO/TPO for a fresh decisionby following the Tribunal order rendered in thecase of VMware Software India Put. Ltd., vs. DCIT/Supraj because it was held by the Tribunal inthis case in paras 34 and 35 that AO/TPO shouldrecomputed the working capital adjustment bytaking the actual data without putting any upperlimit. In the present case also, the AO/ TPO shouldrecomputed the working capital adjustment bytaking the actual data without putting any upperlimit. ” 4However, this Court in a recent judgment inI.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-facie perversity in the Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., 7/10 findings of the learned Income Tax Appellate Tribunal isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A ofthe Act is not maintainable. The relevant portion of the said judgment isquoted 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 underSection Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., 8/10 260-4of 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 arysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|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. Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., where the Tribunal giving its own reasons|and findings has found certain comparables|to be good comparables to arrive at an|7S. “ArLength 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.” 5.Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no substantial question of law arises in thepresent case also. The Appeal filed by the Appellants-|Revenue is liable to be dismissed and it is dismissed|accordingly. No costs. Date of Judgment 20-08-2018, ITA No.989/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. ABB Global Services Pvt. Ltd., 10/10 Copy of this Order be sent to the Respondent- Assessee forthwith. NGC. Sd/-.JU DGE Sd/-.JU DGE